What we can all learn from Sam Walton

In these times, business owners need more than a coffee to get going. I find a bit of inspiration when I listen to Sam Walton's wise words. Even though he has been gone a long time, his legacy of Walmarts lives on. Take a look at his ideas, so many are now industry best practices:

Rule 1: Commit to your business. Believe in it more than anybody else. I think I overcame every single one of my personal shortcomings by the sheer passion I brought to my work. I don't know if you're born with this kind of passion, or if you can learn it. But I do know you need it. If you love your work, you'll be out there every day trying to do it the best you possibly can, and pretty soon everybody around will catch the passion from you — like a fever.

Rule 2: Share your profits with all your associates, and treat them as partners. In turn, they will treat you as a partner, and together you will all perform beyond your wildest expectations. Remain a corporation and retain control if you like, but behave as a servant leader in your partnership. Encourage your associates to hold a stake in the company. Offer discounted stock and grant them stock for their retirement. It's the single best thing we ever did.

Rule 3: Motivate your partners. Money and ownership alone aren't enough. Constantly, day by day, think of new and more interesting ways to motivate and challenge your partners. Set high goals, encourage competition, and then keep score. Make bets with outrageous payoffs. If things get stale, cross-pollinate; have managers switch jobs with one another to stay challenged. Keep everybody guessing as to what your next trick is going to be. Don't become too predictable.

Rule 4: Communicate everything you possibly can to your partners. The more they know, the more they'll understand. The more they understand, the more they'll care. Once they care, there's no stopping them. If you don't trust your associates to know what's going on, they'll know you really don't consider them partners. Information is power, and the gain you get from empowering your associates more than offsets the risk of informing your competitors.

Rule 5: Appreciate everything your associates do for the business. A paycheck and a stock will buy one kind of loyalty. But all of us like to be told how much somebody appreciates what we do for them. We like to hear it often, and especially when we have done something we're really proud of. Nothing else can quite substitute for a few well-chosen, well-timed, sincere words of praise. They're absolutely free — and worth a fortune.

Rule 6: Celebrate your success. Find some humor in your failures. Don't take yourself so seriously. Loosen up, and everybody around you will loosen up. Have fun. Show enthusiasm — always. When all else fails, put on a costume and sing a silly song. Then make everybody else sing with you. Don't do a hula on Wall Street. It's been done. Think up your own stunt. All of this is more important, and more fun, than you think, and it really fools competition. "Why should we take those cornballs at Wal-Mart seriously?"

Rule 7: Listen to everyone in your company and figure out ways to get them talking. The folks on the front lines — the ones who actually talk to the customer — are the only ones who really know what's going on out there. You'd better find out what they know. This really is what total quality is all about. To push responsibility down in your organization, and to force good ideas to bubble up within it, you must listen to what your associates are trying to tell you.

Rule 8: Exceed your customer's expectations. If you do, they'll come back over and over. Give them what they want — and a little more. Let them know you appreciate them. Make good on all your mistakes, and don't make excuses — apologize. Stand behind everything you do. The two most important words I ever wrote were on that first Wal-Mart sign: "Satisfaction Guaranteed." They're still up there, and they have made all the difference.

Rule 9: Control your expenses better than your competition. This is where you can always find the competitive advantage. For twenty-five years running — long before Wal-Mart was known as the nation's largest retailer — we've ranked No. 1 in our industry for the lowest ratio of expenses to sales. You can make a lot of different mistakes and still recover if you run an efficient operation. Or you can be brilliant and still go out of business if you're too inefficient.

Rule 10: Swim upstream. Go the other way. Ignore the conventional wisdom. If everybody else is doing it one way, there's a good chance you can find your niche by going in exactly the opposite direction. But be prepared for a lot of folks to wave you down and tell you you're headed the wrong way. I guess in all my years, what I heard more often than anything was: a town of less than 50,000 population cannot support a discount store for very long.

Jacoline Loewen, (jbloewen at loewenpartners.com) is a partner in a private equity firm, Loewen & Partners, dedicated to raising capital for family business owners and developing their growth strategies.

How not to strengthen your company brand

Having your own dealer network dedicated to your brand sounds terrific, but in reality, your customers may not like it. Here's a Honda fan and owner of OES, Paul Hogendoorn telling his story about how brand can erode rapidly when the brand strategy of "Honda dealerships only" badly misfires.

I learned a few lessons on my recent mid-life, self re-discovery sojourn – a 3 week motorcycle trip from my home in London Ontario, through Victoria BC, and then up to Dawson City Yukon before picking my way home. The biggest one was the simple reminder that in any business, “it’s all about the customer”.

I ride a 2006 Honda ST1300. The brand, and the specific model that I own, have earned the respect that it enjoys and deserves. But recently the company has begun to move away from an independent dealer network and towards a network of “Honda only” dealers that sell not only the motorcycles, but also the company’s brand of generators, outboard motors and even lawnmowers. My guess is that it is a move designed to strengthen the over-all company brand and leverage the reputation in some marketplaces (motorcycles perhaps) to improve the brand’s success in others (lawnmowers perhaps).

I had counted on replacing my rear tire when I got to Edmonton, a major center where I was sure to find a suitable replacement. However, due to the extra weight I was carrying, or the coarseness of many of the northern roads, or perhaps the higher temperatures that the tire experienced while traveling “expeditiously” through the US flat lands, I found myself in need of a tire about 1000 miles sooner.

I rode to the nearest town with a Honda dealer in the hopes of getting the tire changed. I discovered that they didn’t have one in stock, which was not really unexpected. (It is a fairly unique model). What was unexpected though was when they told me that it would take a week to have one shipped there, and that “nobody airships tires up here anymore”. My choice was to wait a week, or head out and hope to make it to a larger center with a tire in stock. I decided I had no real choice but to take my chances and go.

When I got to the other end of town, I noticed another motorcycle dealer that carried a couple of different brands of motor products. I pulled in and asked if they had a tire that would fit my bike. After a few minutes, the parts manager came out with 3 tires - none were the exact size, but they would fit. But then he offered me one further option. “If you want the exact tire sir, for about $50 I can have one flown up here. I could have it here by tomorrow, the day after at the latest.” I chose one of the tires he had in stock, and before I had a chance to catch up on all my emails (and do my Facebook updates) using their customer accessible WiFi connection, they had my tire replaced and I was on my way.

A couple days later, while almost exactly in the middle of a 6 hour stretch without any services, a stone thrown by transport truck rocketing through a gravel section of the highway under construction, pierced my radiator. Green coolant was now spraying all over my front disk brake. In tough situations like that, I did what I always do first: I called my wife!

My riding partner (“Charlie”) and I found a small lodge with a satellite phone connection and diesel generated electricity. We rented their last room (an authentic little log cabin), had dinner, and hoped my wife would be able to find a radiator and somehow get it to us.

My wife located the nearest dealer, about 4 hours away from where I was. They told her that they didn’t have one in stock (no surprise really), and if she wanted to order one they would have it in a week to ten days. She asked about the cost to expedite the order, but they told her that they didn’t do that anymore, they “order everything through the system.”

Not wanting my little adventure to keep me away a full week (or more) longer than she counted on, she called a local independent dealer that was recently disfranchised. They called another independent multi-brand dealer out west that still had their franchise. They in turn ordered and expedited the radiator and were prepared to send it to any dealer in any town that I might be able to get to.

Charlie is not only the best friend from my youth, he is also a certified Porsche and Audi technician – and one helluva MacGyver impersonator.

With the standard Honda tools, a pen knife, an air mattress patch kit, and a couple of electrical tie wraps, he sutured and patched my radiator so that we could ride out of our wilderness lodge and towards the nearest town. We made it to the first town 3 hours away with no trouble, so we went to the next, and then the next. In two days, we rode 1000 miles, with the patch, to the dealer that had ordered and expedited the rad. Four hours later, Black Beauty (my bike) was as good as new When I reflected on this adventure within an adventure, I believe I discovered a serious flaw in this new “single brand” dealer network. For them, their primary advantage and their primary purpose both related to the brand. They support the brand, and they are supported by the brand, But when it comes to the motorcycle marketplace, it’s not about the brand. It’s not even about the motorcycle. It’s all about the rider.The same is true in all businesses, and especially in our manufacturing industries. It’s not about the brand. It’s not about the equipment, or the technology, or even about the product. It’s all about the customer. Whoever meets the needs of the customer the best, wins.

Paul Hogendoorn is president of OES, Inc. and a founding member and past chair of the London Region Manufacturing Council. He can be reached at phogendoorn@oes-inc.com

The Great Escape

There can be no more sobering illustrative example of these realities than today’s USA, where President Obama’s first budget unapologetically anticipated adding $10 trillion in deficits through 2017, led off by $1.5 trillion of excess spending this fiscal year. That’s a whopping 12% of GDP, or another thirteen-digit number to be added to a steeply-climbing national debt that already exceeds $11 trillion, or 70% of GDP.

A cartoon of Uncle Sam with upturned hat asking: “Brother, can you spare a trillion or two?” (Canadian Business - February 16) stays in my mind. There’s also the quip about the US becoming nothing more than a pension (and healthcare) plan with an army. Sadly, there could be a ring of truth to both.

If there is some accompanying comfort, it might be that the U.S. is not alone. Britain’s predicament, as I could realise at first hand, seems every bit as dire. The same is true for most other OECD members – and also for Canada. Though our fiscal position remains much stronger than most, there is widespread questioning of the federal government’s belief we can be back in balance by 2013. Regardless, this will take that much longer than the target recovery date if now-nationwide provincial deficits are also included. (STOP PRESS: Just extended to 2015 by Finance Minister Flaherty who has also revised this fiscal year’s budget deficit estimate to $55 billion from $50 billion.) Globally, add the transfer of the debts of troubled banks and others to a public sector launched on a well-intentioned and major supportive stimulus spending, and the burden of public debt becomes all the more formidable. Then add an extravagant era of private-sector debt overhanging almost all OECD economies, and you have an even more haunting spectre grippingly illustrated by an Economist front cover (June 13) of a baby chained to a massive ball of debt labelled “the biggest bill in history”.

The immediate risk emerges as disinflation, if not deflation, as wages shrink and energy prices fall from their peak levels of a year ago. I concede it may take years for these conflicting forces to play out, but I’m still troubled by the prospect of all that money chasing insufficient goods and services and our politicians succumbing to expediency. Agreed, raising taxes and cutting back on government spending are not usually the best way to win elections. (Not surprisingly, Gordon Brown and Stephen Harper are both apposed to such measures.) There are also finite limits to how much governments can borrow. Monetizing the deficits may sound the better solution, but this is simply a glorified word for inflating the system with cheapened money, thereby diminishing the burden of public debt.

Michael Graham, from his newsletter - The Great Escape

Jacoline Loewen

How the economists missed the biggest thing in their lives

"Why the heck did they not know?" is a common question at economic presentations these days. Today's guest blogger, Michael Graham, elaborates.

Recently, the Queen pointedly asked the brains of my alma mater, the London School of Economics, why they could not have foreseen the coming cataclysm. Weeks later Her Majesty received a lengthy reply that could have been best reduced to a simple “We don’t know”. On my latest trip to a deeply troubled Britain, I couldn’t help but notice an eye-catching headline in The Daily Telegraph. “The Fiscal Ruin of the Western World Beckons” was probably exaggerated. Nevertheless, there should be no doubt about the hole our world has dug itself into. Or the extent to which Mr. Volcker, now head of President Obama’s Economic Advisory Panel, and Ben Bernanke, the re-nominated Federal Reserve chairman, are going to have their work cut out for them. Everyone should want to wish them well.

Those free-market champions Ronald Reagan and Margaret Thatcher would certainly not approve of the bailouts, relief packages, loan guarantees and diverse other rescue measures provided financial institutions and auto manufacturers judged too big to be allowed to fail. The very successful “cash for clunkers” incentive only adds to what one critic has expressively likened to a bewildering alphabet soup.In the case of the U.S., estimated total government support now exceeds a staggering $10 trillion. That’s before the $1 trillion currently being proposed by the Obama Administration for healthcare. The pattern is similar in many other countries, most notably Britain. And also in Canada, which has swung dramatically into the red at both the national and provincial levels. Adam Smith, of Wealth of Nations fame and the father of modern-day free markets, would probably roll in his grave at the resulting interference with the invisible hand of his competitive world marketplace.

No doubt, government intervention on today’s scale must make it harder to keep participants in disciplinary line. As a result, daunting economic risks stand to become all the greater. Nevertheless, to quote Jeffrey Immelt, Chairman & CEO of General Electric, we have no choice but to accept that “the government has moved in next door and it ain’t leaving”.

There could be offsetting comfort in comedian Will Rogers’ homily that “the good thing about government is that we don’t get what we pay for”. But, like it or not, we have entered a prolonged government-private sector partnership of unknown consequences on a scale few would have ever imagined. It must be remembered, that government spending cannot prop up wounded economies indefinitely. Nor can pump-priming fiscal deficits be recipes for sustainable economic growth. Rising government debt also inhibits fiscal and central bank manoeuvrability. A trio like this can bring only short-term stimulus at best.

Web: grahamis.ca

Email: Michael@grahamis.ca

Recession in Canada is officially over

I listened to two economists today at separate presentations. Who was it who said ten minutes spent with an economist is ten minutes wasted? Well, Don Drummond was certainly not one of those economists. He told the TD Bank audience - the recession is over.

I also ran into Michael Graham who sent me his newsletter with its useful insights. Here is Michael's view on the recession this year.

We are going to be able to tell our children and grandchildren how we – and they – escaped the next Great Depression. But only after 12 to 18 harrowing, high-anxiety months morphed into the worst financial crisis since the 1930s. Although there wasn’t a 1929-style stock market collapse, an extremely painful accompanying bear market (the second within a decade) included innumerable downward plunges. Let there be no doubt, as well, that the Great Escape of 2009 came at a fearsome price for which our generation must take full responsibility.It’s not that depression scares are new. Neither are recessions or bear markets which come and go like the seasons, usually presaging healthy restoration and rebalancing. In fact, I think I can safely record that my business career now spans six recessions and ten bear markets, shortly (I hope) to be succeeded by a seventh recovery and an eleventh bull market. Instead, what was so different this time round was an unforeseen and highly-contagious worldwide banking crisis that threatened – and in many instances toppled - household names like dominos. In the process, previously- reckless banks, desperate not to risk their badly-impaired capital any further, wouldn’t even lend to one another. Talk about broken trust.

The universally respected Paul Volcker, former Federal Reserve chairman, couldn’t have summarized what happened more aptly: “I don’t remember any time, maybe even in the Great Depression, when things went down quite so far, quite so uniformly around the world.” Yes, it was a very narrow escape indeed.

Jacoline Loewen, private equity, Toronto