8 secrets of creating and building great enterprise

Gary Hoover began his entrepreneurial journey at an early age. He grew up in Anderson, Indiana, a General Motors factory town, and began asking questions about business at an early age. Convinced that the best way to change the world (for the better) was to lead or create enterprises, he started subscribing to Fortune Magazine when he was 12. While other kids were playing baseball, he was memorizing the Fortune 500. He visited hundreds of corporate headquarters and offices before he was 18, and studied the stock market in depth. His question was the same, “What separates the losers from the winners?”
In this quest, Gary’s research was not limited to for-profit enterprises, but included the study of all types of enterprise from empires to unions, from General Motors to the United States of America. As part of his education, he studied economics at the University of Chicago under Milton Friedman and two other Nobel Prize winners, served as a securities analyst for CitiBank on Wall Street, worked as a buyer for Federated Department Stores, and headed up acquisitions and strategic planning for the May Department Stores Company.
At the age of 30, he finally took the plunge and created pioneering book superstore BOOKSTOP, which helped change the nature of book shopping in America. BOOKSTOP also won kudos for its preservation and restoration of historic buildings such as old movie theatres. This company was sold to Barnes & Noble for $41.5 million cash when it was 7 years old, and became a cornerstone for their industry-dominating superstore chain, which in 2007 did over $4.5 billion in sales out of 700-plus stores.
After he and his partners sold BOOKSTOP, Gary returned to his first love of understanding businesses, and (in 1990) began a small business information publisher, the Reference Press. This company evolved into Hoover’s, Inc., the world’s largest Internet-based provider of information about enterprises. Hoover’s Online, at www.hoovers.com, covers thousands of companies around the world, and includes private, public, and non-profit enterprises. Millions of users from all countries access Hoover’s every day for the site’s easy-to-use and easy-to-read information on enterprises, generating hundreds of millions of page views a year. In July of 1999, Hoover’s went public and in March of 2003, the company was purchased by Dun & Bradstreet for $117 million. Like BOOKSTOP, Hoover’s has changed the way we do things and today employs over 600 people. This is what Gary Hoover started out to do as a teenager.
Hoover also knows failure, having started travel superstore TravelFest in 1993 – and closing it down in 1998-99 as airlines slashed commissions to travel agents.
From 2003 through 2008, Gary did an in-depth study of the museum industry and business opportunities, therein. He and his colleagues created a company, Story Stores, to build a chain of for-profit museums, starting with the concept RoadStoryUSA. The economic environment made it difficult to raise the required capital, and this project is on the back-burner for now.
Today, Gary Hoover travels the world speaking to Fortune 500 executives, trade associations, entrepreneurs, and college and high school students about how enterprises are built and how they stand the test of time. His speeches and workshops have ranged from the Hong Kong and Jakarta chapters of EO (Entrepreneurs Organization) to keynote at the National Association of Convenience Stores Convention and the Mid-Atlantic Venture Capital Conference, from Microsoft and Oracle client conferences to strategic planning meetings of major law firms.
From his own successes and failures, and from the lessons of the thousands of companies he has studied, he draws real-life examples of the things that really matter. He talks about the role of history, of geography, of demography, of curiosity, and the other key things that aren’t discussed every day in the newspaper – or the classroom. Gary speaks from long experience and long study about the big picture, about the critical components of the successful business mission. In an era of fads and fashions, Gary keeps his eye on the timeless fundamentals of success, but with new and surprising stories.
Gary has for 40+ years been watching demographic and other trends, today including the aging baby boom and its implications for “the experience economy.” As always, he is especially attuned to the customer and to retailing.
Gary lives in Austin, Texas, with his 50,000-book personal research library. In Austin, he has worked to develop entrepreneurial thinking among local young people, helping to create a group of students who meet monthly to learn the keys to entrepreneurial success.
Gary Hoover also maintains a list of new business ideas, containing over 100 concepts, as reported in Fortune Small Business Magazine and elsewhere.
In the spring of 2002, Gary’s alma mater the University of Chicago opened Hoover House dormitory, named in honor of Hoover for the gifts of stock in his companies made to the University over the last 20 years. He continues to be an active supporter of nonprofit entrepreneurship, particularly in education.

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It’s great to be here. I haven’t been in Deep Ellum in a couple of years. I actually moved to Dallas 40 years ago, this year, to become a buyer for a department store that was here, called Sanger Harris. How many of you have been around long enough to remember Sanger Harris?
That’s how the names die over time. We were the biggest department store in Dallas. Dominated the market. If you subscribed to the Dallas Morning News or the Dallas Times Herald, we would have been the back … Had a full page ad on the back of section A for about 50, 60 years. The Downtown store in Akron and Pacific, I believe, maybe city government took it over. Maybe the transportation authority or something.
Anyways, the company was part of the federated department stores. It was the number one store. Even though Neiman Marcus is better known globally, we were the biggest in Dallas. It all became renamed Foley’s and later renamed Macy’s. The company actually still continues on. I was just here two years, it was part of my graduate education of learning the retail business.
Yeah, sorry. I’m getting out of range.
Let me tell you a little bit about my background, to put this in context. Before I forget, my card, on the back of it, are my key points I’m going to talk about tonight and there are links to my new venture, to my website, to my video channel. Everything else I can think of. One of the things once I talk to a group, you get three lifetime 24/7 email support.
I’ve spoken in like 44 countries. I don’t know, 2000, 2500, times. I was in Grand Rapids, Michigan last week. I’ll be in Bogota, Columbia in two weeks on behalf of the University of Texas and the State Department, so I talk about these ideas all over the globe. Anybody need anything, further thoughts, just email me. I answer all my own emails and all that. I try to get to everybody.
My background, I grew up in a General Motors factory town, Anderson, Indiana. A town of 60,000 people. In the classroom, the teachers were talking about leadership, management, strategies. They were talking about kings and queens and presidents and generals and colonels and admirals in the civil war. They said this general did this strategy and that general did that strategy. Which one worked and which one didn’t work, all of that.
Also, leadership styles. What made people want to follow or not follow a president. I thought, this is all really interesting. What about General Motors? What can you tell me about them? A town of 60,000, 27,000 General Motors workers. Just enormous, 7 million square feet of factory buildings. The teacher said, “Oh, General Motors. They make Chevrolet, Pontiac, Buick, Oldsmobile, Cadillac, GMC truck.”
I know that. I said “Who started it? Why did they start? Who runs it today? Are they smart or are they stupid?” We may tend to assume that everybody runs a Fortune 500 company is smart. The guys that ran Enron, they never understood business. They got MBAs from Stanford and Harvard, the finest business schools on earth, but they clearly didn’t understand business. They thought they were smart and they thought they were doing the right things. They ended up suicides and in prison and stuff. It’s not exactly the way they thought, the way it would turn out. If you study Bank of America, Merrill Lynch, case after case of idiots running giant companies.
I wanted to know, General Motors, who started it? Why they started it? All this and teachers couldn’t answer me. It was driving me nuts. I was in a newsstand, with my big brother, was looking at the airplane and the car magazines and my big sister was looking at the horse and the dog magazines. I discovered Fortune Magazine.
Every late Spring, early Summer, they do the list of the 500 biggest US companies. The Fortune 500. That issues is on the newsstand and number one was General Motors. It was 50 percent bigger than any other company on earth and the most profitable company. Not only did that magazine talk about General Motors, their leaders, and how they thought, how they made decisions. It talked about 499 other companies. Most of which I haven’t heard of. I went running to my parents and I said, “Man, this is the coolest magazine I’ve ever seen. You’ve got to get me a subscription to this magazine.” They’re like, “Oh, you weird kid. Why don’t you go play basketball like a normal Indiana kid?”
Anyway, I got my subscription and two months later, I entered the 7th grade. I started subscribing to Fortune when I was 12. I now live in an 8500 square foot, one bedroom house with 56,000 books and among those books are almost every issue of Fortune back to it’s beginning in February of 1930.
When a new Fortune 500 came out several weeks ago it was a 52nd year in a row that I grabbed it out of the mailbox or off the newsstand and gone through all 500 companies to see how my buddies are doing, which ones have died and which ones have come back to life.
I became a business junkie at the age of 12. Then, my 8th grade term paper was the life story of Marshall Field, the great Chicago merchant. By the age of 13 or 14 I’d become a retail junkie and decided I wanted to spend my life in retailing. I thought it was a way you could have the most impact on the most people to make their lives better.
That has continued, I’m 64 now. I started a list of business ideas when I was 12. Now it has about 320 ideas. This is tablet number 246. I’ve just been doing system for 16 years. I’m a piker compared to Richard Branson. He has 3,000 tablets, all numbered and in order and apparently all full of ideas. I’ve only got about 320 ideas, so I’ll keep working on them. I became fascinated by business and retailing.
Also over the years, what I define it as is enterprise. When I say enterprise is anytime you have a group of people who have a shared vision or common goals. I actually believe… On my 9th startup, if you count the three in college. I worked with three Fortune 500 companies. Hoovers, who became hoovers.com, one of the companies I started… I saw it online the other day, now covers 18 million companies.
I studied a lot of industries and a lot of companies. The most successful corporation that I’ve ever been involved with, whether the giant ones or the little ones, some of them got big that I started, is the University of Chicago, where I was blessed to go to college.
That was created by a radical entrepreneur, a guy named William Rainey Harper, an education entrepreneur. He said, “I want to build a great university overnight.” Everybody thought he was nuts, the venture capitalist of the era I guess.
First of all, he wanted to do it in Chicago and everybody knew nobody was ever going to go to college way out west like that. It’s a swamp town, it’s bad news, a bunch of prostitutes, miners, and whatever. He convinced a fellow Midwesterner, a guy named John Rockefeller, who was from Cleveland, to put up the money.
In the 1890’s they created this university. Pretty much created a great one overnight. They raided other campuses for faculty. As of today the University of Chicago is one of the top two or three countries in the world… Universities in the world, in terms of how many Nobel Prize winners it’s had.
Depending by how you measure it, by some lists it’s first. Four of my teachers I had as an undergraduate, later won Nobel Prizes, Milton Freedman and three other economists. It’s a place that’s been true to it’s goals and visions, so it is a great corporation. Which is, legally, what a university is. 501c3 in it’s base.
My bottom line is… I know a lot of you are involved in your universities and churches and nonprofits, and we have the Deep Ellum Association office in here. It doesn’t matter to me whether it’s for profit or not for profit. I believe the same principles apply and the same ideas. What makes you great in any industry, any size company from tiny to giant, and for profit or non-profit, they’re the same things.
In large part of my life has been the pursuit of what are those things that make for a great long lasting company. I’ve come to the list of the eight things that are on the cards. I’m just going to blow through those as fast as I can. Then we can discuss it or Q & A, whatever works for you guys.
The first thing you see on the list is curiosity and that is the key, man. I believe that is the key to everything. Where I discovered this was … Well, I had fallen in love with retailing, I didn’t know what kind of store or chain of stores I wanted to start. As a startup entrepreneur, I have to be looking 15 to 20 years into the future, because to build anything, it is going to take 5 to 10 years to get it off the ground and really cooking.
Every once in a while you got an Instagram that was flipped in a year or whatever, but even if you study Google and Facebook and everything, they were 5, 6, 7 years old when they went through their IPO and you can’t build something and year 7 it is really cooking and in year 8 it goes broke. If you do that, it ain’t going to work out happy, it has got to have legs.
If you build it to year 7, then if you are ever going to sell it or take it public or keep it for the grandkids, or dividend to your investors, or all the different ways people can monetize, as people say these days, it has to have legs.
I got to look 15, 20 years out into the future and I am sitting there in the 1970s trying to foresee the 80s and the 90s. I know I want to start a retail chain, so the first thing I ask is “What is the latest technology in retailing?” When I say technology, I mean any better way of doing things.
Milton Freedman, in class, used to talk about maybe the most impressive technology of the late 20th century was the way that chickens were raised. I was on the Whole Foods Board of Directors for about five years, 4 and a half years, something, so I know that factory farming is kind of out now, but the reality is what Pilgrim’s Pride and Tyson’s and all those people did, dramatically lowered the cost of protein globally and increased the welfare of people around the globe.
Any better way of doing things is a technology. It is not just hardware and software. In retailing, the new technology, I am sitting there in the 1970s, was the superstore, sometimes called the Category Killer, invented by Charles Lazarus in Washington DC, with Toys ‘R Us, in the late 50s.
What Lazarus did is he said “I am not going to be a general merchandise store like Wal-Mart or Sears or Macy’s, I am going to be a specialty store.” He picked toys and games and wheeled goods and bicycles and toys “And in that category of goods I am going to carry a huge selection of goods and have low prices.”
Well, that … I have a superstore, the biggest superstore chain ever built is called Home Depot. Lowe’s and Best Buy are the new next two biggest, last I checked, and they are all around us. All these ideas always look great in retrospect, but they don’t on the front end.
One of the rules that I teach my students in a course of entrepreneurial thinking, is if everybody comes to you and says “That is the best idea I have ever heard of, I wish I thought of it”, you probably don’t have a good idea. 90%+ of all good ideas are laughed out of the room when they first come up. Why would you have laughed at Charles Lazarus back in the early 70s and when he first dreamed up the idea?
Well, the idea of a superstore, big selection and low prices in a single category of goods. Well, if you are going to huge selection of goods, and there was a bookstore in North Dallas called Taylor’s. It was one of the best biggest selection bookstores on Earth, actually. There was a sporting goods store on the north side of Chicago, Morrie Mages, huge selection of sporting goods, several floors.
There were art supply stores in Tokyo that are multi-level. Photos, cameras supply stores in Tokyo and New York. Back in those days if you carried a big selection, well two things. One, you had to finance the inventory and that takes more capital and you need for square footage, so higher end.
Those guys, to use the retail phase, didn’t give anything away. If you carried a huge selection of goods, you sold everything at list price, full price, as did Taylor’s up here in town. On the other hand, if you are going to discount, the key premise of discounting is you carry fewer items, you cherry-pick. You just carry the high velocity, high turnover items.
The example there … I’ll just use my little tablet here. It is like Best Buy carry 40 different laptops, Wal-Mart would carry 10 and Costco would carry 2, or whatever. If you are going to discount, you are going to carry fewer and they were the great if we take Costco and we compare it with Wal-Mart, 10% below WMT, I don’t know if everyone is going to be able to see it, but I will give you the numbers as I go.
The average Wal-Mart carries about 120,00 different items. They are called stock keeping units, SKUs, in retailing and consumer products industries. 120,00 items in a regular Wal-Mart Supercenter.
Costco, an average store carries 3500 different items and the average Wal-Mart store does $70 million a year in revenue. The average Costco store does around $130 million a year in revenue, it is the highest revenue per store retailer in America. What we have got is Costco doing twice the revenue with 1/40th as many items. 80 times the sales per item. It takes just as much paperwork to have another item in the system and the buys and everything else, so this is just a classic case of if you are going to discount, you carry very few items.
In fact, I could go off on a riff on why Wal-Mart fails with Sam’s on a relative basis because Sam’s does have the revenue per store of Costco. Sam’s is maybe on it’s 18th CEO, Costco just appointed their second one. Both of the … The first one and second one both started as baggers working. They are true retailers, just as Sam Walton was, but he copied this.
Wal-Mart has never really understood deep discount retailing because Costco goes out, they run a gross margin of 10% to 12%, whereas Wal-Mart is over there somewhere in the mid 20, so twice the gross margin, so much higher price. Wal-Mart is really more about convenience, although good everyday value, people trust it in any case.
The thing is, Toys ‘R Us won’t work, right? Because you can’t have a huge selection and low prices. But it did work. He was in major metropolitan areas like Chicago and LA and he was selling over half the toys in the market. For a retailer to get a 50%+ market share is to die for.
Even Wal-Mart would give their right arm to hit a 50 in a major metro in almost any category. They may hit it in selected categories like paper towels and things like that where Wal-Mart is really their strongest. No, to get 50 … To roll into LA take 50% of all the toy sales and so I saw that technology and thought “Wow, that is what I want to do. I want to bring the superstore to some category merchandise.”
The next question, “What category merchandise you go after?” All business economics goes back to … All business economics goes back to demographic. The great Peter Drucker, he harps on and on about demographics, as he should, he is gone now, but people still read all of his stuff, I try to read some everyday.
The thing is when you look at a cohort, a group of people, I looked at it and said “Demographics. The key is going to be the baby boomers. I am one of them, I should understand them. We were the biggest generation in history at that point. We are the best educated generation and it was real clear that we were … The baby boomers were going to drive consumer spending in the United States in the 80s and 90s, so if I wanted to do the right thing in the 80s and 90s, I needed to sell whatever the baby boomers were going to be buying. At least that was a very clear and dominant strategy. There are always niches on the sides and opportunities everywhere.
When you look at a cohort like that, the baby boomers, you got to figure out what is age related and what is generation related. An example, well, as story. I got to Wall Street in 1973, I will talk more about this later, but my first job out of college, picking stock. The common wisdom on Wall Street at that point was young people drink soft drinks and adults drink coffee.
The logic would have been sell your Coca-Cola stock and buy General Foods, that was the biggest coffee company with the Maxwell House brand. Well, that turned out to be wrong. The US coffee consumption crashed. It went from 75% of American people drank coffee to about 50%. It is a long, long term declined and what had happened was the Baby Boom didn’t switch. The Baby Boomers kept drinking soft drinks.
So you wanted Coca-Cola stock. General Foods disappeared, Maxwell House is still out there selling, but it disappeared into the morass that Atria and Phillip Morris and Mondelez and all that mess that they made of things there. Some of them are still pretty good companies and Warren Buffet just picked up … the Brazilians just picked off the Kraft Foods USA. He picks all the boring parts because he knows it will outlast some of the shiny stuff.
The thing is Wall Street was wrong. Now coffee, I think, has turned up with Starbucks and all that, picked up off the bottom and soft drinks later ran into them and whoever though we would be paying as much per gallon for bottled water as we do for gasoline? So, the Coca-Cola world changed too.
The thing is, the parallel would be on age and generation would be the Video Game Generation. If that is age related, then when they are 60 years old they will have a closet full of video games they haven’t looked at in 40 years because it was something they did in their 20s, or whatever. If it is generation related, when they are 60 years old they will have $100,000 game room in their house.
What I am saying is that it is tricky. It is not easy to differentiate what is generation driven and what is age driven. There are things that happen at certain stages that are age and they are pretty stable over time and some of them are stable around the globe and by country.
Some people get married at certain ages, they get divorced at certain ages, they have children at certain ages, they commit crimes at certain ages, they do drugs at certain ages, they vote. The older you are, the more you vote. My mom died at 97 a few years ago, but I’m sure she will be voting straight ticket in 2016 because the older you are the more you vote. I think think it even matters if you are alive or not.
When I looked at the baby boom, the aging baby boom, what are they going to be buying in the next 20 years, I said they are going to be buying books. They are the best educated generation in history and lifelong learners I thought they would be. I thought actually we would be buying records, music. My parents generation, they had one or two LPs of Frank Sinatra lying around, or Jimmy Dorsey, but they weren’t in the records stores.
My generation was Woodstock, Led Zeppelin, The Beatles and all that, so I thought we would be into that. Just our aging, because we were then in our teens and 20s, then you are going to move to an important, then fall in love and get married and move to a house in the suburbs and have a yard.
Overall, aggregate of the US population, obviously there are other transit work at times. They have kids and dogs and station wagons later, minivans. My group of the kind of superstore I want to do is books, records, toys, sporting goods and home improvement. Those were the categories on my list and I want to bring a superstore.
Actually, toys, some people say “Well, we had the first mover advantage here, you wouldn’t want to do that.” No, I don’t believe in first mover advantage. The idea is to be best, not to be first.
Most great companies were not first. I was on a panel at a bookstore convention and it was about Amazon and it turns out that Amazon was the 30th company to sell books on line and these people, this panel, had a huge bias. There were 29 people beside me, they were the 29 people who started online book selling before Amazon. All of whom had missed the big opportunity or didn’t have Bassos’ vision. Most great companies aren’t first.
The one company that was first and best was Federal Express and I believe Fred Smith, that created that enterprise and leads it as the greatest living active American entrepreneur. He doesn’t get nearly the visibility of Jobs and Gates, but Jobs and Gates are not longer active as entrepreneurs in the full sense. Fred Smith is 67 years old, they do over $35 billion a year in sales and you can read the whole story about how he couldn’t cover payroll so he went to Vegas and gambled it.
How his brother and sister sued him for investing their inheritance from their father in this crazy idea of his. How he lost all the investors money in the first couple of years, but he persevered and with his crazy idea that got a bad grade in his class at Yale and he is still persevering and I think this is the second biggest transportation company on Earth. It probably is. UPS is the biggest and most valuable transportation company on Earth and another great one.
That is the thing, I wouldn’t have not done toys just because someone else was doing it, but he was doing a good job and he loved the business and his people. As I later saw, they had like 12 clones and they all went broke, they all failed and a couple of them got bought out by Toys ‘R Us, but none of them were really successful and when you looked at it the people that did the clones, there were a bunch of them here in Dallas.
They had two goals in life. Copy Toys ‘R Us and get rich. Toys ‘R Us only had two goals is without toys and without customers and that is how you build up a really great success story. Hopefully, not the other way. The other guys missed it.
Anything, my thing was that I didn’t know how to build a house or fix a car and everything. I knew how to read books and hangout in bookstores and I have been doing it since I was a little kid, so I came up with the idea of a book superstore and I spent … I dreamed it up here at Dallas.
I was a book buyer at Sangers and this great independent store called Taylor’s and I met the founders of Half-Price Books, the parents. I know the woman that runs it today, $200 million plus company, wonderful company. I came up with the idea, but I spent 7 years researching the idea. I always believe in trying to become the best expert I can in the industry I am going into.
I never do, there are always experts everywhere. There are always going to be people know more than you do or be smarter than you are. I worked at it, I tried and I spent 7 years on it from the time I decided, I had already spent 7 or 8 years staying in retailing or more and 7 years saying “I want to do the bookstore thing.”
Six years into that seven year process I went to the booksellers convention and now I teach a course “How To Become an Expert in Any Company or Industry”, and I now preach “You need to go to the industry convention really early on your research on whatever industry you want to be in, but I hadn’t figured that out yet.
I was already new. If I started this book superstore chain and failed it would be because I screwed it up. The idea was going to happen. You could just read the World Almanac, the statistical abstract, it was in the cards.
You study the baby boom, you study how much people spend on books as they aged, you study how much they spend as their incomes go up, you look at people and incomes peak in their 50s and it was just in the cards. It was going to happen, there were going to be giant bookstores everywhere whether I did it or somebody else did it.
For me, then, it was as fact and I was obviously self-confidence, or it is better called self-efficacy if you study psychology, is critical to entrepreneurial success and I believe in, certainly in my case, is research.
My mom said “You are going to quit your job as one of the youngest Vice Presidents of major department stores coming in. Just got a raise and everything else and quit your job and move to Texas and start this silly thing.” I knew that the department store industry had peaked and was going to go downhill form there. Lose some market share and everything because I had become an expert on that and worked in it for many years and also knew that this thing was going to happen for sure whether I did it or not, so it was my internal confidence came from all of this research.
Really, six years into seven years of the research, as far as I am concerned it is a done deal, the train has already left the station. I go to the bookstore convention, they are going to have a workshop on the bookstore … The future of the bookstore in America. “Oh that is where they are going to be talking about book superstores, because it is so obvious!”
I go in, I sit in the back, and they are like “Oh, well we got to worry about Book of the Month Club.” That was in the 1930s I did, it was already post peak on the cycle of things, already over the hump and then they are worried about Costco and Price Club was the original organization, Sam and Costco and they were the original clones of that industry too. I’m like “No, that is the opposite of a superstore. That is the least of your worries, that is the totally opposite strategy from a book superstore.”
It is just like an hour into … Fifty-five minutes into a one hour session and no mention of the coming of the book superstore and I am sitting here thinking “Are these people idiots?” No, they weren’t idiots. I still love hanging out with booksellers. They are really smart, they read a lot, they have high IQs. I figured “Oh, well. They are just kind of parochial. They are just caught up in their own little world of bookstores. They have never been to hardware store convention. They have never read a Toys ‘R Us annual report.”
At that time Toys ‘R Us was a hot younger company, it was booming and it was a public company, so you could deconstruct, as the academics say, their PML. I found my notes the other day where I completely pulled it apart and I am like “What is going on here? Why does nobody see this.” All I figured is I was blessed to have picked an industry to revolutionary where everybody was fast asleep.
Well, now 300 business ideas later and several business startups, some worked, some didn’t. Every industry there are so called leaders that have their head in the sand. They are so caught up in their internal politics and their internal organization and their own jargon and language that just clutters thinking that they just aren’t looking around.
People walk through life with their eyes and their ears closed. I remember flying home from somewhere and on the plane next to the senior partner was the founder, wonderful person, of Austin Ventures, which, historically, was the number one funding source for a lot of Austin startups.
I am in and the partners are going off and doing new things, so they are kind of cranking it down, but I sat next to him and I start saying “Wow, that company is amazing, they made $11 billion last year.” He had never of them. I got to the next company and he had never heard of them. He was just so narrow and one of the things I say is I am amazed about how little business people know about business. That is why I started the company that became Hoovers.
Also, while I am saying that, we were talking about economics earlier. I am amazed about how little economists understand business and how little business people understand economics. That is why Drucker stands apart because he understood sociology, understood society, he understood economics, he understood business, he even understood politics. It is very rare to find people that aren’t locked into a silo.
Anyway, the bottom line of all this is I was curious and nobody else was. I march through life now and I find people … My 300 and some business ideas, half of them wouldn’t have been on there if I had not overheard conversations in restaurants because what I am perpetually trolling for is people saying “Why don’t they do this? Why don’t they make it like that?”, and “How can you do things better? Where can I find an opportunity, a real human need?”
Curiosity, in some sense, it has got to be relaxed. It kind of has to come to you. To be great at it, you have to love learning for learning’s sake. You go through life looking for answers where you expect to find them you are never going to find answer that is new. Are you with me?
Like all the other guys, colleges all over the world, Austin University of Texas, I was the entrepreneur in residence there going to business school and all of these really bright young people are knowing all this social media and online stuff and everything. Well, that means all of these people are doing and your odds of success are that much less. I’m saying “Don’t [inaudible 00:26:38] there. Hey, that could be the next Google in this room or the next Facebook.” There is opportunity everywhere, but the way I get the young people to wake up sometimes is saying “Look aging baby boom: enormous opportunities. Most of them are unmet and if you really want to get in on where the action is, start a crematorium because that is where the action is going to be. Wake up.” Curiosity gets extra time because it is so critical.
Second thing on my list, sense of history. There is really two sides to that. One is understanding trends and one is learning from the past. Trends, you can’t know where you are going if you don’t know where you are coming from. If you go back to like 1999, give or take, say when Amazon went public … and this guys is sticking together so I am going to do it with my hands, so it will be in mid-air for just a second here. Alright, there we go.
You got an analyst’s report on Amazon, which at that time was really a book company, book retailer. Mail order book retailing, what they were to an economist, not much broader. Wall Street did a report on Amazon and said “Okay, here is our projection of book sales in the United States and here is our data for this year ’99, and here is our history ’98, ’97. Do a chart, and here is our projection, 2010, 2020 and 2030.”
Well, there is no way you can look out to 2030 if you aren’t also looking back to 1990, 1980 and 1970. “You can only look as far forward as you look backwards.” That is a quote from Winston Churchill, but you also find it in one of Steve Job’s famous speeches at, I think Stamford campus maybe, that is online that he talks about the only way to see the future is by looking into the past and connecting those dots.
The first thing is to look at those trends. The most important thing to happen to us retailers, since the 20th century, was women entering the workforce. We went from 20% of American women had a day job back around World War One. We got it up to about 60%, it has backed off a little bit, the last time I looked it was 59% and change, but that means people no longer shop Monday through Friday 9 to 5.
They shop nights, they shop weekends, they shop lunch hour. Well, the travel agency industry is 62% women never noticed that women have gone to work, the banking industry has hired hundreds of thousands of women, never noticed that women have gone to work. Not everybody missed it. The supermarket chains and Wal-Mart and even Macy’s and stuff, stretched their hours. Museums, the industry I am going into now, they totally missed it. They think “Oh, stay open until 5”, and they are like living in 1946. Most of them, not all of them.
Looking at trends, how things change through time and I find on the internet, it is very hard to find data. It is like the whole world has started in 1995. When people think they are looking at trends and graphs, it is like 18 months or two years and you can’t tell jack shit from 18 months or 2 years in most things.
The other side of the history thing is learning the lessons of the past. I keep a list on my computer. It is 30 questions, like on lessons from Detroit. These are questions every tech leader asks himself. Software, hardware, all that. When we plan our future, do we listen to Wall Street and the analysts or do we listen to the engineers? Do we make one product and make a zillion of them or do we customize each order for each customer? Do we have a whole diverse product line, a big fat catalog of product or whatever.
Do we make something this ugly but does the job or do we care about how it looks? Does the outside matter? Well, all those questions with Jobs and Gates and all these people deal with, dealt with, Michael Dell. Every single one of those questions was asked between 1910 and 1930 by Walter P. Price on Henry Ford and Alfred P. Sloan, the greatest manager who ever lived in the man who built General Motors.
Bill Gates said “If they are only going to read one book about business read ‘My Years With General Motors'”, and I agree with that. I read it when I was 12, it is still in print and easy to find. It is the most important classic in the history of management.
All those questions were dealt with by those three guys way back then and I am not saying that the answers will always be the same, but often they are and there is always a great deal to be learned. Whatever industry you are in, whatever company you are working for, whatever company you are working with, because I know a lot of you sell B2B and deal with these giant companies. Who started it and why did they start it? Where did it go wrong, where did it go right?
AT&T Headquarters here, which is the new name for Southwestern Bell. Well, what is the history of Southwestern Bell and how did it come about? Legal breakup long time ago that created those baby Bells, made them independent companies, but really, the history of AT&T, which they later bought, and adopted the name. Theodore Vail is the man there that really created that great company.
Different trip, really heavily regulated industry. Or hey! Airlines, Herb Kelleher. His Dallas Enterprise Southwest. At McCombs, I was in the Herb Kelleher Center for Entrepreneurship, obviously one of the greats.
Study history, study the past, study those trends.
Third thing, geography. Knowing what is going on around us. People … Actually, I had a couple of cases … Let me see if I can think of them. Google Maps and MapQuest are really doing a lot of damage to our society. I love maps, I collect maps and I use Google Maps and stuff for certain applications, but what they do is eliminate our understanding of context, because I want to get from here to there and they tell me how to do it. They don’t tell me that I just went eight blocks from one museum that I had wanted to see all my life or I just missed a jazz concert that I would have loved to have been there.
They don’t let you know that all of these roads are blocked. “Well, here is the alternative.” I know they are working on that with traffic and everything, but understanding your context. It could be up in the 44 countries talking about this and everything and just traveling just to see them. I took the bus from Austin to Mexico City a couple of years ago. I was driving around in Monterrey last year, I have been to 17 of the 31 states in Mexico.
The average American knows nothing about Mexico. Doesn’t have a clue about how powerful that country is, how economically advantaged over the United States it will be over the next 40 to 50. Or even in our own country. They are census bureau projections, but they are pretty reasonable, if you study their methods.
They are certainly trying. I am just going to use their words so nobody get insulted. “We are going to add about 500,000 white people between 2010 and 2050 and we are going to have 70 million Hispanic people in this country, even with very low immigration rates.” This is going to become a Latin country. That train has left the station and business fortunes will be lost because they don’t understand that change and fortunes will be created and whole companies will collapse because they won’t understand the evolution of our society.
As Peter Drucker said. “The future that matters is the future that is already here”, which means that the indicator is already here, the start if already here and so understanding … You need to understand China and Malaysia and all these places all over the world, but a lot of it is understanding what is right under our nose.
In fact, as I drove up today, I made a note that on my way home that I am going to get off the highway in Temple and do a little investigation to better understand what is going on there, what the growth is, if there is any. My friends that come up here, UT Longhorns coming up to Texas OU game, everything. All of us have been coming and going to Dallas for ages, and yet nobody ever thinks about Waco. About “Why is it there? Why does anybody ever live there? Is it going to grow or shrink?”
It is finding those things that other people don’t know about is where the edge comes, where the opportunity comes. I make the case that to come up with breakthrough ideas that the entrepreneur’s key advantage is their understanding of where they are at in space and time.
I know that sounds like Star Wars or Star Trek, but some of sense what has gone before me and what is coming after me, time-wise, and what is going on around me? Getting out of the cocoon and getting … With college kids, they got their headphones on.
I love gadgets and I got a bunch of gadgets with me now, but they don’t hear or see anything. They are in a cocoon and they walk through life and they are not going to hear or see ideas or learn things through serendipity.
I mean, you think when I was talking about the MapQuest thing. Think about the way I learned the English language was with a big old fat dictionary and every time I went to look up a word, I would discover 20 other words that were next door to it, by serendipity. There were books that I didn’t think I needed to know what they meant. Maybe I didn’t until later. That is the thing, you can’t go looking for what you think you need to know.
You do that also, but all these accountants that just know accounting, they are not doing the world as much good as a real leader. Now, you just look up a word online dictionary and you lose out on that huge amount, so how do you build serendipity back into it?
If you can understand your context. If you are curious and curious about how things change through time and what is going on around you, I believe that is where breakthrough ideas come from. Having said that, I believe you have to have a vision or a mission, I use those words interchangeably, that has four attributes that is clear, consistent, serving and unique. That is four of my eight things.
Clarity of Vision. Kill the buzzwords, kill the acronyms. Big corporations, academia, consultants and the government are the worst at it, they are all trying to deaden our brains with all this stuff. Take your Power Point, if you use a Power Point or whatever, the pitch the deck letter and look through it for terms people don’t understand, or might not understand. Take your business idea to your grandmother. If you can’t explain it to her, don’t show it to a venture capitalist.
I have never seen a venture capitalist get pissed off they can understand what you are saying. Take it to any bright 6th grader. I was just on a museum tour, because of my project I have been to over 600 museums all over the world and I was reading their labels. It was an art museum on the wall and they were written by art critics and it is just this garbage language that nobody can understand and they are just writing for each other and I said “Look, I am going to go through, as I design my place, I am going to look at everything I see though the eyes of a reasonably intelligent 12 year old because that is my customer”, and that is who the customer is in the head of Steve Jobs or Bill Gates too. Are you with me? As far as all these garbage words an acronyms and everything, we all get caught up in it. Clarity.
Southwest Airlines, we fly one type of airplane, a Boeing 737, we land in a hurry, we take off in a hurry, we tell you a joke and throw peanuts at you. Hey, nobody could copy it. All the people that truly copied it failed. I remember American West and then there was that song that got made. “Oh, we are going to have four kinds of airplanes. Oh, we are going to have first class.” It was like then couldn’t even Xerox right because it can’t be that simple, but it is that simple and clear and consistent.
I remember somebody came to me, it was probably when I was building BookStop, and they were consultants. They wanted to teach us Kaizen, the Japanese concept of continuous improvement. I absolutely believe in continuous improvement, but these consultants were going to come in and teach our people a new language and the thing is, we were doubling every year in size, so on any give day half our people are new and so if we didn’t … I guess that was the idea, invite the consultants back in year after year and after year and after year because if you are walking down the hall and somebody calls you a Kaizen or a mucky muck or a KANBAN or whatever. You are going “Okay, do I slug them because they insulted me, do I say thank you because the complimented me, or, heaven forbid, do I ask them what it means because then I look stupid.”
You don’t want language that divides people, you want language that brings people together. The core skills of entrepreneur and leadership are the ability to speak and the ability to write. Psychology and sociology are far more important than accounting and marketing and all that. They all have their place and I actually enjoy almost all those things. Clarity, clear, crystal clear, language.
Language that says something. I got one book, it was like “100 Great Mission Statements Of Great Corporations.” 90ish percent of them weren’t wouldn’t be worth toilet paper. They are just nonsense and they don’t do anything to inspire or connect with anyone.
Clear, consistent. More enterprises have failed because they changed and because they didn’t change. I am talking about what your core values, your core comments, what you are great and I also say that in the early stages of a company it may take a little while to figure it out like Armstrong Cork Company, they make corks for wine bottles. Somebody must have stepped on them and said “You know what? This makes pretty good flooring too”, and then they became the world’s biggest maker of hard surface flooring. I don’t think they make corks for wine bottles at all. What is now called “The Pivot”, it has been around for centuries, so it may take you awhile to figure out what you are all about, what soul is. In fact, Whole Foods Market.
When I was on the board, man it was maybe a C+ retailer, a B-. A venture capitalist asked me, the Dallas Venture Capitalist of back BookStop said “Well, we looked at investing, but do you think either it is a fad or it is going to become big but the big guys are going to come in and squash them.” I said “Neither one, it is not a fad. Organic natural foods are going to grow and grow and the big guys are not going to understand what they are doing and they are not going to squash them.” I met some people, some rich people, in Austin that had never been in a Whole Foods store because they had been in back in the 70s and 80s when it started and it was dirty and a bunch of Hippies. They didn’t comb their hair and all this, but I knew that John Mackey and his group were learners and I knew that their heart was in it. John Mackey is a health food nut.
Still, when I go to dinner with him, he is unchanged. He did $10 million in revenue a year before I met him, last year they did $14 billion. He is unchanged. He is like “Gary, why don’t you stop drinking that Coca-Cola, those are empty calories. I want you to stop right now!” He’s a nut, but unchanged and true. They have morphed because they really became a gourmet food store and a natural and organic food store without violating their principles. Whole Foods today is a very different retail store for the customer than it was when I was on the board of directors.
I was on the board when they opened up here in Greenvile and also up on Coit Road, so I remember our entry into Dallas and BookStop, my company, are number two volume stores at Preston and Forrest and our number three volume store was on Mockingbird, across from the Dr. Pepper plant.
Consistency. Boeing, America’s great … The world’s greatest airliner maker, our biggest exporter. Then, well they didn’t run it for a while, they said “Oh, we are not a manufacturing company anymore, we are a services company.” I guess it sounded better to Wall Street. Then they said, I don’t know if they said it or not, but they have always been squeaky clean and high ethics and all of a sudden they are screwing up on some things and getting investigated by Congress. Then they said “Oh, we are not a Seattle company anymore where Bill Boeing put us, we are a Chicago company.” They got in a pissing contest over local taxes, moved to 200 or 300 people, the executives and their assistants to Chicago, left 50,000 workers in Seattle! No, no.
Their excuse that the time was “Oh, our customers are around the world, so we need to be in the center.” If you looked at their order books on the jets, all those customers were in Asia. If they wanted to be in the center, they would have gone to Hawaii, not Chicago. That company lost its way and became the second biggest airliner maker in the world after Airbus, a consortium of European social democrat countries.
If you had told me that Boeing would be passed up by Airbus, I would have told you you were smoking dope. Unbelievable. They finally got rid of that guy, took them years and now the new guys … I call them newbies, have been there ten years or something.
He wrote a book “You Can’t Order Change’ and it may actually be the next person after him, but it is still, in a sense, struggling. They are back to number one, but the Dreamliner didn’t come out on schedule, it had issues, if you followed it. I don’t think they ever completely digested when they bought one of their key rivals McDonald Douglas, they haven’t really digested that.
It is a great company, they wasted billions of dollars of shareholder and employees and everybody else, all the stakeholders, as they say nowadays, by forgetting where their bread was buttered, what mattered.
Contrasting case, Caterpillar. Every reason in the world to move to Chicago. Easier to recruit talent, easier to fly in and out of O’Hara. No, they are in Peoria, they make big yellow equipment. “If nobody wants that anymore, fine. Stick a fork in it, close it up, we are going to go home because that is what we do, that is what we love to do.” I am not saying that they rest on their laurels, because actually, years ago, their machines would email the factory and say “This part is about to break. I haven’t told my owner yet, but go ahead and Federal Express a part out because I am going to need it.”
No, this is not a stupid company. It is a heavily unionized United Auto Workers company. If you look, I’m guessing, over the last 30 years, probably 20, 25 of those years, Caterpillar has been among the best performing stocks on Dow Jones Average.
Coal industry has its ups and downs, but it is an amazing industry. I could have made the same story about John Deere. John Deere founded 1837, 178 years old, they are on their 9th CEO. 9th CEO. That is as many football coaches that the Longhorns had in two weeks. They are Baylor right? Baylor is going to hang in. And PCU.
The thing is What do you believe in and are you willing to stick to it through thick and thin? What are you good at? What is your enterprise all about? Once you do discover that, even if you have to pivot to get there … great companies.
Great companies tend to do one thing, or a very short list of things, incredibly well over and over and over again. You look at UPS. I can make the case they are the greatest American company today. I know they do all these logistics and consulting, but they essentially run brown trucks all over the world. They do it very cost efficiently for all of us, especially Amazon Prime members. Those drivers are making $90 grand a year and they have thousands and thousands of them and they have fully paid health benefits. One of my driver told me, the one with insurance, has got 13 kids. All those kids have full paid health insurance until they are 25. Those drivers don’t leave.
This guy said “I want to go start a business, let’s talk ideas.” Years, later is is still wearing those brown shorts driving that truck. Amazing company, what it achieves. Like I said, it is the biggest transportation company on earth and the most valuable one. Far more valuable than any railroad or airline.
Clear, consistent serving. “Okay, here is where the rubber meets the road.” I’ll just tell a story. I get out of college, I hadn’t figured out the bookstore thing yet. My best friend say, as an all night late night in the vending machine room at the University of Chicago Hospital. It was the only place to get a sandwich at 3am.
He says “Well.” I said “I’m tired of going to school, I don’t want to stick around and get a graduate degree like the profs wanted me to and I want to go into retailing, so I will go into Wall Street, become an analyst and pick retail stocks.” He said “You have been going to visit retail company presidents and store managers since you were 12. Anyway this way you will keep doing that and you get paid for it.” “Oh, cool.”
In Milton Freedman’s class they don’t teach you how to job interview, so I think I had 13 interviews and I had 1 offer, but it was a lucky one, it was with Citibank, which at that it was a great company. A man named Walter Wriston built one of the greatest financial institutions in history, which was then largely destroyed over the year by his, not his immediate successors, but down the pike. They are going to make it, I guess, that too big to fail crap and everything. It’s sad, but they were great when I was there.
Old Pete Wetzel, he was a veteran retailing analyst in the 1950s on Wall Street. He was called the Prophet, because of his accuracy in predicting stocks. He was this old, grizzled guy, gray-haired and he seemed ancient. I looked it up later, when I went to work for him he was 42 years old. He was actually … He was a curmudgeon, he had the Navy butch haircut, so he felt old. He felt older than 42, but that man knew retailing and I learned much about retailing from him as anybody else.
I was a young kid, I was one of only two people on the whole floor of all the investing management group, we were one of the biggest stockholders on Wall Street. Investment and money management, money management, union pension funds, university endowments and rich people’s money. I was one of only two people without and MBA on the whole floor, but he said “Come on in, you have been studying retailing, we will give you a chance.” I took the only business course I took in my life because they wanted me to to make sure I understood accounting, which I did from studying annual reports since I was 12.
Pete covered the big investments. Use the same sheet here. Sears, Penney and Kmart. Those were the three giant retailers of the day and that is where our big investments were. I covered the side bets, the smaller companies, so 7-eleven and Radio Shack from here in the DFW area and Bloomingdale’s and Safeway and Kroger and on and on and on. Anyway, Great Way, all the department stores, Foley’s and Neiman Marcus, and it was great and I was learning a huge amount and Pete was making great investments.
He came into my office one day and says “Gary, the bosses have give us a budget to hire a summer intern. This will be somebody between the two years of their MBA and they will come in and they will work for you Gary, so you will get some management experience and you don’t have to worry about the budgets, the bosses have allocated the money, so it will be a good experience for you to manage it.”
He says “Gary, do you think we should bring a summer intern and the industries they would look at would have to be so small and unimportant that not only is it not worth Pete’s time to study it, it is not even worth little old Gary, the new kid’s, time to look at it, but it might be some part of retailing where the companies in it might get big later and compete with Sears and Penney and Kmart, or one of the companies with stock in it or the companies get big enough that we can actually buy stock in them.” Because it is very big for a giant institution to buy into small capitalization, so called small cap stocks.
Anyway “Gary, do you think we should bring a summer intern in to look at these regional discount store chains?” There was Alco, Duckwall, Pamida Coon’s, Big Pay, More Value, Wal-Mart, BedMart, Haldor, 10 or 15 of these companies. The biggest of them wasn’t doing 100 million dollars a year which, even then, was small for a retailer. “Do you think we should have somebody look at these?” They said “Go home and think about it a couple days and let’s get back together.”
We did. The best and the brightest and cheery eyed loved retailing. I was driving in, and if it wouldn’t have made me a little late, I was dying to drop into Aldi’s store because Aldi is just rolling over England and they just entered Texas and they are making a lot of noise and I passed one down here off of Ledbetter and down in the southeast side of Dallas as I curled around the town coming in to try to see some neighborhoods I didn’t see before, or not in a long time.
I loved retailing, he loved retailing and we got together and said “No, it is not worth our time to even have a summer intern to look.” Come on, this Wal-Mart, whatever it is, Bentonville, Arkansas, if they ever go to a big city and try to compete with Kmart and Sears there will be blood all the wall, there will be unemployed Wal-Mart people, Kmart stock will be going through the roof, our bosses will say “You idiot! You bough that Wal stock, you are out of here!”
I don’t have to tell you we were wrong and I don’t have to tell you. Walter F. Loeb, our friend, the only guy who took the time to meet Sam Walton, left Morgan Stanley to start his own firm because he was the guy who discovered Wal-Mart. I like to think if we trained the intern right and they had gone to met Sam, they would have come back and said “You better come see this guy, he has got something special.”
Some of the others, actually, would have been some pretty good investments. At least for a 10 or 15 year arc. For what it is worth, I just looked it up the other day. If you put … And this is 1973, when I am telling this story. Wal-Mart had gone public in 1970. If you put $5000 in Wal-Mart stock at the IPO in 1970, how much do you think it would be worth today? Come on, some guesses.
$5 million, $10 million, 10x would be $50,000 dollars. Okay $5 million, $10 million. $85 million and if you waited ten years when they did a billion in revenue and put $5000 in, it would be worth $35 million today, if you waited ten years. As far as I could tell, I need to double check this, but I was going back through all of their annual reports. How much capital did they take in? Then when they went public, they raised $4.5 million of the initial IPO. How much capital did they raise to build the biggest company that does $450 billion in sales? $0. As far as I can tell, they didn’t put another penny of equity money into that company. Old school way, do it without a cash flow.
Landlords. That is the one thing on the museum thing. All these museums want to own their own buildings. No, I’m a retailer, I don’t want to own anything, but Sam Walton was happy to make all these people billionaires by leasing space from them. If you have a successful one, you want the ability to leave and build a bigger one. If you have a bad one, you want the ability to get out of it.
It is a different profession, real estate from retailing and it is better left to somebody else. Wal-Mart, they used other peoples money to build all those stores and once they proved the model worked, and that they could pay the rent.
Okay, 1973. We are ignoring Wal-Mart, we got all our money in Sears. What happened? Here is what happened mathematically. In 1973, Wal-Mart did 1/50th of the revenue of Kmart and 1/100th of the revenue of Sears. As you may know, the Sears and Kmart here today, they are run by the same company. They are run by this idiot who is destroying them both and running them into the ground. Eddie Lampert.
In 1973, Wal-Mart did 1/150th of the revenue of Sears and Kmart combined. You with me? Last year, Wal-Mart did over 13 times of the revenue of Sears and Kmart combined, so it is a roughly a 2000:1 flip in fortunes. Which, if you want to predict for next year, the Longhorns are playing Notre Dame again, means we will beat them 6000 to 3, I believe. Or 6000 to zero, your choice. No, this is a 2000:1 change of fortunes, admittedly over a period of years.
What happened? Go to any business book, any class, anything you can find, what makes a great company and then compare the … Let’s take Sears, which was the biggest, most powerful retailer in the world then and Wal-Mart today and which company had more experience executives? Sears. Which company paid their executives better? Sears. Which company had better information systems? Sears. Which company had better supply chain management? Sears. Which company had better real estate, key factor in retail success? Sears. Which company paid less for that real estate? Sears. Which company had better consultants? Sears. Which company had better lawyers? Sears. Which company knew more about where to put stores? Sears, because that is real estate. Which company paid less for stuff? I don’t see a …. Can I borrow your paper cup?
Imagine this is an iced tea glass, use your imagination. I have to do that, my dad was a glassware salesman. 1973, my dad’s company and their competitors, were selling boxcar loads of iced tea glasses, dishes, ashtrays, all that, to Sears and Kmart. Railroad boxcar loads, millions of dollars worth. Sam Walton was buying case lots, 144 at a time. 1973 there wasn’t as single thing in a Wal-Mart store where Wal-Mart paid less for it than what Sears and Kmart were buying for it.
Would have been impossible, they just weren’t buying the quantities. I’m talking about how Wal-Mart got to where it is today. We have a whole other conversation about the company today, I am still a fan, but it has obviously gone a long ways and it is much, much bigger than it was when Sam died.
The thing is, I can go on and on and on, I’m sure you believe I could. Not a single thing on a Wal-Mart side on the balance sheet. Nothing out of the textbooks about how could it be. What happened, what went wrong?
Thank you.
Sears took its eye off the customers. Sears bought Coldwell Bank and says “We are going to be a big player in real estate.” They bought Dean Witherspoon and said “We are going to be be on Wal-Street.” They created the Discover card. They had to been saying to themselves “We know how to run these retail stores with one hand tied behind our back. We can do this with our eyes closed. We are the greatest retail on Earth.”, which was true at the time “We are the most profitable retail on Earth. We are the highest return on investment on Earth.”
They had all the best, all the superlatives. They had all those lined up, but they stopped paying attention to the customer and it was the wrong time to do it because Sam Walton was among the most customer obsessed business people of any industry in history and among the most curious of all time. A great Sam Walton story.
There was a Brazilian chain of of like dime store chains of dime store chain and they had written all these discounters in the US and said “We want to come visit you and learn how you do things.” Nobody had responded to them except for Sam Walton. Sam sent them a letter and said “Well, come on up.” He picks them up at the airport, pickup truck and all that.
If you study … If you talk to him … I never met Sam. I had lunch with heads of Sears, I met all them, but I know several people that worked very closely with Sam and all these stories keep coming out and they are all pretty consistent. You really begin to know the man. Or read his book “Made in America”, which is just a wonderful book.
So the Brazilians, they come up and they see his stores and everything and they said … Between the time he picked them up at the airport and they got to the store, they realized why he was the only guy that wanted to see them. Why had he wanted to see them? Because he had sucked their brains dry.
He knew more about Brazilian retailing at the end of that half hour ride than they did. Well, he returned the favor, a few years later he goes “I want to see your stores.” He is down in Brazil and these are not fancy stores, especially in a nation like Brazil.
They are owners and they are showing off to the big Gringo and all this crap, but then they don’t see him for a while and the security guards come over and say “Oh, there is this old Gringo guy on his knees measuring the distance between the racks in the women’s apparel section. Should we arrest him?” “No, no. That is Mr. Walton from Arkansas.”
Driven curiosity, obsessed with his customer. Every decision they made started and ended with the customer. They come to them and say “We need a new accounting system.” $400 grand or whatever. He says “Give me a reason.” “Well, the statements will be done sooner, we need fewer accountants, they will be more accurate.” He says “No! Give me a reason. We got a mother, a single mother, two screaming kids, half hour before closing, Cape Girardeau in Missouri, half hour before closing, she is buying three pairs of socks, she is going to save $1.50 and use that money to use it for gas to take her kids to school and how is this decision going to affect her?” Every decision was driven back to that view.
If you study one of the few very successful corporate turnarounds in American history, Gordon Bethune turned around Intercontinental Airlines from his dark days of two bankruptcies. First thing he did was he went out into the parking lot and everybody burned their employee manuals. Read his book “Worst to First” about his obsession with “What is life like for the person in 20B” Not the frequent flyer, not the person with the upgrades, not the person in first class, that person stuck in the middle seat in the back of the plane. How do all of our decisions affect that person?
The bottom line. It is one place where I disagree with my old teacher Milton Freedman. He, like many economists, believe that the purpose of a company is to make a profit. I don’t believe that. I believe that is like your purpose is to carry your heart around. If your heart stops, then we are probably cancelling the meeting and killing the video, right? It is very important, as is your brain and your lungs. They are absolutely required.
Profit is absolutely required for survival. Profit is every bit as important for non-profit organization as it is for profit organizations, they just use different words for it. Find me a hospital, a university, a museum that spends more than they take in every year, I am going to show you something that is closed up. A profit is innovation money. There can be no iWatch and and iPad if there were no iPhone and there would be no iPhone if there hadn’t been an iPod and those hadn’t been incredibly successful because it is when you have that extra money from profit that you can take a chance, you can experiment and try things.
I absolutely believe in profit, but profit is not the purpose, it is not the reason and just as carrying around your heart is not the reason you exist. The only valid reason, the only valid purpose for any enterprise, for profit or not for profit, is to provide goods and services to people to somehow make the world a better place for what you do. These cases showed over and over again.
I go off on retailing as a store I am so close to, but I could have made a story here and said GM against Toyota. I could have done US Steel against Newport. I could have done IBM against the upstarts that came along later. IBM, biggest corporate loss in American history in the 1993. That was amazing, Lou Gerstner and the gang brought it back from the grave.
Clear, consistent serving. Serve other and then unique. Great enterprises march to their own drummer.
When I was on Whole Foods board … John is crazy. He is in there … First of all he is going to put everybody’s pay in the company up on a wall once a year. A lot of companies, you get fired when you tell other what you get paid. No, no. He wants to be open, this is before the word transparent came. We called it openness when I was young.
He wants to be open and just let it out. They still do that and people get pissed off a week or so and it blows over and then they adjust to to. Weaker teams hire and fire people without telling their own bosses. They have a gain sharing system where they know at the beginning of the year where they know how much the payroll is going to be for all the produce people in the store.
If you got 8 people working and you never see your families and you never get home, well, hire a 9th person and divide up all the money that way. Or if one of the 8 is a gold brick and sits on the john all day, well fire him and divide the money six ways. They have this freedom, the rule, about the top executives can only make a ratio to the average pay. They are very eccentric.
Bizarre Boys, a great Austin company, a very interesting company that went public. They have no vacation policy and they say “How can I know when you should whether you should take two weeks a year or six weeks a year off? How can I judge?” They focus on “What are your results? Did you meet your goals and did you achieve what you said you were going to achieve.”
I guess Netflix has the same policy I asked my friend, the founder, I said “What do your accounts say about your reserves for vacation pay?” They used to be a nightmare. You get into the reserve and somebody didn’t take their vacation, you have to do the debits and credits. You would say “We don’t have anybody doing that, because we don’t have any vacation reserves and never will.”
Great enterprises, they march to their own drummer. A lot of it comes from the founder, the founding team, but they are unique. You learn so much from studying other companies, but you can’t precisely copy them. You take the best of the good ideas and skip the rest of the worst, but you got to do your own thing.
Great company, Southwest [inaudible 01:01:09] and Whole Foods are in many ways a cult. C-U-L-T. They really are and Netflix and everything else.
Clear, consistent serving and unique, that is seven of the eight things and the last thing is passion. What can I say? All these people are going into things because they think they make the most money. That ain’t going to work, one in a million. It is so hard any way.
Think about how many unhappy lawyers there are in American, how many unhappy dentists. All of the people who went into professions pursuing money and aren’t happy. There doesn’t mean there aren’t happy lawyers and happy dentists.
I just spoke, like a week or so ago, to some veterinarians from all over the United States. It is a competitive business, they don’t make as much money as you might think, even if with their prices. The thing is all these people come into it because they love it, they love animals. There, the challenge is to teach them business and how to think creatively and how to differentiate themselves.
I already gave some cases, clones of Toys ‘R Us and everything. If your heart is not in it and you don’t love it, find something that you do. That means I have gotten through all eight of my points and I can take questions for discuss or whatever. You guys are in charge.
Yes sir?
That is interesting. How did these people to buy into the vision and it interesting you said Dave Thomas at Wendy’s and Sam Walton were hard drivers and pushing people to do more and more.
I have met people who worked directly with Sam Walton. I never heard of anybody talking about him pushing. No, he led. He is out there on the charging horse with his vision that is going to change America. He was just pissed off because you had to drive … Anybody living in a small town had to drive one hour or two hours to a bigger city to get a decent deal because Kmart was everywhere.
Kmart, Target and Wal-Mart started in the same year, 1962, but there were already discount store chains. The big one was out of Seagoville, Texas called Gibson’s. That was much bigger than Kmart and far bigger than Wal-Mart, so discount stores were out there. You had to go to a city and these merchants were kind of ripping off these people, taking a bigger margin an he couldn’t convince his bosses to do it.
He went to the Ben Franklin dime store and the guys that he worked with, he was in the dime store business and said “We should do small towns.” And they said “No, you’re stupid. Forget it.” The same … The Home Depot guys got fired working at the company they were working for. Said “I guess we got to start in it on our own.”
I offered my bookstore idea to the main company I worked for. I went to the CEO and said “Here, this is going to change book selling in the world. Do you want to back it and I will run it?” I wasn’t like “Oh, I got to start a company and then exit.” “why would you want start something you wanted out of?” But they said “No, forget it. People were loving Sam Walton.”
The one company that I do have the impression, that I am less close to it that is really tough and really difficult, is Intel. Yet, every person I met that worked at Intel, most of them loved it.
People that want challenges and people who want excitement in their life and people who want to change the world don’t do awful lot. They will do a whole lot more than anybody who is looking for options and cash. I am not knocking all that, I had a fight with my venture capitalist at BookStop. I wanted give options to every employee, which Charles Lazarus at Toys ‘R Us did, and they wouldn’t let me. I could only get them down to assistant store manager.
The electric. Why do people follow Herb Kelleher and they all talk like it is all fun and games, it is and … I forget. I gave a talk at one of the southwest exec talks there and it was something like “If you show up late for work twice and didn’t call in advance, you just don’t show up for work. You are no longer with them.”, because they can’t run an airline of you are late. They think it is all fun and parties. No, it is not all fun at the time. Those people would have followed Herb Keller over a cliff.
Steve Jobs! He is an asshole and he is unethical, and yet people today, 100 years today there may be people following him like lemmings. I’m just being straight about that. How you portray that vision and one thing, when I do a list of the things I see in entrepreneur is an energy level, but that energy can be internal.
I was at a group called “Young Entrepreneurs Organization”, YO, now it is EO. Great organization, great outfit. I was speaking at a big university thing they had where they all get together in San Diego. After the conference and after the talks and everything, they had a dine around. Groups of ten or 12 or whatever would go to these different restaurants and the mixed you up with these different people that you didn’t know.
I am sitting there with 10 entrepreneurs from all over the world and you are always in a group of entrepreneurs, you always got the one with the … I started to say “have the ego”, but that is not right. Anybody that built something great has an ego, it is what kind of ego. The peoples’ who ego on their sleeves often don’t have an ego, it is often insecurity that makes them brag. You always going to have somebody there “Oh, I got the most beautiful husband?” Or “I got the most beautiful wife, I got the biggest boat.”
I was at a dinner the other night and the guys is on this waiting list for a Ferrari that normal Ferrari buyers can’t get, but he is on the waiting list and he is going to get one. Hey, that’s okay, I am a free market capitalist, do what you want, it is your money. You got people who are just talk. “Oh, I got this and I got that.” Okay, that’s fine. Especially if you really deliver, if you created a whole bunch of jobs and made the world better, I can put up with almost any amount of arrogance.
One guy didn’t say word through the whole dinner, and that is real rare. Almost everybody talks, doesn’t say a word and I figure he is the spouse. I figure his wife or girlfriend is here for the conference and he is here for the ride, but my curiosity got me, so we were walking out of the restaurant, throughout the whole restaurant he didn’t say a word. I turn to him and say “So what is your story?”
He is like (quietly) “Well, I started this little software company and we sold it last year for $40 million and now I am building houses for people who can’t afford houses on the south side of San Diego.”
Thing is, that guy had as much fire burning in him as anybody You with me? He had energy and he had this huge fire, he just didn’t express it the same way. The successful entrepreneur, there is a fire to do this, to change the world or whatever. The greatest … There is a huge range, but I see so many people … If you go to Hoovers World on there, you will see the article I wrote on there about concerns about trends in startup companies and the whole.
I never put an exit plan, exit strategy, in a business plan and I never will. Over my dead body because I don’t want to get into … I have said that the minute you take outside capital, you have a commitment to get them a return on capital, so my two most successful companies both sold out and I was on the board and I voted for selling out, but it was only because we built great companies because we had been focused on doing a great job and loving our customers and that made them valuable. Yeah, then you are going to have more people wanting to buy you and you will have all those choice, but that still is a difficult decision and the greatest long-term companies are the ones that said “No, no, no.”
I was on two public company boards and even Whole Foods, there was board talk about selling out to a competitor way back when we had ten stores, but no, Mackey and the gang said “No, we can be number one.” You always here “Well, you are not big enough. Unless you join with a big outfit, you an never make it.” I am sure you can use that same language at Wal-Mart and I am sure that Wal-Mart had offers to buy the company when they were smaller.
When they were a billion dollar company, Kmart could have bought them and they probably tried, some of those guys, but somebody, Sam Walton and his colleagues, said “No, I think we can do okay doing it our way.”, and stayed true. But still, when you have outside investors …
Another question? Anything? Yes sir?
Loyalty programs. BookStop started the first loyalty program in the bookstore business, our Reader’s Choice Card, we pioneered that. That was really just to capture the name and address of all our customer because Charles Tandy, who was one of the greatest merchants in the late 20th century built, Radio Shack, even though they are post peaking now. He collected everybody’s name and address and in 1973 had 22 million names in his database. As far as I know, he was the only American retailer that really understood how to use a mailing list and really understood the impact with his weekly flyers and his Sunday newspaper inserts.
Every time you went into a Radio Shack store they asked you for your name and address and they type it in and it took forever. I said “No, I just want to ask them once. Give them a card, show us the card and then we will look it up.”, so it was free originally.
I think what got me … We put a lot of energy … And my team wanted me to kill it because it did take more time to even record it once and we had a whole department, like 8 people, just typing in the name off the cards. We later started charging for the card and it was the key way we financed the inventory of our new stores. The people how have the most to gain from your business are your employers, your customers and your suppliers, so go to them for your financing before you the bank and the VCs and you can figure how to do that and we did.
The thing is … We had this membership thing, card, Barnes & Noble bought us, killed it and then later spent $25 million starting a new one. One of my buddies who works there says “Gary, did you know that people on the card spent 60% more than average than people who don’t have a card” I said “Yes, I could have told you that 18 years ago before your bosses killed it and restarted it.”
They did the same thing with distribution center. We were the first chain that had the big distribution centers. West Coast, Texas … California, Texas and Florida. When Barnes & Noble bought us, they shut them all down. My buddy, the VP, got laid off and then a few years later they created the biggest group of book distributors on Earth. It gets a little weird.
The thing is we had this membership thing, all a pain in the butt to make it happen and then on down to Whole Foods. Their second store was in the same shopping center as my first store, that is how I got to know them. I had written the inventory control system in DBASE 2 on pre-PC PC and John Mackey and I was there the night before figuring out how to put sales tax in and John Mackey was out moving shopping carts in the parking lot. We go way back, 33 years.
I am going down, I am hanging out at Whole Foods and I am watching and they don’t have a loyalty program, this is 1982, and those customers clearly, at Whole Foods, felt like they were members at maybe a five time intensity to our people.
We go through all this agony to get a card in your hand and in your wallet, this was before smart phones and everything, and here is this other jerk, he doesn’t even have a card and you can look in their eyes and you can tell that his customers think they are members. They think they are a part of Whole Foods.
When the Tattered Cover, the great independent bookstore in Denver, moved, her customers moved her 200,000 book inventory. They all came in with their bicycles and red wagons and they moved the entire company for no charge. When Whole Foods recently announced the loyalty program I actually emailed John. “I know it is too late and I know you probably not involved in all these details anymore, but I am not sure that is a good idea. Everybody has so many cards and so many membership things.” The key to what you want is for them to emotionally be members, emotionally to be loyal and that doesn’t require any paper or anything else.
Having said that, I am an absolute believer “You can’t know too much about our customers”, and the more information you can gather and know about their shopping habits and that is why I have the card. I guess my answer is I am kind of neutral, I want to study each company and what they are doing and where they stand.
The thing is CVS and Walgreens are doing it now and they just … They all look like clones. Even at Kohl’s, K-O-H-L, they were a really hot company, they are still a solid company but they were really hot, and taking huge market shares, so all of these guys like JCPenney and everybody was losing market shares. What did they do? They all went in and saw that they had those black carts with the fabric thing and saying “Those work, I guess that is the secret to their success.”, then all these other retailers in the country had these black carts with the fabric. Target was smart enough to make them red. So often people …
Our membership thing, B. Dalton, Waldenbooks all started a card after we did and I knew their top people through the bookstore industry and they had no clue why they were doing it. They were doing it because they were losing dramatic market share to us and we had it and that is all they knew. I could write a book about the pros and cons of it. “Oh, all the school teachers think they ought to get a free one even though all the other people are paying ten bucks” and you can make a case that they should because they sell a lot of books and buy a lot of books.
Or the libraries you get one. “Oh, Mommy and Daddy aren’t here, they got a card and I have stack of $60 worth of Harry Potter books. Can you look up Daddy’s card?” Good store manager pulls one out of their pocket and says “Shut up and get the discount.” Lot of complexities but Dalton and Walden, they just plunged in and said “Oh, look at our card system!” They had no clue as to why they were doing it and that is the thing.
Great enterprise, if you are an innovator, if you believe in continuous improvement, you are always ahead of them. People ask … One of my blog posts on Hoover’s World about the six says to build a great company. “Six Simple Steps To Build A Company.” Thing is, once you leave that station, they are all behind you.
I heard the head of Kmart … Well, before their real dark days, he gave a speech at the shopping center convention in Las Vegas. He was a potent guy, he was lifer at Kmart, a real retailer and he talked about how they were going to invest $200 million in new information systems and bring Kmart up to speed. At the end of his talk, of course big standing ovation, he was very entertaining, cool guy and I turned to my buddy from Austin and said “You know, he just described a formula for disaster.” He’s like “What do you mean? It was so exciting.” I said “Look, in ten years he is going to be where Wal-Mart is today and in ten years Wal-Mart will be 20 years ahead of where they are today on his clock.”
They are always looking at your but. For 70 years, Ford was looking at General Motors’ ass. After General Motors came from way behind and blew by in 1927. Things have evolved since then, see who is looking at whose as going forward. That is how you keep moving and that is why as a learning company.
The great business historian, Alfred Chandler, talks about it in length, “The Learning Organization” and that is you … And the Forgetting Organization, a place like Citibank. Circuit City when they went down, they fired all the older clerks who got higher pay and hired a bunch of young people who didn’t know the merchandise and said “Wow, it is going to be cheaper, we don’t have to pay them so much.” Then there is no continuity, there is no product knowledge and that was one of many mistakes they made, which had been the dominant company in consumer electronics retail and then Best Buy and then Best Buy did away with commissions and other things.
Another question?
Joe: I have a microphone.
Gary Hoover: Oh, that is dangerous when Joe gets a microphone.
Joe: If anyone here wants a microphone, wave at me. Since I have a microphone, I will make it useful. Mexico.
Gary Hoover: Yes?
Joe: Latin America [crosstalk 01:15:54]
Boilerplate demographic …
Gary Hoover: Yeah, the biggest single thing is the dependency ratio and that is the ratio of the people of working age to working age. The US has got a big problem, we can only solve it by having dramatically more babies or or dramatically more immigrants. Neither of those appears to be in the cards and the baby thing takes a long time to work, even if we start doing it tomorrow.
In fact, I was at this art festival in Grand Rapids, I was at. I think it was there, or somewhere I saw … No, no, no. It was on late night TV. The Danish government is running ads and they are trying to get their population up because their economy is going to begin to shrink and it is going to hurt everybody because they are Denmark, they got shrinking population like most of Europe and everything, so they are running ads and they are trying to figure out “How do we get more babies”, so all these ads are all these grandmothers “Oh, you need a grandchild and buy a resort trip for your kids” No, they are trying to get them to go to Sands and everything to get Grandma to pay for it so they can create more babies.
The thing is we got an aging population of Baby Boomers and we are going to suck all this money out of the Social Security system, Medicare and Medicaid and all that and there is just not enough younger people to pay for it and that is just an awful thing and there is not much we can do about it except for babies and immigration and not going to do either one.
Mexico is the opposite. Mexico has this big young working population, the Baby Boomers are a much smaller generation there and so as we move forward over the next 20, 30 years … It is already a manufacturing powerhouse and the last few years it has gone from the 9th automotive exporter in the world to 4th, I believe it is about to pass up South Korea.
If you travel it, it is an amazing country and it has huge potential. I am not Pollyanna. When I took the bus to Mexico City, I looked at “Where is the crime and what are the risks?” Hey, go to Mexico City. Look at my blog post “Ten Reasons to Jump On The Next Flight To Mexico City.” 81,000 people have looked at that on LinkedIn Pulse. 60 times my previous record high.
It is a safe city. How many of you have ever been to Mexico City? All right, good. It has changed a lot. ’95 got real dangerous, I have been going there since the 80s. Certainly for me, walking around is incredibly safe. At least as safe as Dallas, safer than Houston, much safer than St. Louis, or New Orleans, or Detroit or Washington DC, our capitol last I heard, if you just look at the crime data. They are not looking for us and 72 degrees year round, basically. The air is much cleaner, used to be 20 years ago and it has got more museums than any city in the world, more than New York, London or Paris. It is dirt cheap and I stayed a really nice hotel, flat screen TVs, it is next to their State Department.
I met their ambassador to Ireland, he said “Oh, that is where my parents always stay when they visit me.” $38 a night. The same room in New York City is $350 for the same quality room, certainly in December. Mexico is the most artistic country on Earth. There is more living active art there than even Italy. I can go on, but go to Hoovers World and scroll down and you will see the one “Ten Reasons To Jump On The Next Flight To Mexico City.”
It has colored pictures, I am trying to lead a group tour of entrepreneurs and I got a lot interested but squeezing it in.
Joe: Talk to us about immigration, crime, birth rate in Mexico.
Gary Hoover: Yeah, let me top off though. Before I leave, I will be at my third visit to Colombia over the 19th to the 21st and that is the most exciting, from an economic future viewpoint, the exciting new country I have visited since Thailand in 1989. Where you can feel the economic energy and the boom in the air.
Oil prices have hurt them, they don’t have a huge amount of oil but it has hurt them and their currency is way down as my buddies are looking for stocks down there and it is kind of tricky. If you go to the city of Medellín, it is the Barcelona of South America. It is where all the Americans are moving. I met about 20 American programmers moving in right the week I was there. It is just a most exciting city, much … When I look at Austin, we are so sleepy and we are so behind the times and not innovative. On a scale, when you compare it to Medellín, and Bogota, which is where I will be this time and I have been there before, the capitol.
Latin America, you got to draw a line down the middle of it. The left half, overall, is really smart and doing the right things and the right half, overall, is really stupid and doing all the wrong things, but I am not just making that up. You can get a map of FDI, Federal Direct Investment, how much capital from Europe and America and Asia is pouring into those countries and there is nothing going into Venezuela and nothing going into Argentina and Brazil is off and on. Money is just pouring in.
The fastest growing economy in the Western Hemisphere in Chile, Peru and Colombia and I believe that this going to accelerate. None of it is going to be all up, they still have issues, but actually, Colombia, they just signed a peace treaty with the rebels in the woods after 20, 30 years of war and that just happened. I urge you to visit those places.
Immigration … I am a free market capitalist, a free market liberal, I call myself, so my gut … I believe the world is better off if we have freedom of movement of people, of capital, of ideas, of religion, of methods, of technologies and the freer it is, the better.
Having said that, there is a reality. It is stupid to have a border that people can go though easily and it is even stupider to have, depending on the numbers you believe, 60% of the undocumented immigrants in the United States came trough in a car, through customs and they have a visa and we don’t have a system for tracking the visas.
Well, France and Germany have a system, this goes on everyday and those two guys didn’t get along over the years and they seemed to have figured it out, so I understand there is a difference in the economic standing. The only way to really slow the number of people coming across that border is for their economy to be strong and to buy more stuff made there.
There are time … There are products we shouldn’t make. I remember a guy on CNN crying in his beer. He had a broom factory in southern Illinois and “Oh, I am driven out by the Asians”. Well, you shouldn’t be making brooms in southern Illinois. Those people need to find a higher and better use for their day and time.
They don’t have to go to MIT all the way up in those 18 wheelers. You know how many companies are hiring, you can start tomorrow at $80,000 a year tomorrow if you have a commercial driver’s license? Listen to the radio, truckers’ radio. We shouldn’t be doing that.
There are some things … Say “Look, I am going to make it offshore.” Well, you could make it in China or you could make it in Mexico. I love China, China is going to be great, even without my help. The future of America, in large part, relates to the future of Mexico. Mexico is more important to the future of the United States than Iraq, than Afghanistan than Israel than India, because it is our second and third trading. One direction is our second biggest trading partner and the other way is third and we are becoming a Mexican nation, a Latin nation, but a big chunk of it is Mexican.
For all these reasons, the cultural connection. No, that train has left the station. When Pat Buchanan who said “Oh, I am really worried. We are all going to become Catholics and speak Spanish. Our culture is going to be lost.” I am like “Has he ever visited San Antonio? Man, you are 200 years too late. Texas was a part of that before it was a part of this.” There is just no turning ..
The thing … Because you talk about tariffs and free trade and all that. I go back to Indiana where I grew up. Oh, I didn’t say, General Motors left Anderson. 27,000 jobs down to zero, 7 millions square feet of empty factory buildings.
In the 1880s, the people of Anderson, Indiana who made farm implements, among other things, [inaudible 01:23:36] “So don’t buy from those Buckeyes. Those fucking Ohioans, they are a bunch of crooks, you can’t trust them, their stuff is shoddy. Buy Hoosier, buy Indiana stuff.”
Okay, 1880s. Come to 1950s and I am coming along “Oh, they have taken the furniture factories in Michigan and taken the car factories and they are putting them in Alabama and Georgia and Tennessee. Those crackers, they don’t know how to make a car. We are union and they aren’t. No, don’t buy them. This is evil.”
Now I go back and they are “Oh, China, Oh, China” or “Oh, Mexico.” All I know for sure is all the crying never changed the outcome and that everyone who fought it they just ended up … The most they ever did was delay how fast it changed and the people who prospered figured out ways to play a role in that new world. If I was in Indiana, I would be figuring out how to become the biggest importer of Chinese stuff in the state. I would figure out “Okay, let’s get rich in the new world.”
My mom, she was in assisted living and I came to see her one night at dinner while she was still around and I said “I just came from seeing all the entrepreneurs in town.” She said “I thought you said there weren’t hardly entrepreneurs here.” I said “I just came from Maplewood Cemetery.”, because all the [inaudible 01:24:54] in the 1890s made that a hopping town and that is where those 27,000 GM jobs came from was from entrepreneurs in Indiana in the 1890s that GM later bought out and they are all buried there in that graveyard.
You can’t turn the clock back. You got to get with the future, you got to create the future. Peter Drucker said … I heard him speak in this 90s and went up to talk to him a little while, he said “Look, the … This would have been 10, 12 years ago. He said “The biggest challenge facing all the so call First Worlds, Japan, Europe, United States, Australia, Canada, is immigration. It is going to become the hottest political issue you have ever seen.” And it wasn’t then.
He saw that coming and he said “Only the United States, among the major economies, has proven its ability to assimilate other people.” You can debate about whether we still assimilate, or what you need to do to assimilate, does everybody have to learn English and all that. You can debate all that, but he was pointing out that the Europeans don’t have a clue and the Japanese don’t have a clue. He was actually a huge fan of Japan in particular and, of course, he was European, he was Austrian, and he really understood all that.
I actually think, if you look at it, Canada and Australia are really in a sweet spot. When people … My travels around the world of 44 countries, I don’t know if I have ever met anybody who hates Americans. I have met a lot of people who hate the American government, at one time or another.
The Canadians and Australians aren’t really in that fight, there were some terrorist attacks in Australia, but overall the world does not blame Australia for George W. Bush, to the extent of the people who were pissed off at it. I will leave out my own feelings about him and that and all this.
Canada, that is a very diverse country with people from all over the world and now low against US dollars, so it is a bargain. I am an optimist by nature, I really believe in America. Actually, spent five days in Grand Rapids in Michigan last week and seeing all the energy and even meeting nine Uber drivers and what they are doing with their lives and they range from retired guys to young people who have just changed their major and everything.
Innovation is in our blood, creativity is in our blood. I believe a lot of it comes from our diversity. If we were all … If we were to switch with Lenin, we would all look like each other and all had the same great-grandparents, we would all be about as innovative as Switzerland is, or Sweden.
The same with Brazil. Brazil should have a lot of the good stuff and once they get the idiots out of the government and start doing more of the right things, their potential will be much greater than Chile and Colombia and Peru. I tell you, there is one thing that I get pessimistic about in the United States and I wanted to go on some of the issues in kinda that direction, is our K-12 education system.
I was in Colombia talking to a bunch of their 12 to 16 year old. 200 of them in a room, it was a science fair I helped judge. I was going through a translator because I don’t give my speeches in Spanish. Little girl in the front row “Oh, should I have a partner or go it alone?” 12 year old. The kids are going to school 6 days a week and wearing uniforms. Again, you can debate all that, but they are serious about learning, they are trying and then two weeks later I speak at my own home high school in Anderson, Indiana.
It is my friends that are the deans and the teacher. “Oh, you got to come speak to our 8th grade class.” Two classes, maybe 9th grade, economics classes and I tell the story subscribing to Fortune at age 12. I say “How many of you have heard of Fortune Magazine?”
I spoke to a lot of high school groups. I spoke at Austin, 21, the last 22 years, one great group in Austin, the Austin Rotary. I always get 20% hands, 30%. Not one hand went up in Anderson, Indiana. Not one person heard of Fortune in economics class. They should be bringing in Fortune for case studies at minimum.
Then, as it went on it was clear all these people in my own public high school have checked out. Checked out years ago. Their curiosity has been beaten out of their heads by system and “Hey, teachers are my buddies”, and Bev, my friend said “Well, I was going to retire last year, but I didn’t want to retire on a bad note.” Because it is all paperwork. A kid does something wrong, you can’t report him because you get in trouble with the school board.
I talked in classes where half the kids are on a cellphone half the time I am talking. I know one time at Austin I turned to the teacher and said “Can you do something?” “No.” Hey, that don’t happen at Colombia and I am not advocating slapping the kids around.
Anderson is not the kind of place that have private schools, what they have is religious Baptist schools and everything and most of the kids that are really curious and learners, no matter if their parents are atheists, they are putting them in those schools, but it is a tragedy because those kids from Indiana … When I graduated, 70% of my high school class went onto some form of more education, including fixing cars or something because that is car country.
70%, last year it was 30%, 35%, same school, same town. There is no way those kids in the middle, … This isn’t poor, this isn’t rich kids, these are real regular kids. There is no way they are going to be able to compete with those kids from Colombia going out in 20 years. That concerns me and I think we need radical disruption and breaking the system. It has made a lot of progress with home schooling and everything. We need vouchers and we need more change and experimentation and open up the system because people want to learn.
Every six year old is curious and it has been pounded out of them by 18. Hoffman Institute has done studies of people who are are like twice as entrepreneurial in first grade as they are in sixth grade and twice as entrepreneurial in sixth grade as they are in 12th grade. The Hoffman Foundation people.
Yes Ma’am?
Yes, I believe … Ultimately I believe in vouchers, which would be whatever money the state … Whatever money that we taxpayers pay per student, you give that to the parents and let them pick and that is the voucher system, Milton Freedman dreamed up the idea.
Charter schools are a method of … Homeschooling was illegal, now it is legal everywhere. Any step, vouchers would be the ultimate answer. Not that there aren’t … How do you pull it off and how do you structure it? Vouchers are tried in a lot of places but normally they are just given to poor kids and that defeats the whole thing.
It’s okay, it is better than not at all, but the people in Anderson, Indiana, most of them wouldn’t qualify. It needs to be … Hey, the teaching system has become, in large part, become a jobs program and very difficult to fire teachers who don’t do well and you can blame the union, the unions are very active, but there is plenty of blame to go around.
The other thing there is a massive growth in administration. Both at the university and at the K-12 level the growth in the number of people hasn’t been among teachers. In both cases the dramatic growth has been in guidance counselors and assistant principals and assistant deans and staff members. I am the Entrepreneur in Residence at School of Information at UT and I am there all the time and even in universities they have not increased the teachers, they have increased everything else.
Those people … When I testified in favor of vouchers at the Texas State Legislature, all day, the people who testified on the other side was the President of the Texas State Association of Coaches, President of the Texas Association of Guidance Counselors, Texas Association of Special Needs Teachers. It was all the lobbyists for those special interest groups and they are all on one side and on the other side it was all the parents except for one and mainly parents of middle and lower middle income and people of color.
Joe: Let’s time check here.
Gary Hoover: No, no, no, no! I gotta go on and on and on! And I will stick around after. Hey, I’m staying here, I’m not going anywhere! [crosstalk 01:32:26]This guy’s hand has been up.
Joe: We said 8:00, so let’s wrap it up now, but if you guys have any questions, let’s just meet up front.
Gary Hoover: One more, he has been dying.
Yeah, I have no clue. I have studied under those guys, I believe macroeconomics, which is what you are talking about, which is in large part still hocus pocus. There was something called the Phillips Curve that was supposed to be a law when I came into graduate school and take graduate course and then five years later and so … No it isn’t
It is said either inflation goes up or unemployment goes up, one or the other. You can’t have both good. It later turns out they could both be awful, which violated the law.
I don’t think anybody knows for sure. The one thing I would say is my dad had a grocery store and the old grocer saying is “Volume covers a multitude of sins.” If you do enough revenue, enough of your screw-ups can be covered up.
Well, if the US economy grew another 2% a year, if our GDP grew 2% faster, or 1.5% faster, we would be able to … I worry about the debt, I worry about the federal deficit, I worry about all that. Hey, we paid off World War Two and that was a much bigger deal, And own relative. It’s huge, it was huge, and World War One.
The key is a strong economy and among many things, as I would subscribe to really cutting back regulations. In recent weeks, the administration has been on a tear of new regulations, trying to write as many in as they can in their last years and that will really slow us.
(pause [inaudible 01:34:01])
No, I … Actually I never understood international finance. That takes much smarter people than I am.
Joe: Let’s do one more question.
Gary Hoover: I try to stick to fields I understand.
No! I don’t, I don’t
Joe: Let’s do one more question then we will [crosstalk 01:34:19]
Gary Hoover: High or low US dollars is not going to make or break this country. That is kind of my gut feeling, I think that is what Milton Freedman would have said. He would believe in a slow gradual growth of the money supply.
Hey, Alan Greenspan, he later got a tarnished name, but still probably, 80%, 90% of what he believed was right. Read his book, he is a real smart guy and there is a lot of blame to go around for the ’08 crash.
Yeah, the ’08 crash, there is plenty of blame to go around all the way around. Congress, business people, Wall Street.
Yes sir?
(pause [inaudible 01:34:49])
Blog? What blog?
(pause [inaudible 01:35:00])
Oh, oh. Yes. No, nicknamed it that, I didn’t know anybody else called it that. Hoover’s Law, which is “Your success is inversely proportional to the square of the number of projects you are working on.”
What I am really doing … if you are trying to do two startups at once, you are going to be 1/4th as successful, you try to do three at once you are going to be 1/9th. Great people focus, do one thing.
As an entrepreneur you are multi-tasking. When you are a HR chief for an hour and you are cleaning the bathroom for an hour and you are marketing chief for an hour, so there is no question you do a lot of different things. I meet people all the time who say “How many companies are you starting this week?” “No, no, no, no. One at a time.” You can do them sequentially, but I take several years, that is just my number of doing it.
Yes sir?
(pause [inaudible 01:35:45])
The SKU count on a number of items.
(pause [inaudible 01:35:53])
You know, I have …
Joe: Gary, could you repeat the question?
Gary Hoover: Yeah, the question is “How will 3D printing and Just In Time Manufacturing affect …” Well, all of retailing really. It will have effects through out the system.
I haven’t really thought that through. I will work on it an email me and keep after me because that is a very interesting question, I really have to think hard about it. Every retailer would really love to carry less inventory. If you could print onsite fast enough and high quality, there is a lot of merchandise categories that would go for that.
We have been doing that with house keys for years and they have made them much better. Used to be the guy, or woman, had to run the machine and now you just stick it in there and it automatically does it.
Hey, Levi’s, years ago, was doing a thing where you walk in, they measure you and they make a pair of jeans while you were there as demos in a San Francisco store and all that. There is no question that it is going to change stuff and a lot of people want to print it and make it at home and how does that tie in?
Replacement parts for things, download the CAD file and make it. It is going to be very interesting and very exciting and my new project, The First Museum and Innovation is going to be “Hey, our store is full of 3D printers because we are about innovation, about what is coming next.” So we are going to have a very futuristic café and a futuristic store, but you will be able to pick stuff and make stuff right there. No, I haven’t thought it though.
I do believe that most of the projections that retailing is going to die is way, way off. People, in large part, go to retail stores for the social effect. Hey, go hang out, because one of my young friends were saying “Oh, all groceries are going to be delivered at home. HEB that is the big operator over where I am at, does $20 million a year. Biggest supermarket chain down in San Antonio.
He said “Oh, HEB is going to lose half their business.” He loves it, he already had something delivered by Amazon in 20 minutes with their new Austin same day delivery and consumable items. He said “Oh, grocery stores are going to have had it.”
I said “Well, come hang out with me at HEB and watch how many people want to be there because they want to get away from their crying baby, because they want to get away from their in-laws, because they stand there in front of the mustard aisle and they look at four kinds of mustards and they take 15 minutes to pick what kind of mustard.”
There are a lot of reasons that people go to retail stores and a lot of times they want to touch merchandise, they want to taste it, they want to feel it. We are probably never going to have our gasoline all bought online, we will probably have to go somewhere. Obviously, we will be plugging in the wall. There’s many, many questions about the future of retailing.
I believe Whole Foods is pretty safe, I think Wal-Mart still has a lot of good years still left in them, but they won’t stay on top forever, nobody ever does. AMP didn’t, Sears didn’t, but let me think about it and email me and get after me.
Thank you all very much for your time and attention and sticking around.