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The founder of Walmart had to rise above mediocre practices from his first business in 1945, a second-rate franchise in a second-rate town. Without a lick of business experience, he unknowingly bought a troubled Ben Franklin variety store in Newport, Arkansas. For his money, he received two weeks of training on how to run the business from the franchisor founders, the Butler Brothers.
Harvard business professor emeritus Richard S. Tedlow observes that Walton's secret weapon from the get-go was his ability to learn and improve. After paying $25,000 to the Butler Brothers to buy a poorly performing 5,000 square-foot Ben Franklin variety store franchise that the franchisor was more than happy to pawn off and less than forthright about, Walton began to have success by first learning from everyone, not just his franchisor, and then breaking the franchise rules.
Tedlow observes, "It was pure luck for him that Helen Walton wanted to live in a small town, that Butler Brothers needed to unload the local Ben Franklin, and that the 'sucker' on whom it was unloaded turned out to be the greatest merchant ever."
"First he learned all the rules. Then he broke all the rules which did not make sense to him—which meant almost all of them.
…According to Helen Walton, his wife, "Of course, what really drove Sam was that competition across the street—John Dunham over at the Sterling Store. Sam was always over there checking on John. Always. Looking at his prices, looking at his displays, looking at what was going on .... I'm sure it aggravated him quite a bit early on."
It did not take long for Walton to begin to chafe under the tight controls of Butler Brothers. He began scouting around for less expensive suppliers, and he found them. If there was inspiration in his business strategy, it lay in the next step. Having found less expensive suppliers than Butler Brothers, he did not sell his products at prevailing prices. Instead, he discounted his merchandise, passing the savings he achieved on to the consumer, and made his profit on volume rather than on margin. "Simple enough," as Walton himself admitted. But it took him a decade to appreciate fully the power of the idea. Once seizing on it, never wavering from it became the centerpiece of Wal-Mart's greatness.
That was still a long time in the future. Butler Brothers was not thrilled by Walton's freelancing ways, but the numbers he was putting up seemed to mollify them. Sales increased more than 45 percent to $105,000 in his first full year of ownership. The following year, sales were up another third to $140,000. The year after that, he surpassed his rival Dunham as sales increased 25 percent to $175,000. After thirty months in business, Walton was able to repay his father-in-law's loan in full. In his fifth year at the Ben Franklin on Front Street in Newport, Arkansas, Sam Walton—the sucker Butler Brothers had been looking for—sold $250,000 worth of merchandise and made a profit of between $30,000 and $40,000. His loser of a store in the middle of nowhere had posted a compound annual growth rate in sales of over 28 percent. He was the leading variety store operator in Arkansas, and probably in the adjacent states as well.
And then, in a heartbeat, he lost everything.
Read the rest of the story at HBS Working Knowledge and Prof Richard S. Tedlow's book Giants of Enterprise: Seven Business Innovators and the Empires They Built.