Schiit Happened by Jason Stoddard and Mike Moffat (Part 2)

Isn’t the Symbol for USB the long flat rectangle? We transited from a headphone amp to a DAC/amp company. We are like both a hardware and software company. The problem with hardware are manufacturing while software is about service. A restaurant has both of these problems. When you talk hardware, you are talking stock. You will need capital upfront and also the added costs of personnel, facility, testing, shipping etc. For software, it’s about the salaries for programming staff, admin costs etc. However, distribution is easy. However, you must make sure your software can work with the existing OS. It is an ongoing business, where you need to keep upgrading. There are too many things that can go wrong with a restaurant. With Bifrost, we are a software company. We wanted 24/192, which needed Windows support as driver installation was a must. Firmware is not expected to change much. Software usually requires constant upgrading. Try not to allow pre-orders as if you can’t deliver on time, Schiit happens. The Bitfrost shipped out late. It was a nightmare as we ran into problems, one after another.

Although I’m a foodie, I have exactly zero desire to ever open a restaurant. Why? Because restaurants combine the problems of manufacturing with the problems of service with an extra problem of the stock actually goes bad. No thanks. – Jason Stoddard

Technical Help via Time Warner, and the World’s Most Irritating Failure Mode. Tony was our second employee and our first technician. It was late 2011. We have 4 products, Asgard, Valhalla, Lyr, Bifrost. Mike recommended Tony. He was laid off. He was a fast learner. The problem with employees are that they only do things by the book, have a stunning lack of initiative, prima donna-it is. It would be better to ask why and how they did something, rather than what. Tony was a great employee. However, one day, he pointed out that the Lyr was popping. The problem only happened with the back chassis on. We used brute force to fix the problem. However, that was the only batch of equipment with that issue. We might never know what the problem is.

Because people can’t be distilled down to a 2 page resume and a 1 hour interview. There are a ton of candidates skilled in the art of looking good on paper. There are plenty who can be friendly, intelligent, and make all the right noises in response to the standard interview questions. – Jason Stoddard

Selecting people with potential and ambition beats experience every day. – Jason Stoddard

DAC in a Toilet Paper Roll. One day, Mike showed me a USB card, which had RCA jacks on it. It was a USB DAC. Although Mike wasn’t fond of USB, this was an excellent device. We could get the chassis cheap and sell it for USD 99. This is for people who really want portability. It would be simply plug and play. Modi and Magni showed up in Dec 2012. Developing simple products take a lot of time. Modi needed a new chassis design and had to be simple as possible. It required huge production time too. Most companies would have just iterated on existing products to milk the cash out of them. We’re not like that. We set a price target on the chassis. Assembly would be simple at all costs. In the end, we only used 7 screws instead of 16. Modi was built in a steel case. We chose to save our own money rather than borrow money to grow. It might not be the best, but that’s the direction we took. We decided on a Schiit stack, a little DAC that was less than $99 or less too.

Assembly time is a function of chassis design. The simpler the chassis, the lower the assembly time. – Jason Stoddard

Growth, Garage Style. We mostly worked from our garage too. I was a conservative businessman and did not take funding. People thought we were stupid. My plan was to grow organically. By being picky and conservative, we avoided the web bust and managed to thrive. Even in 2011, I didn’t lease office space. Understand what a lease means. Note the lack of any outs. Subleasing sucks as any issue with the property is your fault. You’ll have surprises, and they won’t be good. There’s less space than you think. If you don’t pay, the landlord will chase you to no ends. We ran out of stock very quickly, and that was good. We didn’t need a lot of space. Mike were planning Mjolnir and the Gungnir. These were balanced amp and DACs, higher end things. It was the start of 2012 now.

The lease doesn’t give two craps if your business is in the toilet, if your cash flow sucks, if your sales forecast was wrong, or if you’re late on your mortgage as well. Pay us. Every month. Until the end. – Jason Stoddard

Leasing a space is very much one of those invisible lines in business. Once you do it, you won’t go back. Nor will you back out. So you’d better be damn ready to do it. – Jason Stoddard

Resurrecting the Circlotron and Other Mid-Centuryisms. This chapter is highly technical. Designing a balanced amp was ambitious. Some people argue for single-ended while some prefer balanced. There are pros and cons to both, just like everything in life. Whys, wherefores and design goals. Every car has its disadvantages too, there is no perfect solution. There are trade-offs. Single ended has lower noise and easier to connect. However, high rail voltages are required for high power and balanced input is problematic. Balanced has 4 times the power for the same rail voltages. No us, balanced offers better sonic performance. First law of audio: you can never have too much power. Second law of audio: see the first law. More power usually means higher noise, greater need for protection and paralleled output devices. I have a soft spot for circlotron designs for amps. There were none in the market at the moment. Our company is contrarian and I liked it. Some of the designs include JLH, Lin/ Blameless, CFA/ Current Feedback, Supersymmetry, CSPP / Circlotron, Chip / Integrated. Circlotron uses only P channel, however, it requires a complex power supply. We focused on the high-voltage VFT front end and the MOSFET output. Class A amplifiers run on the time and never turn off. They are hot and big and heavy, and no more than 25% efficient. Class B isn’t used for audio, the output transistors turn off as soon as they cross zero, because they are completely unbiased. Class AB, with bias on the output transistors so they run Class A sometimes. This is the most popular audio output stage and more efficient, with good performance. Class D are switching or PWM amps. Class H are class AB with voltage rail switching. Mike challenged me to include single ended option in the amp too.

Today, orthodynamics are actually becoming more efficient, so the need for extreme power is abating. The headphone amp power war, which never really existed, will probably seem silly in a few years time. – Jason Stoddard

The Pinch-Off Problem. We were developing the Gungnir analog stage. We ran into problems of our prototype boards. We had a pinch-off problem. We chased down the source of the distortion. Swapping parts didn’t help. Analog isn’t the real story. It is important to segregate the analog and digital sections carefully. We needed to look at clock regeneration too. We use one stereo DAC per channel, giving balanced hardware. However, the components cost twice. Digital music has to be stored. There are different formats of music. Lossless audio preserves the original bits. These use the PCM (Pulse Code Modulation) format. DSD encodes using a pulse width modulated datastream (PWM). The DAC wants to see the bit clock, word clock and data. That means 3 or 4 BNC cables. However, nowadays, we only use 1 cable because the clocks are buried in the data. This is SPDIF. Optical is a flavor of SPDIF. However, it has its limitations and can sometimes can only accommodate up to 24/192. Coaxial is another flavor of SPDIF, however, it usually performs better than co-axial. USB is not a SPDIF, but a packet-based system. Bandwidth is no issue with USB 2.0 and up. There is a reception to process the signals. Some manufacturers choose to upsample everything to a specific data rate, this eliminates clock management. However, asynchronous sample rate conversion (ASRC) is not bitperfect. For a bitperfect DAC, clock management is needed. For digital filters, bit-perfect transfer dies. 99.9% of DACs use delta-sigma technology. It can support up to 24 bit or even 32 bit. However, it is not bit perfect either. Some DACs are analog also. Philosophy is the most important (why you do something). Without knowing your why, your company is rudderless. Therefore, there is a need to ask the why and there is a need to be very specific over your answer too. At Schiit, we want to make fun, affordable products that are as true to the musical source as possible. For delta-sigma, the best you can do is to reduce the jitter.

Every Road is a Dead End, Early Adventures with Magni. There is value in starting all over. There is a need to always be adaptable when coming up with new products. We wanted the amp to versatile for almost any headphone. We wanted an aggressive price point too. We planned a simple topology and a switching wall wart. We didn’t want Class A as there was too much heat for the chassis. The noisy power supply was killing my ideas. The Lin amp would work well with an AC supply. I turned to Alibaba for supplies. The AC wall warts were cheap enough. I played with many PC boards and found that they worked.

The HOA Problem. We were working on Magni, Modi, Gungir and Mjolnir. We were growing bigger now. HOA means Homeowners Association. The HOA prohibited operating a business out of your home. They would start complaining. We cracked 7 figures in sales. When you have your own business, you can’t say ‘That’s not my problem’. You have to deal with every problem. Everything becomes your problem when you start a business. It’s a ton of work, but it can be satisfying. We need to look to rent a space. I tried a space, however it was not meant for manufacturing due to zoning rights. Valencia, California is master-planned. It was zoned as a commercial space, not industrial. We are now in Valencia Industrial Center. However, I managed to convince the guy to let us look at his space.

We started this with $10k. 18 months later, we’re into 7 figures annually. In a garage. This isn’t interested to be bragging. This is intended to be inspiration for you. Starting your own business is absolutely doable – without taking loans, leasing tons of space etc. – Jason Stoddard

But don’t start a business because you think it’s going to be easy. Or because you think you’ll have more freedom. Because, if it’s your business, it’ll always be your problem. Until you decide to sell it and get out. And when you’re small, everything is your problem. – Jason Stoddard

You Catch a Cold, We Die: Bigger Products, Bigger Problems. It was the second quarter of 2012 now. Our supplier screwed up and couldn’t make the Gungnir and Mjolnir chassis. We had to learn to number the parts. We had to give specific revisions for the metal parts maker to edit our stuff. It is important to set up a parts numbering system that covers at least every custom part. You will also have to document your changes and revisions made. The chassis was too deep and they couldn’t bend it. Eventually, we settled on a three-piece chassis. Instead of pre-orders, we wanted to do an interest list instead. The metal was crap and the supplier disappointed us. They did a rush job but the quality was not good. The Mjolnir launch was delayed because of the metal supplier. Even with a big bugger between announcement and scheduled ship date, things still screwed up. We were not planning to do pre-announcements anymore.

When your vendors catch a cold, you get sick. When they have a problem, it’s your problem. Your customers don’t care about excuses or The Reality of Making Things Today. They want their stuff. When it was promised. Period. – Jason Stoddard

Introducing the Schiithole. We took a bit of risk in the commercial space. We got the space. In Feb 2012, we moved into the office. There are many hidden expenses in running a business which can bite you. DIY might be cheaper, but it is definitely different from production. When you run a business, there are expenses like liability insurance, facility lease, upkeep, equipment cost, bookkeeping, tax, sales or VAT. We needed to spend on renovating the new space. We were afraid that the city inspector might come. The place was incredibly dusty and messy. The place we leased was a Schiithole. Once you spend a lot on rental, it will kill you. You should only spend on the things you need. You need a functional space, effective places to work, equipment for your work, right connectivity for your business. Don’t buy high-end office chairs. Learn to pick the tolerable and cheapest chair. You must control your spending, or you won’t last long in business. Start-ups shouldn’t have private offices. I was burning out from doing 14 hour days. We needed to hire again.

The moment you build a palace is the moment you die. Now, it may take many years for that palace to kill you. You may end up with some very good years there. But the moment you start focusing on business wants, rather than needs, you’re dead. – Jason Stoddard

And that’s why we ended up with a space that was really nothing more than a large production floor, with no offices, in an ugly, run-down building. Because it had what we needed. And nothing we didn’t. And it was cheap. – Jason Stoddard

And I was quickly burning out from the long days. You can do 14-hour days for a while, but they’ll eventually kill you. – Jason Stoddard

‘I didn’t know people in the private sector were as lazy as incompetent as the people in schools’. We wanted to hire our first manager. Some level of management is necessary. You can’t do everything and you shouldn’t do everything. You can’t outsource everything enough. You still need to oversee some aspects to ensure things are going well. Hiring a manager will incur overheads. Why do companies have too much management? It is because of the 20/80 rule, where only 2 people are doing the work and the remaining 8 are hiding. Some people also think it ‘ain’t my job’. There is also a problem of title inflation. We needed to hire an operations manager. Rina’s own business was taking off and she had less time to focus on Schiit. Rina suggested Alex, Jen’s husband. I decided to give him a shot. He seemed smart enough. However, he worked in a school and I thought these people were lazy. Alex worked hard and suggested improvements and didn’t complain at all. He was the perfect candidate. Alex was an example of good management.

Management layers in a business is a necessary evil. Extra layers should be avoided at all cost. Like nuclear waste, you don’t want to get too much management on you. – Jason Stoddard

And that really is the challenge, more and more: not letting your company fall to the 20/80 rule, where a handful of good people do most of the work. Not letting the bozos on the bus. – Jason Stoddard

You can’t tread water. You can’t stand still. You have to sacrifice your babies. You need to look straight-on at cannibalizing your own products. You always have to be asking, “What can we do better, less expensively?” Even if it lays waste to your entire lineup. Because, you know what? If you don’t do it, someone else will. – Jason Stoddard

Getting Our Schiit Together. It was the summer of 2012. We now try to predict demand and buy ahead to meet it. The landlord wanted to spruce up the place. He suggested that I get the whole building. It was a reasonable and cheap price. I used to haggle in the past, but it has its disadvantages. To know whether someone is charging you fairly, you must know the general price of the product you’re looking for. You should do your research if you don’t know the general price. You should be aware of what is too good to be true. You have to be upfront too. I said yes to renting the whole building. The renovator hired by the landlord did a shit job. Finally, the space was ready and we were acting like a real company. Our space looked decent. Alex improved the business in the some aspects: 1) planning and scheduling; 2) facilities layout and production flow; 3) Shipping logistics and relationships; 4) General operations and vendor communication; 5) employee management, specifically hiring and training. However, on the planning front, we ran into some difficulties.

Dead Media Ain’t Dead: NYT Strikes. Learn to push the limits, common wisdom and experience. The Internet was a big push for Centric. We ignored much of the conventional press when we were at Schiit. We got money to do Adwords. Social media seemed like the leading edge of marketing. For an entertainment company, social marketing is definitely a must. However, if you are not, social marketing is dumb, with little returns. To capture your customers, you need a memorable brand and fast responses to queries. Invest in AdWords and constantly improve your product and not spend too much time on social media. If you are B2B, you need to focus even less on social media. You rather spend your money on advertising and PR. If you want social media, ask yourself, who’s going to create the content? Who’s going to respond to comments? Who’s going to decide what’s okay to say? Who’s going to measure and manage it all? Most of the content are posted by bots nowadays. It is more about crowd-sourced advertising. Paid advertising in big-name venues is here to stay. I said yes to the NYTimes, who wanted to review my product. After the article on NYT, customers posted a lot of newbie questions to us .It hit the print. Because of it, our Bifrost sold out and was on back-order. We had a huge backorder because of this news article. Old media isn’t dead, by any means. The mass media can be really powerful. The Magnis and Modis are targeted at first time audiophiles. One audio magazine gave a glowing review, but it didn’t bring much sales. Always stay open to traditional marketing.

Nobody is perfect. No matter how many degrees they have, no matter how high they scored on their IQ tests, no matter how many years of experience, no matter how many companies they’re launched. Period –  Jason Stoddard

And, while I’m absolutely for introducing everyone to great sound, we’re going to meet plenty of people who don’t care. And we have to be careful not to be tiresome proselytizers. – Jason Stoddard

Well, call me biased, call me old-fashioned, but I believe it will be done in only one way: with quality products made at a price that’s fair for its performance, construction, and looks. – Jason Stoddard

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Made in America (My Story) by Sam Walton (Part 1)

 

The book was published in 1992

Foreword. Wal-Mart is now the largest retailing outfit in the world. ‘Friend, we just got after it and stayed after it.’ Sam Walton, on Wal-Mart’s success. Be protective of your business dealings. Sam has been fighting cancer. WM’s associates have contributed immensely to the success of the firm. He had the passion to compete.

It is a story about entrepreneurship, and risk, and hard work, and knowing where you want to go and being willing to do what it takes to get there. It’s a story about believing in your ideas even when maybe some other folks don’t, and about sticking to your guns. But I think more than anything it proves there’s absolutely no limit to what plain, ordinary working people can accomplish if they are given the opportunity and the encouragement and the incentive to do their best. – Sam Walton

Learning to Value a Dollar. By 1985, he was the richest man in the US. Sam was pissed with the fame he got. He didn’t like the media to question his personal finances. Some of them weren’t interested in the business. His family kept quite secretive lives. However, they still interacted with people from their town. Sam grew up during the Great Depression. He valued money a lot. His father was Thomas, and he was a very hard worker back then. He was a super honest man. Also, his dad could negotiate very well to squeeze money out of people. Sam’s brother, Bud, picked up the negotiation skills from his dad. Dad did many small jobs during his life. Once, he worked as a person who re-possessed others’ farms due to default. He didn’t come from a rich family. Nan made Sam milk the cows and then sell the bottles for cash. Sam also sold magazines and newspapers and acted as a delivery boy. Sam learnt the importance of contribution when he grew older. His parents were very thrifty people. He met L.S. Robson, some trader and business. Sam admired his success. Together with his family, they established ‘Walton Enterprises’. The family makes the decisions. Walton Enterprises helped to run WM. Their family owns a large % of the stock as well. This enterprise was a way to keep the family together. It helped to bond the family as well. His wife was Helen Walton. The Waltons are very frugal and will not spend excessively, despite their wealth. Don’t ever splurge your money like that. It will come back to haunt you. Sam does not believe in a showy lifestyle. Sam is very competitive and wants to be at the top, money is immaterial to him. It is very easy to fall into the trap of leading the jet setting lifestyle.

The best way to reduce paying estate taxes is to give your assets away before they appreciate. – Sam Walton

We believe in the value of the dollar. We exist to provide value to our customers, which mean that in addition to quality and service, we have to save them money. Every time WM spends one dollar foolishly, it comes right out of our customers’ pockets. Every time we save them a dollar, that puts us one more step ahead of the competition – which is where we always plan to be. – Sam Walton

Starting on a Dime. Sam always wanted to win and he hated losing. He admitted he learnt this trait to be ambitious from his mum. Unfortunately, she passed away when she was young. His mum drilled into him to be the best that you can be in anything that you choose to do. He bet with his peers on who would promote faster in scouts. He won. He once rescued a friend from drowning. He was the president of the student body in High School. Sam achieved some success in his school days. He realized that he was good at motivating others. His school high school track record thought him to expect winning and how to overcome challenges. To lead people in campus, you had to speak to others in the hall before they approached you. He was the student president of his university too. The key is to remember people’s names. Through his newspaper routes, he managed to make some money along the way. Sam was taking on too much. However, when he focused on something, he excelled at it. Even if it was just selling newspapers. In the fact, Sam thought he wanted to be an insurance agent. Sam thought that job suited him. However, he ended up with a job with JC Penney. He would be a management trainee with the firm. It was a retail business. Eventually, Sam loved retail. Duncan Majors was a manager at JC Penney and Sam was impressed by him. Sam had to go for enlistment and had to leave his job. He met Helen Robson at a bowling alley. She was very similar to him. She was ambitious, sporty and smart. Everything rolled into one. Before he entered army, he knew he wanted Helen and that he wanted a career in retail. After he exited from army, Sam wanted to enter into business himself. The both of them moved to St Louis. Sam’s friend, Tom, also wanted to get into the retail business. Sam and Tom wanted to be partners to buy a department store on Del Mar Avenue. Helen didn’t believe in partnerships and then Sam would start out on his own. A guy was selling his store in Arkansas and Sam bought it for $25,000. $20,000 was from Helen’s father. Sam realized the rent was too high but could not do anything about it. He learned how to manage a variety store. Sam was observing John Dunham and his store. The Butler Brothers’ programme was very strict and didn’t have any room for maneuver. Initially, he followed their steps. Sam wanted to buy direct from the manufacturer, without Butler Brothers’ as a middleman or distributor. He sourced for a cheaper distributor, who only took a 5% cut. By then, Sam’s store was cheaper than their competitors. Sam lowered the price and that ate into his profit margin. However, because of this, he sold a larger volume of goods. Overall, this method generated more profit for him. Ben Franklin, the franchisor, had many restrictions on how business was run. After 2.5 years, Sam repaid Helen’s dad the $20,000. Sam placed a popcorn and ice cream machine at the entrance. It sold like hotcakes. Sam bought at Eagle store nearby and set up shop. This was as he knew the competitor was trying to expand their offering too. Now, Sam had 2 stores on Front Street. Sam was excellent at controlling expenses. Sam and Bud cleaned most of the store themselves back then. Helen was fairly involved in church work. After 5 years, his store reached the target of being the one with the largest sales in the state. It turned in $250,000 in sales and $30,000 to $40,000 in profit. Correct the errors fast and don’t let mistakes build. The landlord wanted to drive them out as he didn’t like Sam’s success. Also, Sam didn’t have the option to renew the lease after 5 years. Sam was sick in the stomach by this. Sam and Helen had to move to another town and try again. Sam vowed to read leases in more detail in future.

I have always pursued everything I was interested in with a true passion – some would say obsession – to win. I’ve always held the bar pretty high for myself: I’ve set extremely high personal goals. – Sam Walton

I learned a long time ago that exercising your ego in public is definitely not the way to build an effective organization. One person seeking glory doesn’t accomplish much; at WM, everything we’ve done has been the result of people pulling together to meet one common goal – teamwork – something I also picked up at an early age. – Sam Walton

I’ve always believed in goals, so I set myself one: I wanted my little Newport store to be the best, most profitable variety store in Arkansas within 5 years. I felt I had the talent to do it, that it could be done, and why not go for it? Set this as a goal and see if you can’t achieve it. If it doesn’t work, you’ve had fun trying. – Sam Walton

I learnt a lesson which has stuck with me all through the years: you can learn from everybody. I didn’t just learn from reading every retail publication I could get my hands on, I probably learned the most from studying what my competitor was doing across the street. – Sam Walton

But this is really the essence of discounting: by cutting your price, you can boost your sales to a point where you earn far more at the cheaper retail price than you would have by selling the item at the higher price. In retailer language, you can lower your markup but earn more because of the increased volume. – Sam Walton

I’ve never been one to dwell on reserves, and I didn’t do so then. It’s not just a corny saying that you can make a positive out of almost any negative if you work at it hard enough. I’ve always thought of problems as challenges, and this one wasn’t any different. – Sam Walton

Bouncing Back. Sam hated leaving Newport. Sam made more than $50,00 on the sale of the department store. They decided on Northwest Arkansas. Sam was 32 now. The town had only 3000 people. He built a 4000 sq feet store. Sam realized from his competitors about self-check out counters. He adopted the idea too. It was still a Ben Franklin franchise. Sam was extremely friendly to the folks around the area. He named the store ‘Walton’s Five and Dime’. Sam was targeting a store at Fayetteville too. The first Wal-Mart only opened when he was 44. He soon hired Willard Walker, a store manager. Sam knew what he was doing and his philosophy worked. Willard owned a lot of Wal-Mart’s stock. Sam wanted to be a shopping centre developer in Arkansas as well. He wanted to sell the idea of shopping centres to others. However, it didn’t take off and people were not drawn to the concept. Sam lost $25,000. One day, his store was leveled by a hurricane. Sam was lucky that the goods were insured. Sam bought a plane and explored other towns. With this, the store fever in him grew. All his stores were set up as separate partnerships with his fellow partners. Sam believed in continuous re-investment in the business. By 1960, they had $1.4 million sales in 14 stores. The mill store, or family centre concept interested Sam. The discount idea was the future. Buy low, stack it high, sell it cheap. The middleman, Bulters Brothers, didn’t want to establish a discounting venture with Sam. Therefore, Sam started his own. He knew he couldn’t complete with Ben Franklin. He had to go elsewhere. This was the first discount store on its own. This was the first Wal-Mart. This would prove to be challenging as they could not fall back on the franchisor expertise. In 1962, Sam opened his first store. As there was already a Ben Franklin store in the area, they were not pleased with Wal-Mart. David Glass thought the store layout of WM sucked. It was extremely messy inside. Sam wanted to roll out the stores as soon as possible. To him, it seemed that even big stores could work. Sam needed to win on price. Having the lowest price possible.

First, he gets up every day bound and determined to improve something. Second, he is less afraid of being wrong that anyone I’ve ever known. And once he see he’s wrong, he just shakes it off and heads in another direction. – Sam Walton

Swimming Upstream. WM’s aim was to sell for the lower prices than its competitors. He was angry with the Butler Brothers and wanted to swim upstream. Sam was more innovative in business than in his personal life. Sam realized that Ben Franklin staff were spying on him in his store. At that time, WM was still a dwarf compared to Kmart, Woolco etc. However, in the end, they would be surpassed. WM learnt to start in the small American towns and had a firm business model before venturing out into the cities. This would not have been possible if they had been capitalized by the big boys. There was actually a lot of business in the small towns. At that time, customer service was not the priority. The priority was to keep costs down. Also, they built relationships with their customers. Pass on the savings to the customer. There was no basic merchandize assortment and real replenishment system. There were no established distributers and no credit. Some of the big boys like P&G didn’t treat them well. Back then, they didn’t use FIFO or LIFO method. If you couldn’t balance the books, you created a ESP (Error some place). Sam gave the managers freedom to try new stuff. Don Whitaker became the operations manager and he was extremely capable. One bad manager could bring down a store. Therefore, Sam had this knack of hiring the right person for the job. Sam did not necessarily hire college guys. Sam thought that non-graduates would be willing to work harder. Sam was a guy who was always open to suggestions. Claude would be the general merchandize manager. The store manager could explore and buy things he thought could sell. Sam gave them a report so that managers could analyse what were the best selling items. Merchandizing and setting promotions to items are Sam’s passion. Phil bought a ridiculous amount of detergent so as to compete with Kmart and get the bulk discount. He also stacked on lawnmovers. Thankfully, they all sold. The store was new at the time. Part of being a WM manager is that you get to promote items. Just a little promotion is enough to get the stock moving. The location of where the item was placed matters a lot. The item needs to be visible to the public. If you take the trouble to identify those items and promote them, they will sell. This is how to boost high sales per square foot. There were weekly meetings among the managers to plan for merchandizing programs.

The idea was simple: when customers thought of WM, they should think of low prices and satisfaction guaranteed. They could be pretty sure they wouldn’t find it cheaper anywhere else, and if they didn’t like it, they could bring it back. – Sam Walton

We used to say you could sell anything if you hung it from the ceiling. So we would buy huge quantities of something and dramatize it. We would blow it out of there when everybody knew we would have only sold a few had we just left it in the normal store position. – Sam Walton

I suspect I have emphasized item merchandizing and the importance of promoting items to a greater degree than most any other retail management person in this country. It has been an absolute passion of mine. It is what I enjoy doing as much as anything in the business. I really love to pick an item – maybe the most basic merchandize – and then call attention to it. – Sam Walton

If you are going to show the kind of double-digit comparable store sales increases that we show every year, and grow a company the way we’ve grown ours, you have to be merchandize driven. Otherwise, you become like everyone else. I can name you a lot of retailers who were originally merchandize driven, but somehow lost it over the years. In retail, you are either operations driven – where your main thrust is towards reducing expenses and improving efficiency – or you are merchandize driven. The ones that are truly merchandize driven can always work on improving operations. But the ones that are operations driven tend to level off and begin to deteriorate. – Sam Walton

Another way we tried hard to make up for our lack of experience and sophistication was to spend as much time as we could checking out the competition. It’s something I did from the beginning, and it’s something I insisted all our managers do. – Sam Walton

We’re really not concerned with what they’re doing wrong, we’re concerned with what they’re doing right, and everyone is doing something right. – Sam Walton

We started out swimming upstream, and it’s made us strong and lean and alert, and we’ve enjoyed the trip. We sure don’t see any reason now to turn around and join the rest of the pack headed down-current. – Sam Walton

Raising a Family. Sam had 4 children. Rob, John, Jim and Alice. They wanted family togertherness. Sam’s parents loved to quarrel. They lived separately after Sam and Bud grew up. Sam and Helen allowed their kids to enjoy themselves. He inculcated the values of hard work, honesty, neighborliness and thrift in his kids. The kids were made to work in the stores as well. However, Helen did bring them out to enjoy once in a while. Despite his busy schedule, Sam really did try his best to help his kids and bond with them. To be successful in retail business, you have to work on weekends. Sam did not push his kids too hard. Rob became WM’s lawyer and took them public. Jim also learnt about negotiation skills. Alice and John have branched into businesses of their own. All the managers had to attend a Saturday morning meeting. If you don’t want to work on weekends, then you shouldn’t be in retail. Helen also didn’t like the public eye on their lives. He didn’t want future generations to end up in the idle rich category and not work. He wanted his kids to do something productive, useful and challenging with their lives.

Recruiting the Team. Sam realized he didn’t want to stop expanding at any point. From 1958 to 1970, discount retailing was extremely successful. If you don’t care about customers, you will fail eventually. Whatever method of business you choose, you have to work damn hard to make it work. Some expanded without distribution centres and were too fast. Sam was a big fan of taking notes and learning from others. He hired Gary Reinboth to manage the size of the business. Ferold was also hired to build a better sorting system and replenishment system. Abe Marks shared with Sam how to use computers to do his business. Sam now realized the importance of keeping inventory to a minimum and getting things delivered to the store in the shortest time possible. Sam would not have been able to grow the business so large without the computer. It would have been impossible. Sam wanted to hire a systems guy. Sam hired Bob Thornton and promised to build him a distribution centre for him to run. Same bought a warehouse and a new office space. Now that they were bigger, systems and distribution were the main problem. Ron joined as vice president of finance and distribution. A data processing manager also hopped on board. Sam was always very guarded with his spending and did not want unnecessary expenses. By 1969, they had 14 variety stores and 18 WMs.

Anybody who has ever known anything about me knows I was never in anything for the short haul; I always wanted to build as fine a retailing organization as I could. – Sam Walton

If you want the people in the stores to take care of your customers, you have to make sure you’re taking care of the people in the stores. That’s the most important single ingredient of Wal-Mart’s success. – Sam Walton

Taking the Company Public. Sam never really like debt, although he knew it was essential for business. To get rid of this debt and to raise money from the public market, he decided to get listed. Stephens Inc was the one which proposed the idea to him. They kept taking short term loans to ease their woes. However, it was not sufficient in the long term. Prudential didn’t want to restructure their loan. Mike Smith and Jack Stephens would have to compete for WM’s business to take them public. The plan was to consolidate the company and offer 20% to the public. Some of their relatives and the managers had a stake in the company. They valued it using book value. The IPO price was $15. The stock has risen incredibly and made many people happy over the years. By 1990, it had a market capitalization of $60billion. His wife, Helen hated the public lifestyle that came after the company went public. All their debt was repaid and Sam was delighted. WM organized weekend events for shareholders and especially for the AGM. The shareholders had the chance to really understand what WM was like. Sam banned alcohol from the events as people were acting wildly. The events allowed shareholders to understand their business. If you believe in the basics of the company, there is no reason to buy and sell the company and not hold it long term. Big investors have the power to influence stock prices. WM is also very responsive to shareholders’ needs.

But if we demonstrate in our sales and our earnings every day, every week, every quarter, that we’re doing our job in a sound way, we will get the growth we are entitled to, and the market will respect us in a way that we deserve. – Sam Walton

As long as we’re managing our company well, as long as we take care of our people and customers, keep an eye on those fundamentals, we are going to be successful. – Sam Walton, on WM

But I enjoyed doing what I was doing so much and seeing the thing grow and develop, and seeing our associates and partners do so well, that I never could quit. – Sam Walton

Rolling Out the Formula. The people worked 16 hour days. WM targeted small towns, unlike the big players like K Mart. The big guys were expanding fast, however they left pockets of spaces for WM to enter. It should not be too far from the distribution centre or the managers’ places. They would then tell their best to saturate a small market before moving on. They built their stores around the city. When the city developed, WM would have more business. Saturation also ensures that you not need to advertise too much. Word-of-mouth advertising is extremely powerful. The population would build themselves to WM. Rob and Sam used a plane to scout potential WM sites. It worked very well. Sam like creativity, as long as it got the job done. Sam picked the right people and gave them maximum responsibility. Play on your strengths, and let your employees make up for your weaknesses. Sam loved numbers and statistics. Sam has quite a haphazard style sometimes. To him, new ideas take priority. Sam was relentless with his ideas. If he felt it wouldn’t work, then case closed. He sometimes reaches work at 4:30am. Sam was good at looking over someone’s shoulder. WM did face competition in the past. Its strategy was to keep cost down so as to pass on savings to customers. WM could open 50 years in 2 years. It was incredible. David Glass helped establish the modern and efficient transport system. Some of their competitors tried to copy the discounting model. Although their distribution model was better, they resorted to charging high mark-up. Eventually, they lost sales because of that.

But as long as he is convinced that it is the right thing, it just keeps coming up – week after week after week – until finally everybody capitulates and says, well, it’s easier to do it than to keep fighting this fight. I guess it could be called management by wearing you down. – David Glass, on Sam Walton

If you take someone who lacks the experience and the know-how but has the real desire and the willingness to work his tail off to get the job done, he’ll make up for what he lacks. And that proved true 9 times out of 10. – Sam Walton

made-in-america

The Art of War by Sun Tzu (孙子兵法)

It is important to master the art of war. It is governed by 5 factors. (1) Moral Law: The ability of the leader to make others follow him at all costs. (2) Heaven: night and day, cold and heat, seasons etc. (3) Earth: distances, open ground and narrow passes. (4) The Commander: virtues of wisdom, sincerely, benevolence etc. (5) Method and Discipline: Marshalling the army; delegation of duties; maintenance of supplies and roads. Those who master all will win the war. All warfare is based on deception. Modify one’s plans along the way. Pick at the opponent’s weaknesses. Perform the unexpected. Plan before attacking.

Hence, when able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near. – Sun Tzu

It is costly to raise an army. Ensure that resources are adequate. Do not delay attacking for too long. No one has benefitted from prolonged warfare. Steal food from the enemy so that you have enough food to eat as well. Maintaining an army is difficult as common people will suffer due to lack of resources and higher prices. Government revenue will need to fund the war. Forage on the enemy’s resources. Your army must see the rewards of defeating the enemy.

In the practical art of war, the best thing of all is to take the enemy’s country whole and intact; to shatter and destroy it is not so good. So, too, it is better to recapture an army entire than to destroy it, to capture a regiment, a detachment or a company entire than to destroy them. – Sun Tzu

Break their resistance without fighting. Besieging walled cities is the last option. A siege often fails. To occupy without fighting is attacking by stratagem. If the General is weak, the State is weak. There are 3 ways to bring down an army. 1) Commanding the army to advance or to retreat, being ignorant of the fact that it cannot obey. 2) Attempt to govern an army in the same way as a kingdom. 3) Using the soldiers and army without any tactics or military principles.

It is the rule in war, if our forces are ten to the enemy’s one, to surround him; if five to one, to attack him; if twice as numerous, to divide our army into two. If equally matched, we can offer battle; if slightly inferior in numbers, we can avoid the enemy; if quite unequal in every way, we can flee from him. – Sun Tzu

If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle. – Sun Tzu

Secure yourself against defeat. Whether you can defeat the enemy is out of your hands. One must have defensive tactics as well. Use the terrain to help your defense. Win by making no mistakes. Enter a position where you are unable to be defeated. Seek battle only after the victory has been won. Cultivate the moral law and adhere to method and discipline. 1) Measurement; 2) Estimation of quantity; 3) Calculation; 4) Balancing of chances; 5) Victory.

Direct method can be joined to join battle. However, indirect methods will be needed too. Combination of different core methods can yield many variations. Quality of decision making is crucial. Appear to be weak. This actually postulates strength. Keep the enemy on the move. Learn to hold out baits. Utilize combined energy from your army.

Thus the energy developed by good fighting men is as the momentum of a round stone rolled down a mountain thousands of feet in height. So much on the subject of energy. – Sun Tzu

Impose your will on the enemy. Remove the enemy’s food supply. Appear at places where they must hasten to defend. Attack at places which are undefended. Be invisible and inaudible, as much as possible. Distract them by throwing something odd and unaccountable. Divide the enemy. Form a single united body. Never disclose your fighting spot as the enemy will be forced to deploy their soldiers in multiple locations. Discover the enemies’ plans and the likelihood of success. Force him to reveal themselves. Compare the opposing army with your own. Conceal your dispositions and your tactics. Vary your tactics once you have won. Strike at weak places. There are no constant conditions in war.

Whoever is first in the field and awaits the coming of the enemy, will be fresh for the fight; whoever is second in the field and has to hasten to battle will arrive exhausted. – Sun Tzu

For should the enemy strengthen his van, he will weaken his rear; should he strengthen his rear, he will weaken his van; should he strengthen his left, he will weaken his right; should he strengthen his right, he will weaken his left. If he sends reinforcements everywhere, he will everywhere be weak. – Sun Tzu

Blend and harmonize the different elements. This is the hardest part of war. Entice the enemy out. Maneuver with an army. Detach a flying column for the purpose of getting an advantage. An army without its baggage, provisions are lost. Be familiar with the enemy terrain. Use local guides to help you. Think before you act. Learn the artifice of deviation. In night fighting, use signal-fires and drums. In the day, use flags and banners. The soldier is most active in the day. Attack the enemy when they are in a sluggish mood.

Whether to concentrate or to divide your troops, must be decided by circumstances. Let your rapidity be that of the wind, your compactness that of the forest. In raiding and plundering be like fire, is immovability like a mountain. Let your plans be dark and impenetrable as night, and when you move, fall like a thunderbolt. – Sun Tzu

A clever general, therefore, avoids an army when its spirit is keen, but attacks it when it is sluggish and inclined to return. This is the art of studying moods. – Sun Tzu

It is a military axiom not to advance uphill against the enemy, nor to oppose him when he comes downhill. Do not pursue an enemy who simulates flight; do not attack soldiers whose temper is keen. Do not swallow bait offered by the enemy. Do not interfere with an army that is returning home. – Sun Tzu

Do not linger in isolated positions and combine with your allies. Know the variation of tactics. Learn to vary your plans. Always look to seize an advantage. Make the hostile enemy chiefs busy and cause them trouble. There are 5 faults which may affect a general: 1) Recklessness; 2) Cowardice; 3) A Hasty Temper; 4) Delicacy of honor; 5) Over-solicitude for his men.

Pass quickly over mountains. Camp in high places. After crossing a river, get far away from it. Attack the enemy at a river crossing. Always face the sun. Try to attack and then be able to retreat on high ground. On a hill, occupy the sunny side. In heavy rain, wait for the flood or rain to subside first. In countries with steep cliffs and fast torrents, avoid it. Search your own hilly land to look out for enemy presence. When birds are flying, it might indicate an imminent attack. When dust is rising, chariots are advancing. When enemy forces advance and retreat, it could be a lure. If soldiers lean on their spears, they are tired. If those sent to collect water drink it first, the army is suffering from thirst. Look out for disturbances in the camp. If the enemy kills their cattle for food, they are going to fight to the death. If you see small groups of soldiers talking, they might be dissatisfied. Do not underestimate the opponent. If you punish soldiers before they become attached to you, they are practically useless. Treat them with humanity, then use iron discipline.

If soldiers are punished before they have grown attached to you, they will not prove submissive; and, unless submissive, they will be practically useless. If, when the soldiers have become attached to you, punishments are not enforced, they will still be useless. – Sun Tzu

We may distinguish six kinds of terrain, to wit: (1) Accessible ground; (2) entangling ground; (3) temporizing ground; (4) narrow passes; (5) precipitous heights; (6) positions at a great distance from the enemy. – Sun Tzu

Take the sunny spots first. Entangling means it can be abandoned but it is hard to re-occupy. Temporizing ground means no one will gain by making the first move. For narrow passes, strongly garrison it and wait for the enemy to come. For precipitous heights, occupy it and wait for the enemy to come up. Flight occurs when the opposing enemy is too large. The natural formation is a country’s best ally. Regard your soldiers as your children.

An army is exposed to six several calamities, not arising from natural causes, but from faults for which the general is responsible. These are: (1) Flight; (2) insubordination; (3) collapse; (4) ruin; (5) disorganization; (6) rout. – Sun Tzu

If you know the enemy and know yourself, your victory will not stand in doubt; if you know Heaven and know Earth, you may make your victory complete. – Sun Tzu

1) Dispersive ground; 2) facile ground; 3) contentious ground; 4) open ground; 5) ground of intersecting highways; 6) serious ground; 7) difficult ground; 8) hemmed-in ground; 9) desperate ground. When fighting in your own territory, it is dispersive ground. Fight not.. If penetrate short distances into enemy territory, it is facile ground. Halt not. If there are great advantages to both sides, it is contentious ground. Attack not. If both sides have liberty of movement, it is open ground. If ground forms key to three contiguous states, it is a ground of intersecting highways. Do not block enemy’s way and form allies. If the enemy leaves a number of fortified cities at its rear, it is serious ground. Gather in plunder. Forests, steep slopes etc are difficult ground. Keep steadily on the march. Narrow gorges, where retreating is very difficult, is known as hemmed in ground. Resort to stratagem. If only fighting can save you from destruction, it is desperate ground. Fight. Prefer the large and small divisions from combining. Study the well-being of your men. Do away with superstitious doubt. Set a standard of courage where all must reach. The General must maintain order. Study the fundamental laws of nature. Penetrate the enemy in a deep way. Only enter alliances if you know their designs. Confront your soldiers with the deed itself. Tell them nothing in a bad situation. Accommodate yourself to the enemy’s purpose. Hang on the enemy’s flank.

At first, then, exhibit the coyness of a maiden, until the enemy gives you an opening; afterwards emulate the rapidity of a running hare, and it will be too late for the enemy to oppose you. – Sun Tzu

There are five ways of attacking with fire. The fire is to burn soldiers in their camp; the second is to burn stores; the third is to burn baggage trains; the fourth is to burn arsenals and magazines; the fifth is to hurl dropping fire amongst the enemy. You need to have the means available. Keep the material for raising fire. When the weather is dry and windy, this is the best time. Intercept the enemy’s access to water. Develop a spirit of enterprise. Move only when you see an advantage. Make a forward move. Make a forward move if it’s to your advantage. Approach with caution.

Do not remain ignorant of the enemy’s condition. Foreknowledge is the key. This can be achieved by the use of spies. (1) Local spies; (2) Inward spies; (3) Converted spies; (4) Doomed spies; (5) Surviving spies. Intimate relations must be maintained with your spies. They need intuitive sagacity. They need to be treated kindly. It is necessary to find out the key names of the enemies. Capture enemies’ spies and convert them for our own use. The converted spy must be treated with utmost liberality.

Hence it is only the enlightened ruler and the wise general who will use the highest intelligence of the army for purposes of spying and thereby they achieve great results. Spies are a most important element in water, because on them depends an army’s ability to move. – Sun Tzu

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