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Bernie Marcus

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2018-11-05

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2018-11-05

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1. “And this is the takeaway. It's even worse. Not only did they buy it for talent locations. Talent doesn't exist. And now the locations are crap. In retrospect, Bow Water wasn't even a good real estate deal because we eventually closed all the stores we acquired and built bigger, better Home Depot stores close by. If we had just passed on Bowwater altogether, it probably would have gone out of business anyway. Bowwater taught us we're never as smart as we think we are. You have to look at yourself, your talents and abilities realistically. We thought we were better, we thought we could handle anything. Success was breeding a little arrogance and we learned that sometimes you believe you can do more than you really can do. Bow water was a great and hard lesson learned.”

   2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

2. “They never bought the place they would have reported a quarter to Wall Street of up 35% because they bought Boater, they came in flat Says, this happened soon after we negotiated a $200 million line of credit. And thank God that deal was done and secure. We couldn't have made the same deal a month later. It would have been years before we were able to get back to the financial community and get this kind of money.”

   2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

3. “Goes up there to try to own up to the mistakes. So it says rearrange the series of meetings in New York in which Bernie came clean with the fund managers and analysts who covered our company. Standing before each group, this is actually really smart what he does. Bernie stood up and bluntly announced, I am the CEO of this company and I am a schmuck. In precisely those words, we screwed it up, we should have closed the Bowwater stores. After that Bernie told them about the corrective measures that we put in place to prevent a repeat in the future. He assured them that the growth and profitability would continue, and they believed Bernie. Many CEOs would blame a Bowwater type fanatic fiasco on the economy, blame it on this or that, blame it on that. We didn't blame it on anybody. We blamed it on ourselves. Excluding Bowwater, Home Depot's fourth quarter earnings would have been up approximately thirty five percent. So think about that.”

   2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

4. “So, this is the effect that's happening. For a time, remember it's draining their resources and their sales are flat. And they've only been a public company for a few years at this time. For a time, the Bow Water Debacle severely tests our Goodwill on Wall Street until we ultimately turn the situation around. It temporarily dampened the euphoria for the Home Depot. It's not easy being a public company. You have to answer to a ton of people, and you have to answer a lot of questions. You always have to run your business worrying about how much somebody else says you will make. Somebody who may not have enough knowledge to understand what your potential is. But against all those negatives, without public money, this company would still be a chain of four stores in Atlanta, Georgia. The reason who we are who we are today is because of the public money. So they go and while this is all happening, they know that they're in a bad situation. So they arrange meetings with a bunch of investors. And Bernie.”

   2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

5. “So, all the corporate executives are gone, and about 95% of the original Bowwater crew gets fired too. We eventually interviewed all the employees and explained one by one what the Home Depot was all about. Simultaneously, we kept the stores open and yet tore them apart, remodeling and remerchandizing them into Home Depots, all the while using employees who resented us. In the end, we terminated almost 95% of the Bullwater crew.”

   2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

6. “One of their managers arrived at a Bowater store in Louisiana. He pointed to the manager's office and said with great fanfare, that is not part of the Home Depot. Then he climbed aboard a forklift and literally ploughed through the walls of the offices until they were dust. We terminated all of the Bowwater corporate executives. Okay, so so far this went $38.4 million thinking, okay, how bad can it be? They have good locations, so we're paying for locations and the brand's already up and running. Well, turns out that they didn't really have a lot of talent. So they're firing almost everybody.”

   2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

7. “So it says culturally, we were as different as night and day. Home Depot store managers spend their days on the floor, wandering their stores, solving problems for customers and associates alike. Most Bullwater store managers were pencil pushers. They hid in offices. Weren't prepared to do the side by side go to work that we expected. Our people sometimes took unusual steps to get across the cultural differences in the two retail cultures.”

   2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

8. “We never anticipated the ancillary losses caused by sucking all of the great people out of our existing stores and sending them to fix the black hole that was bow water. When you do that, you weaken yourself. Remember that he just talked about what Sears was doing by diluting their core business, which is exactly what happened to our existing stores. One of the reasons Bowwater taxed us so greatly was the indirect drain it put on our existing systems. The Bowater stores were in such disarray that we immediately sent some of our best talent from Atlanta and South Florida to fix them. That left gaping holes back in our own stores. So we didn't get anticipated revenues in the Bowwater stores and existing home depot stores sales went flat in the fourth quarter.”

   2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

9. “They try to sell the company before it's even started. Then the second thing is they have a deal and then it falls apart. And third, they use the blueprints to start a copycat. And then fourth, they buy the copycat. So this is really bizarre. But here's where a lot of the lessons are going to come from. So it says, we weren't going to get to Texas for many, many years. So copying us so blatantly probably seems safe, even with our blueprint. They just didn't know how to run the business. Still, we believe that their locations under good management could leapfrog our expansion plan several years ahead. And Dallas, Fort Worth was a key market we wanted to be in.”

   2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

10. “Their American CEO Ralph Dillon was very affable and understood what we were trying to do and was very interested in our business concept. He sent his accounting staff in, although there wasn't much to see. This was all prior to the first store opening, so everything you could know about us was contained on twelve sheets of paper. There was no balance sheet that all the money was going out. All investors were really buying was talent. He saw that, like what we were doing and we made a deal. And then he went back to London and the holding company turned him down flat. But while they wouldn't approve of his investment in our company, they didn't say he couldn't start his own copycat chain, so that's what he did. He literally took our blueprint and started from scratch, opening Bowwater home centers in Texas and Louisiana. He had all of our numbers in our business plan, the only thing he didn't have was the experience of how to run it. So that's, first of all, it's really weird that”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

11. “And it's a disaster. Bow water was a 38.4 million dollar acquisition of a chain with nine big box hardware stores somewhat like ours but in markets we were not in and when we say somewhat like ours this is one of the weirdest things we can say on good authority that they were based on our earliest stores that's because the american division of bow water corp tried to buy the home depot while it was still in the conceptual stages”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

12. “Different sorts of people and all different sorts of businesses. So it says every young company screws up. It's important for us to remember. We were no exception. With our Atlanta and South Florida stores going great, we looked for ways to dramatically increase the size and scope of the Home Depot brands. So we purchased a fledgling Texas-based chain by the name of Bow Water Home Center. So there's a lot of just bizarre things in this story.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

13. “Above and all above it all in that ridiculous tower of theirs in Chicago and never went down the elevator except to eat lunch or go home. They never had a clue as to what was going on in the stores because they never spent time in the stores. Arthur and I go into the stores alone and walk around, talking to customers and associates on the sales floor, learning what's really important to the home depot. I love being there because that's where the real action is, not in my office. And a few chapters later, they tell this fantastic story. And we're going to see it's about not deluding yourself or your talents. But more importantly, Success breeds arrogance, right? And this, the moral of this story is that mistakes can teach us that we're never as smart as we think we are. And I think this is applicable to”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

14. “Another story I'm going to tell after this that's the same thing when you're deluding your ability and energy. It's very dangerous for a business. I wanted our people to read the book so that they understood how important our corporate business is. Telling at telling hated being in the stores and that was where the bread and butter was coming from. That's what paid his salary. He never understood that. In this company, we do understand that. That is why we insist that every executive of this company works in the stores upon joining us. The policy even applies to our attorneys. When we hired our first in-house attorney, we said, before you assume your regular duties with us, you'll be in the stores for two months. He didn't believe it. Are you crazy? he said. I'm a lawyer. Well, if you're going to be handling lawsuits, you're going to be half to understand the problems of people in the stores. And to do that, you have to work in the stores. So that when you hear a problem, you can relate to it. He winds up doing that. And this is an important takeaway. But at Sears, they sat up.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

15. “But I do think it's fascinating, something we've been talking about a lot the last few weeks is knowing the right way to do things by seeing it done the wrong way. And this is Bernie studying other retailers, including reading books about other retailers. And so he says, years ago, I read the big store inside the crisis and revolution at Sears. It's a behind-the-look at Sears Robuck. It had a big effect on me, and for a number of years I insisted that every executive in our company read the book. The big store told the story about how one particular chief executive of Sears, Ed Telling, hated to be in the stores. And that was apparently why he took the world's most revered retail company into virtually every other business under the sun, from insurance to real estate. Sears bought all these other businesses that diluted its ability and energy and management neglected its core business. This is another, remember that line because there's going to...”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

16. “When we went public in 1981, the home improvement industry woke up and choked on our sawdust. So this whole part about losing the anonymity, the cloak of secrecy that privately held businesses enjoyed, the fact that the industry still perceived them as failing. And if everybody knew how much money they were making, there would have been more clones. When I read that part of the book, It's funny how reading so many of these books now, some things just connect in it. pops into my mind. I don't know where it comes from, but it reminded me of this one of the great, greatest quotes I've read anywhere. And it's in the book Becoming Steve Jobs. And he's talking about the problems that Pixar's having.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

17. “This was a big step. Going public meant losing the anonymity and cloak of secrecy, a privately held business enjoyed. It meant listening to and considering Wall Street which would become our ad hoc partner from the day we went public forward. But if we were going to grow there was no other way. The only reason we would have waited any longer to go public was so that we wouldn't have to give as much of the company away. That and the fact that as long as we were private, the industry perceived us as failing. If everyone knew how much money we were making, there would have been more clones earlier.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

18. “And they're expanding into South Florida at the time. And they realize, hey, we're having, we're still having cash flow issue. They're making a little bit of money, but they can't fund their own growth. So they realize that they have to go public. It's the only way that they can get the money. So let me read that part to you. There is a limit on how much you can expand on starting capital and on borrowed money. The company was succeeding. We were planning years ahead and knew that future financing would be necessary if we were going to expand. We had wonderful support in Ken Langone and his ability to market securities. So it seemed obvious at the time that the time was ripe for an initial public offering. And this is the downside to it.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

19. “Park Pat, mark them up exactly two dollars. Are you crazy? I asked. Have you lost your mind? Are you crazy? I don't know what you're going to do. We're going to go broke. The minute the ad appeared, however, people began flocking into the stores and we blew through the screens in about four days. It was so incredibly cheap. People found it worth their while to drive fifty miles to see us. That was another critical moment for the Home Depot. It took an insane ad to bring folks into our stores to discover the Home Depot secret. So they're expanding stores, they're opening up in the Atlanta, Georgia area, and they've expanded to”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

20. “How many screens is that exactly? I asked gulping air. Remember they're having cash flow issues at the time? 3,000, Pat said effortlessly. This was a commitment of almost $100,000. Pat made a truckload of fireplace screens into a life or death purchase for the home depot. Seeing that my partner was oblivious, Wow, so you're saying that we could discount these screens $50, sell them for, say, $89, and make a ton of money? No, Pat said, not that price. Besides, the ads have already been prepared. Okay, $79 is terrific. We're going to do really well at $79. Well, no, Pat said. sixty nine? No. 59? $59 is a terrific buy for the customer. It'll be great.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

21. “Thanks to some chilly winners, Atlanta was a strong market for wood-burning fireplaces. And it says there's 3,000 of these screens. And he says, so Pat wants to buy them all. And he says, you can't sell all these. The vendor is telling that to Pat. Don't tell me what I can't sell, what I can't sell. Just get a price, Pat said. He was able to secure a phenomenal price on these screens, which retailed for up to $139 each. So that's the price Montgomery would pay, or would sell them at. Having already set the cost and arranged for delivery, Pat walked into my office with the news. These fireplace screens sell up to $139 at Montgomery Ward, he said. The guy needed to dump them right away, and I brought the entire shipment for an average of $33 a screen.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

22. “And it says an exasperating incident with Pat reinforced for us just how critically important it is to sell products at the right price. Pat Farah is a co-founder of Home Depot and the one in charge. He's like their main merchant. Business just wasn't booming. This is the description of what's happening at Home Depot at the very beginning. It just wasn't happening. We were barely covering our expenses, still having difficulty identifying with the market. So we're still barely covering expenses and we didn't know anything about the market. Cash flow was not good. Our financial resources were eroding. A vendor told Pat about a truckload of three thousand fireplace screens that were manufactured for Montgomery Ward. Ward canceled the order, but the screens were already on a truck en route to Atlanta.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

23. “I realized that I had no choice and tore up the envelope containing Rip's letter of resignation, Flamsom said. I told Rip I would personally get the loan through the officers. And that's why they loaned us the money and helped start this company. Okay, so the next story is skipping ahead a little bit in the book, and it's the importance of selling products at the right price and what turns out to be the first big break for Home Depot. By this time they're in business, they have a few stores in the Georgia area.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

24. “His resignation letter take this and your job and shove it up your rear end. Flampsom was shocked by how angrily the normally mild mannered genial Rip Fleming had become. Rip said, you don't need a banker. You need a computer. Hire some young kid to come in here and do my job. I buy people. Bernie Marcus and author Blink are good people, and you have turned them and me down three times. You obviously don't need me here anymore. I looked at this is an important part. I looked at Rip, Flansom continued, and I realized that when he walked out the door, that $400 million worth of accounts were walking with him. The client's rip had brought into the bank loved and trusted him and would go wherever he went. Turning down the home depot was no longer about denying a three point five million dollars loan. Suddenly, it was a four hundred million dollars decision.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

25. “Do you know what he did after that? Flampsham asked me? I guess not, I said. He burst into my office, literally slamming the door open. Rip slammed the door shut and threw an envelope on my desk, he said. Take this take this, meaning his”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

26. “And here. This guy's name's Flampsom. And so Bernie's talking to the CEO of Flansom. I love this guy. He's so terrific talking about Rip. Well, you should love him after what he did for you, Flamsom said. What do you mean? I said, after what he did for me. He put his career on the line for you. He then told me the story of how Rip originally presented our loan request to the bank loan officers who turned it down cold. The next time he added points and other kickers and still was turned down. Unwilling to give up on us, he came up with letters of credit from our investors and they turned him down cold a third time.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

27. “And so he does that, of course, because Rip did him a huge solid by getting the money, but he didn't, Bernie at the time didn't know how Rip got him the money. So he's sitting up there. Bernie's sitting up there at this party going away party for a rip. And the CEO does something really stupid”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

28. “So they're going to banks and had a previous relationship with a banker from Handydan, a guy named Rip. Well, Rip is, he's the one that got them the money, but he doesn't know the story yet. Okay, so Rip turned 65. The company he's working for, I think it's called Security Pacific, basically making him retire. And Rip was really, really upset and he didn't want to retire. But a few years prior, and I've jumped way ahead in the timeline, just because I need to explain how they actually got the financing. So a few years before the story I'm about to tell you, Rip gets them the money they need. Okay, so now when he's being pushed out, the CEO calls Bernie and says, hey, we're going to do a going away party for Rip. Would you come out and emc the party?”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

29. “relented and allowed the man back in. Don't talk to me for the rest of the trip. I will have nothing to do with you. We are finished. This partnership is over before it has begun. Here again was someone with whom I was going to have to live with who had no clue what it meant to care about people. His $3 million investment would have been 15% of the Home Depot's original market value. Today fifteen percent of Home Depot stock would be worth twelve billion dollars. There are some things money alone can't buy as several would be home depot investors learned. Okay, so now I'm skipping ahead to how they actually got the money to open Hope Depot. They were after this, they almost went out of business before they even opened because they couldn't get money anywhere. No investors besides the $2 million they had.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

30. “That was an issue reminiscent of the matter of principle that nearly caused a brawl between me and Sandy Sigiloff. Isn't it amazing how much Sandy influenced his life? The blood rose in my eyes, I swerved and pulled the car onto the shoulder of the highway. My gut told me this was a terrible mistake, and my premonition so far had been right. Get out of the car, I said. Get out of the goddamn car. The man just looked at me. He thought I was crazy. We were in the middle of nowhere. Cars and trucks were zipping by. I said get out of the car. You are a stupid son of a bitch. Do you think I would get in bed with an imbecile like you? Get out of the car. You can walk to the airport for all I care. I then got out of the car, and as the man timidly got out, I tossed his luggage by the side of the road. Please don't leave me here, the man pleaded. I have to catch a plane. After several minutes still fuming, I”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

31. “That would be kind of tough for us, I said. But if we could figure out a way to pay for auto expenses, maybe we can do that. Okay, the man said. Another thing is that everybody needs to take a 10% cut in salary. I stared at him in disbelief. Everybody? Yes. Do you know what I just went through to hire these people? I hired them from all over the United States. I brought them here. I sold them on this dream. They took less money than they ever had made before, and they left their security, all of those things, and you want me to cut their salaries by 10%? Yes. Well, I guess we could do that if it's so important to you. Now, the man said, is the best of all I am not paying your employees or managers medical insurance. I think they should get it on their own.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

32. “Well, I need you to have you a vest. We started the business. We left everything in California. They relocated to Georgia, by the way, especially our support systems, I said, puzzled. We are sacrificing our lives here. No, I mean more than that, he said. First of all, you should not have company cars. We had leased company cars because so much of our time was spent in cars driving all over Georgia on company business, and none of us could have afford to buy cars. Pat, this is another, all these guys he's naming her are the other co-founders of Home Depot. Pat was broke. I was broke. Arthur and Ron had no money either. So at the time, they're ranging anywhere from Late 20s to actually anywhere from 30s to 40s and they're all basically broke.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

33. “So they do a deal, they agree $3 million. Okay, everything's good. So now he needs to drive after they do the deal. They agree, but the money hasn't been deposited yet. And he has to drive. Bernie is now driving his new investor to the airport. And this is the new investor. Listen, there are things I didn't want to talk about in the office because they are very sensitive and I want to discuss them with you, he said. What are they? I asked. First, I need two men on the board of directors. That was easy, something anticipated. Okay, you got it. Now, when I make an investment, I like people to invest with me, and I need an investment on your part. What do you mean investment?”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

34. “You guys made a ton of money on Bernie and Arthur, he told them. Take a portion of it, roll it into their new business, and sure it's a real, real gamble. So what the hell? Let's drop it here and see if these guys can roll sevens again. In the end, they gave us two million dollars in two years to open up any business that we chose. This is the way our company started. Okay, so now I'm skipping ahead. Remember he said he needed 25 million to start the company. Using 2 million a seed capital, and they're going around and trying to raise the rest. And so they do a deal with this Boston-based venture capitalist, or they do an almost deal. And so the moral of the story I'm about to tell you is do not work with people who have no clue what it means to care about people.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

35. “So a short while later, this is the importance of equity. Remember, Bernie was talking about earlier, despite holding all these fancy titles, he just never really had money, even all the way up until the age of 49. And so Ken, what Ken does is he sets up a meeting with a bunch of his investor friends, and he's doing a presentation on why they should give the Home Depot guys $2 million. He says, we felt like beggars. This is Bernie talking. Asking these successful peoples to invest in our company. Not that that was necessary. They gave us a rousing reception. Why? These were the people who bought handy dance stock between $3.09 a share and sold it at $25.50 a share. Of course they loved us. Of course, while they had made tons of money, we were broke The importance of equity. The irony wasn't lost on Ken.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

36. “That doesn't make sense, Arthur argued. That means we'll have a better deal by walking away from this deal. And this is a great quote from Ken. That's right, Ken said. In the retail business, when you can't sell something, you mark it down. In my business, when you can't sell something, we mark it up.”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

37. “And that is how we walked away from Ross Perot. The interesting thing is that if Perot hadn't been so hung up on Cadillacs, his original 70% share of the Home Depot stock would be worth approximately fifty eight billion dollars today. So after that, they have to, they're all talking him, Arthur, and Ken. And he says, I was the first to speak. What do we do now? Now we are going to raise the $2 million at 50%. Ken said defiantly. What are you talking about? Arthur said. Let's put together a group of investors where you won't have to worry about that. I'm going to get my 5%, Ken explained. You guys are going to have 45% and the next investors will get 50%.”

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38. “I will tell you what to do and what not to do. Regaining my composure, I smiled. Ross, I have to talk to Kenny for a minute. Would you mind if we step outside? Ken was perplexed. Look, Kenny, I whispered, I know Perot is a very important person in your life, and you have to understand something. If this guy is going to be bothered by what kind of car I am driving, how much aggravation are we going to have when we have to make really big decisions? If we can't be free to run the business the way we know it has to be run, it isn't going to work. I am never going to have this man for a partner. I would rather starve to death. You must be out of your mind. Are you crazy? My God, he's going to give you $2 million, Kenny said. Kenny, I wouldn't touch you with a 10-foot pole. I am out of here, I said, and I headed down the hall.”

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39. “My mind flashed back to the day Sigilov and I nearly came to blows during a board of directors meeting when we went into another room to hash out our disagreement privately. Singalov told me that he was the boss. He controlled my career and I needed to understand that. Then he demanded that I literally repeat that back to him. I said nothing of the sort. Nobody controls my life but me. Let me just interject here. So people are so bizarre, especially people that are, let me rephrase, people that are insistent on controlling other people I find extremely bizarre. The idea that you want to grown 45-year-old man to repeat back to you that I'm the boss is just bizarre to me. Now I was looking across a different table staring at Ross Perot. My blood pressure rising, my face turning red, and I was hearing Sigilov's words coming out of Perot's mouth. I am the boss, I control your life.”

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40. “It's a Cadillac. Perot did not like that answer at all. My people don't drive Cadillacs, he said. My guys at EDS drive several Chevrolets. That's fine, I said. I think it's a good policy for you, but this is a new company reforming, not EDS. And look, this is a four-year-old car, and I'm a big guy. It's cheaper to have an old Cadillac than it is to go out and get a new Chevrolet. So how do we pay for it? Not that that question meant anything. My people don't drive Cadillac's perult again. And again, my people don't drive Cadillacs. And when he said it for the third time, I realized this was never going to work. Perot was establishing who and what his position was and what mine was, partners or not.”

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41. “The least, this is such a weird story. The least car I had been driving was still being paid for by Handy Dan, but the company would repossess it unless I planned to take over the lease or buy it for the depreciated value. This was a good deal for the company, for the new company. We ought to try to save as much money as we can, I said. I would like to buy it outright at the depreciated value. Would you like me to buy it, and then I will just charge it to our entity? Or do you want me to give me a check and I will pay for it? That's fine, Perot said. You can either do that or buy a new car. I don't really care. But then Perot decided to test me. What kind of car is it? Perot asked in that peculiar Texas draw of his”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source

42. “There were strong signals of future culture conflicts, however. We were more than a little discomforted by the military nature of EDS, including the corporate uniforms. Everybody had to wear shirt and tie and the only acceptable shirt color was white. During a discussion of what perks would go with my salary, I told Perot I had a small problem. While my salary and perks would be similar to those I enjoyed at Handy Dan, there was the matter of a company car.”

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43. “But Smith couldn't get his head wrapped around that. So Ken turned to Perot. So he's jumping in because Smith is saying, hey, I don't like the steal. Ken's on the meeting, so Ken talks to Perot. I just don't agree with Brian, Ken said. He doesn't understand the concept, meaning the higher volume, lower prices. Perot wasn't one who was worried wasn't one who worried much about stepping on the views of his underlings. He wanted to do what was best for the business. Smith, meanwhile, remained resistant to the deal. For his $2 million, Perot would own 70% of the company, as yet unnamed. Ken would give 5% and we would own 25%. Out of our 25%, we could bring in a team of people such as Ron Brill and others. Ron worked for Bernie at Handy Dan. And he winds up being one of the co-founders of Home Depot. We made one final trip to Dallas intended to iron out a few final details.”

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44. “And this story really could be called My People Don't Drive Cadillacs, and we'll get there in one second. But Smith thought our retail concept was a bad idea. At the time, gross margins in the industry were about 44%. Really big markups. But we were talking about gross margins being as low as 29%. We expected to make up the difference and more on volume. But Smith just couldn't get Perot's wallet wrapped around that concept. So I left it out, even though he's one of my favorite people I've ever covered. Bernie ends up having a close relationship with Sam Walden. And a lot of the decisions they make for Home Depot, specifically lowering margins and then selling lower prices but more volume, he borrowed directly from Sam and the people running the business after Sam died. Are retired the first time. All right, so.”

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45. “During this time, Perot hired a consultant named Brian Smith. Perot gave our presentation materials to Smith for a second opinion. At our next meeting, the new man was alongside Perot. Perot introduced Smith and I could see a barrier already developing between me and Perot. So first meeting, hey, I don't want to deal with anybody else. Yeah, okay, great. You're straight talk. You have my word. Second meeting, here's this new guy. Ken raised the issue later and Perot waved it away. He said that because of his intense travel schedule, we would need someone who could act and make decisions in his absence. Smith was that man. Uneasy, I let it slide for the time being.”

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46. “Call you, and you and I will agree on how we proceed. I am not going to a captain or a lieutenant. I am not interested in that nonsense. If we get caught up in corporate crap, I won't be a part of it. It was my way of throwing down a gauntlet challenging Perot to accept me for who and what I was. I like straightforward people, Perot said. No, I wouldn't put anybody in between us. You have my word.”

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47. “Might have been retired at the time. Anyway, so that's the little background on Ross Pro. So it says he was a model of American Free Enterprise System. He was a patriot for the entrepreneurial spirit who literally created something out of nothing. A former IBM salesman. And look at him now, I thought. Ken told Perot about how Arthur and I had built this great business, Handy Dan, and the injustice of Sigiloff had committed against us. Ken told the story in a way that we could not and perot ate it up. There were a few structural and compatibility issues that I felt I needed to run by Perot right from the beginning to see if we would be compatible. Ross, I said, I am not interested in doing anything with you unless I know that I am going to deal directly with you. I don't want to deal, this is Bernie talking to Ross. I don't want to deal through intermediaries and I will not become part of your existing organization. If I have a problem, I will”

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48. “So Ken took me to meet Perot in Dallas. My first impression was that of a gregarious and enthusiastic man who was a model of the American free enterprise system. Remember, Rosper became, at least I became aware of him and famous. In the 60s and 70s, he founded this technology company called EDS, which a lot of people compare to EDS had the impact in the 60s and 70s that Microsoft had in the 80s and 90s. But I didn't know that. I only knew of Russ Bro when he ran for president and he garnered like, I think he had the most third-party votes ever in the history of U.S. elections. And that was much after, that was, you know, after he was very successful. I think he was already.”

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49. “A story. So we're introduced with Ken when he's starting Home Depot where there's an interesting story, almost like I would say like a prequel to Ken's career that is the bonus episode. It's fascinating. It doesn't really fit into what we're doing here focusing on Bernie and Home Depot. But there's some lessons in there. Some good lessons in there, so that's what I made the bonus episode on. All right. So it says because he was the only person Ken Lingone knew with $2 million to spare, Ross Perot nearly became the majority owner of the Home Depot. And this is probably one of the great what-if business stories of all time.”

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50. “So Ken, as you can see, he just hung up and got right to work, Bernie referenced earlier that the speed at which Ken moves was disorienting to him. So I'm going to skip ahead. So they're looking for seed capital. Home Depot. Okay. And there's this really bizarre, unexpected story right in the middle of the book. They're meeting with a bunch of that I want to share with you. They're meeting with a bunch of businesses and wealthy individuals and they're trying to round up this money, right? And this name will probably sound familiar to you guys. And so this is the story of how Bernie walks away from Ross Perot. And this week's founders members episode, the extra episode for this week, is actually”

    2018-11-05 · Founders · #45 Built From Scratch: How A Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion · IDENTIFIED FROM THE TRANSCRIPT · source