Coca-Cola Executive Donald Keough’s Ten Commandments for Business Failure [Book Summary]

Coca-Cola executive Donald KeoughDuring a remarkable business career of 60+ years, Coca-Cola executive Donald Keough (1926–2015) developed an inspiring lecture on leadership failures. At the prompting of Warren Buffett, a former neighbor and friend, Keough published his lecture as Ten Commandments for Business Failure.

Keough worked for the Coca-Cola Company for 43 years and rose through the ranks to become its President and COO. Following retirement in 1993, he served on the boards of Coca-Cola, Buffett’s Berkshire Hathaway, and many other organizations.

At Coca-Cola, Keough steered the company’s global product expansion and directed its iconic brand image and enviable distribution network. He became the business world’s most celebrated non-CEO leader.

Keough gained reputation as the public face of Coca-Cola’s 1985 New Coke misadventure—he delivered an on-TV mea culpa (see YouTube video) and announced the volte-face reinstatement of “Coca-Cola Classic.”

Donald Keough’s Straightforward Analysis and Leadership Lessons

'Ten Commandments for Business Failure' by Donald Keough (ISBN 1591844134) Keough’s Ten Commandments for Business Failure is a predictable, yet insightful—even if circuitous—exploration of ten (and a bonus) leadership mistakes.

  1. Quit Taking Risks: “Failures, for all the valuable lessons that they teach us in hindsight about management blunders, are simply risks that just didn’t work out. Such miscalculations, costly though they might be at the time, are part of the price of staying in business. As Peter Drucker pointed out nearly fifty years ago, it is management’s major task to prudently risk a company’s present assets in order to ensure its future existence.”
  2. Be Inflexible: “Flexibility is a continual, deeply thoughtful process of examining situations and, when warranted, quickly adapting to changing circumstances. It is, in essence, the key to Darwin’s whole notion of the survival of the fittest. … Most recalcitrant business leaders would certainly never actually characterize themselves as inflexible. More than likely they would pay lip service to a philosophy of change, expressing the usual platitudes about how they embrace change and welcome it.”
  3. Isolate Yourself (i.e., Be Out of Touch): “One of the traits of many of the legendary builders of business was that they had an uncanny ability to know and relate to their employees at every level … if you isolate yourself, you will not only not know what you don’t know about your business, but you will remain supremely and serenely confident that what you do know is right. Isolation, carried to its most extreme form, tends to breed a sense of almost divine right.”
  4. Assume Infallibility: “The infallible we-know-best attitude of management has caused many companies to ignore reality and miss opportunities … If you want to increase your chances of failure, deny the possibility that you are not always 100 percent perfect in your judgment. Ignore the fact that sometimes others do know a thing or two. … So, if you want to fail, pose as an infallible leader.”
  5. Play the Game Close to the Foul Line: “Business finally boils down to matters of trust consumers trust that the product will do what it promises it is supposed to-investors trust that management is competent-employees trust management to live up to its obligations. In recent years we seem to have quite a few smart, energetic people who have evidenced a rather fuzzy view of the right thing.”
  6. Don’t Take Time to Think: “Time to think is not a luxury. It is a necessity. As Goethe noted: “Action is easy; thought is hard.” Yet action frequently-in fact, more often than not-takes on a life of its own. We pay homage to reason, but we are held hostage to emotion. We are, after all, feeling creatures, and in the excitement of a particular endeavor once the ball is rolling, it’s difficult to stop.”
  7. Put All Your Faith in Experts and Outside Consultants: “The narrow perspective of what appears to be genius is often the inverse of wisdom.”
  8. Coca-Cola Company's COO Donald Keough with Investor Warren BuffettLove Your Bureaucracy: “As [Warren] Buffett said, “It’s unbelievable how much bureaucracy can build up in businesses, particularly those in which you can pass almost all of your costs to the consumer.” … On the hazards of bureaucracy: at their worst, they cannot only impede success, they can also precipitate disaster. … The more cooks there are in the kitchen, the greater the chance that bureaucratic decision making will either be deadlocked or the decision will become an exercise in group wishing. … Ultimately, a bureaucracy can become so dysfunctional that there is literally no one who can rain on the parade. The team can never make anything approaching an objective decision.”
  9. Send Mixed Messages: “Sending mixed or confused messages to your employees or your customers will jeopardize your competitive position, and result in failure.”
  10. Be Afraid of the Future: “The most serious problem with great pessimism is that it is absolutely paralyzing. People are so afraid of dire consequences that they throw their hands up in despair and do nothing. Fear of the future guarantees that the future will be a failure. … To aspire to any kind of leadership in business you simply have to be a rational optimist. One optimist in a sea of pessimists can make all the difference.”
  11. Lose Your Passion for Work-for Life: “A major component of happiness in the business world is finding something you love doing, whatever it might be, and then finding a way to do it. To have success you have to have a high level of unadulterated desire to get up and go to work. … The easiest way to develop an inner passion in a business setting is to focus all your mind and heart on four aspects of your world: your customers, your brands, your people, and, finally, your dreams.”

Words of Wisdom from a Distinguished Corporate Executive

Donald Keough was the public face of Coca-Cola's 1985 New Coke misadventureAmong the myriad offerings of “rules for success” volumes, books such as The Ten Commandments are distinctive for their memorable business stories and examples. Keough’s candid analyses include narratives as captivating as the historical origin of Coke, the commercial history of the xerographic machine, the Coke-Pepsi rivalry, Coca-Cola Company’s ownership of Columbia Pictures, and the New Coke debacle. When asked in an interview if New Coke was worth the risk, Keough famously replied,

I wouldn’t want to do it again. But it was an enormous learning experience, and oddly enough, it turned out to be positive for the Coca-Cola Company. Our sales increased when we brought the original formula back. The reaction from our customers was overwhelming. Once we realized that we had made a mistake, I went on television and simply said that we don’t own this brand, you do. You’ve made it clear that you want the original formula back, and you’re getting it back.

Henry Ford and Model TIn the chapter on flexible and adaptive leadership, Keough blames Henry Ford’s stubbornness for the flagging market share of the Model T vehicle. During the mid-1920s, the industrial triumph of his mass production system and the commercial success of the Model T blinded Henry Ford to a budding customer penchant for cosmetic customization and convenience features. Electric starters, for example, were starting to be perceived as essentials and not as luxuries. Keough argues,

Henry Ford reportedly said, regarding the Model T, “They can have it in any color they want, as long as it’s black.” For a long time that was just fine. But then people began to get tired of the black tin lizzies. Yet even as America was roaring into the 1920s with bigger, faster, fancier, brightly painted automobiles, Henry Ford kept insisting that the Model T, essentially unchanged since 1908, was still what America wanted and needed and he was not going to change his mind. Inevitably, upstarts like Chevrolet and Dodge began to erode Ford’s market and seriously challenge the company’s dominant leadership. At last, more rational minds prevailed and Ford admitted the need to produce a better vehicle. After shutting down his main plant for six months, he successfully launched the Model A in 1928. But Henry Ford’s inflexibility had brought the company to the brink of disaster and cost it a competitive edge that it has never regained.

Recommendation: As a fast read, Donald Keough’s The Ten Commandments for Business Failure is worthwhile for its many nuggets of business history. Even though many of his cautionary lessons are not entirely unexpected, some are insightful. The “play the game close to the foul line” warning about values and ethics is especially thought-provoking. Keough writes, “The fact is, if you play on the edge the organization will step over the line from time to time. It is inevitable. Warren Buffett says: ‘Play to the center of the court’.”

Lessons on Adversity from Charlie Munger: Be a Survivor, Not a Victim

Lessons on Adversity from Charlie Munger: Be a Survivor, Not a Victim

Munger: One of the Most Respected Business Thinkers in History

Berkshire Hathaway’s Vice-Chairman Charlie Munger (b. 1924) is a distinguished beacon of rationality, wisdom, and multi-disciplinary thinking. As Warren Buffett’s indispensable right-hand man, Munger has been a prominent behind-the-scenes intellectual who has created billions of shareholder wealth.

'Seeking Wisdom: From Darwin to Munger' by Peter Bevelin (ISBN 1578644283) The story of Charlie Munger’s life is an archetypal American Dream: a hardworking, principled young man overcomes life’s trials and tribulations, and builds a billion-dollar fortune through industry, diligence, candor, and an obsession with self-improvement. Munger is also a prominent philanthropist. He preferred to donate his money now rather than give it as a bequest with the intention of appreciating the results of his giving. After donating $110 million to the University of Michigan at Ann Arbor, Munger said, “I’m soon going to be departed from all of my money, why not give more of it away while I get the fun of giving it?”

“Horrible Blows, Unfair Blows” on the Road to Success

Munger’s sharp mind, irreverent, outspoken outlook, and commonsense-thinking are legendary. For fans who flock to Omaha to witness him and Buffett at Berkshire Hathaway’s annual meeting, the 92-year old Munger remains a cult figure.

At age 17, Munger attended the University of Michigan but dropped out to enlist in the military during World War II. After the war, he entered Harvard Law School without an undergraduate degree and graduated in 1948 with a J.D. magna cum laude. He started practicing law in Los Angeles, but gave up his practice at the urging of Warren Buffett to concentrate on managing investments and developing real estate. He never took a course in business, economics, or finance but became a billionaire. He ascribes most of his “worldly wisdom” to his zeal for self-improvement (identical to his idol Benjamin Franklin) and plenteous reading. He once said, “In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time—none, zero. … My children laugh at me. They think I’m a book with a couple of legs sticking out.”

Even if Munger remains an inspiration for a life well lived, his life has not been entirely perfect. Consider some of the struggles he coped with on his pathway to success.

  • 'Damn Right - Charlie Munger' by Janet Lowe (ISBN 0471446912) At age 29, in 1954, Munger got divorced from his wife after eight years of marriage. Munger lost everything to his wife including his home in South Pasadena. According to Janet Lowe’s insightful biography Damn Right, Munger moved into “dreadful bachelor digs” at Pasadena’s University Club and drove an “awful” yellow Pontiac with a shoddy repaint job. That car made him “look as if he had not two pennies to say hello to each other.” When daughter Molly Munger probed, “Daddy, this car is just awful, a mess. Why do you drive it?” The impoverished Munger replied, “To discourage gold diggers.”
  • The financial pressure came at a testing time. A short time after the divorce, Munger’s 9-year old son Teddy was diagnosed with leukemia. At that time, cancer survival rates were insignificant and Munger had to pay for everything out-of-pocket because there was no health insurance. According to his friend Rick Guerin, Munger would visit the hospital when his son “was in bed and slowly dying, hold him for a while, then go out walking the streets of Pasadena crying.” Teddy died a year later in 1955.
  • Many years later, Munger had a horrific cataract surgery in his left eye that rendered him blind with pain so severe that he eventually had that eye removed. Recently, when doctors notified Munger that he had developed a condition that was causing his remaining eye to fill up with blood, he stood the risk of losing his vision in his other eye too. Being the obsessive reader that he is, the prospect of losing eyesight entirely made Munger comment, “Losing the ability to see would seem to be a prison sentence.” Undeterred, Munger was ready to brace himself for what life had to offer. He told a friend, “It’s time for me to learn braille” and started taking lessons. As luck would have it, the worrisome eye condition has since receded.

Charlie Munger on Confronting Adversity and Building Resilience

  • Adversity, hardship, and misfortune can cause people to conceive themselves as a victim of circumstances. Munger once remarked, “Whenever you think that some situation or some person is ruining your life, it’s actually you who are ruining your life. It’s such a simple idea. Feeling like a victim is a perfectly disastrous way to go through life. If you just take the attitude that however bad it is in anyway, it’s always your fault and you just fix it as best you can … I think that really works.”
  • People who choose to react as victims surrender themselves to feelings of being betrayed or taken advantage of. The resulting anger, repulsion, fear, guilt, and inadequacy are futile. Munger once said, “Generally speaking, envy, resentment, revenge, and self-pity are disastrous modes of thought; self-pity gets pretty close to paranoia, and paranoia is one of the very hardest things to reverse; you do not want to drift into self-pity.”
  • Feeling victimized and the ensuing negative thinking patterns are hard to break, but the recovery process encompasses disremembering and forgiving the past, regulating the flawed perspective of the routine ups and downs of life, and taking control and gaining power. In his 2007 commencement speech at University of Southern California’s Law School, Munger said, “Life will have terrible blows in it … horrible blows, unfair blows. And some people recover and others don’t. And there I think the attitude of Epictetus is the best. He said that every missed chance in life was an opportunity to behave well, every missed chance in life was an opportunity to learn something, and that your duty was not to be submerged in self-pity, but to utilize the terrible blow in constructive fashion. That is a very good idea.”
  • In a 2011 interview, CNN journalist Poppy Harlow asked if Munger felt betrayed by David Sokol, Buffett’s then heir-apparent who violated company standards during Berkshire Hathaway’s purchase of Lubrizol and was let go. Munger conceded that Sokol’s conduct left him sad, but not let down. “It’s not my nature … when you get little surprises as a result of human nature … to spend much time feeling betrayed. I always want to put my head down and adjust. I don’t allow myself to spend much time ever with any feelings of betrayal. If some flickering idea like that came to me, I’d get rid of it quickly. I don’t like any feeling of being victimized. I think that’s a counterproductive way to think as a human being. I am not a victim. I am a survivor.”

Playing a Victim is by No Means Beneficial or Adaptive

'Poor Charlie's Almanack' by Charlie Munger (ISBN 1578645018) Even in the face of some of the worst misfortunes that could strike you, suffering the resentments and attempting to endure pain are far superior choices than getting absorbed in feeling victimized and powerless.

Holocaust survivor Viktor E. Frankl described how his fellow captives in Nazi concentration camps survived by enduring their sufferings and refusing to give in to feeling victimized. Even when stripped of all their rights and possessions, they exercised their enduring freedom to choose their attitudes and harnessed this freedom to sustain their spirits.

In his inspiring Man’s Search for Meaning (which is one of Munger’s many recommended books,) Frankl wrote, “When we are no longer able to change a situation, we are challenged to change ourselves. … Everything can be taken from a man but one thing: the last of the human freedoms—to choose one’s attitude in any given set of circumstances, to choose one’s own way.”

Lessons on Adversity from Charlie Munger

Idea for Impact: Come what may, you’re not a victim. It is up to you to determine your response.

  • Don’t operate life on the assumption that the world ought to be fair, just, and objective. You are neither entitled nor unentitled to good treatment.
  • Recognize that you cannot control, influence, or affect in any way the inequities, injustices, discriminations, and biases that populate the world. You have power over only your life and the choice of your attitudes.
  • Never feel sorry for yourself or engage in self-pity. Don’t dwell on a “poor-me stance” and consider yourself unfortunate. Don’t become loath to taking responsibility for your actions and the consequences. Stop playing the victim by recognizing and challenging those negative voices in your head. As the Roman Emperor and Stoic Philosopher Marcus Aurelius wrote in Meditations, “Put from you the belief that ‘I have been wronged’, and with it will go the feeling. Reject your sense of injury and the injury itself disappears.”
  • When life knocks you over, allow yourself a modest amount of grieving. Then, gather yourself back together, get up, dust yourself down, renegotiate your hopes and dreams, align yourself with reality, put yourself back in the saddle, and get on with life. The ability to rebound quickly from failures and disappointments is one of the key differentiators between successful and unsuccessful people.
  • What’s important in life is not what happens to you but how you react to what happens.

Book Summary of “Marissa Mayer and the Fight to Save Yahoo!” by Nicholas Carlson

Over the holidays, I finished reading journalist Nicholas Carlson’s Marissa Mayer and the Fight to Save Yahoo! This interesting book offers an account of Yahoo’s steady slide towards irrelevance and Marissa Mayer’s early tenure as CEO.

“Complex Monstrosity Built Without a Plan”

'Marissa Mayer and the Fight to Save Yahoo!' by Nicholas Carlson (ISBN 1455556610) Carlson devotes the first third of the book to explaining Yahoo’s beleaguered history and how years of mismanagement and strategy negligence got Yahoo into the mess that Mayer inherited as CEO in 2012.

The second third is about Mayer and her brilliant career as employee number twenty at Google. In 2010, her career allegedly stalled because Mayer got sidelined after conflicts with other luminaries within Google. Relying broadly on anonymous sources, Carlson portrays Mayer’s intense nature and her personality contradictions: in public settings, Mayer is brainy, glamorous, confident, articulate, and approachable. However, in one-on-one settings, Mayer is a self-promoting, dismissive, calculating, tardy, inquisitorial individual who avoids eye contact. “There was nothing especially abhorrent or uncommon about Mayer’s behavior as an executive,” Carlson writes. “She was headstrong, confident, dismissive, self-promoting and clueless about how she sometimes hurt other people’s feelings. So were many of the most successful executives in the technology industry.”

The last third is devoted to Mayer’s initial efforts to turn Yahoo around. Within the first year at the helm as CEO, Mayer motivated Yahoo’s beleaguered workforce, launched the redesign of some of Yahoo’s major sites, and made acquisitions to make Yahoo relevant in the mobile, media, and social realms. Carlson also describes Mayer’s bad hiring decisions, habitual tardiness, tendency to micromanage, tone-deaf style of communication, and dogged devotion to establishing the universally-despised practice of tracking goals and stack-ranking employees.

Yahoo: The Fabled Legacy Internet Company on the Slide to Irrelevance

Yahoo: The Fabled Legacy Internet Company on the Slide to Irrelevance

Anybody who follows the internet content industry understands that the principal question regarding the then-37-year-old Mayer’s recruitment as CEO was never whether she could save Yahoo. Rather, the question was whether Yahoo can be saved at all.

Yahoo has been a mess for a long time. For early consumers of the internet, Yahoo’s portal was the internet—from the mid-1990s until the early 2000s, Yahoo was the number-one gateway for early users of the internet who wanted to search, email, or consume news and other information. Then, Yahoo floundered as the likes of Google, Facebook, Apple, Amazon, Twitter, and Microsoft redefined the consumer internet and content consumption. Yahoo’s successive managements struggled to identify Yahoo’s raison d’etre and failed to set it apart from the up-and-coming websites. Yahoo’s management also fumbled on opportunities to harness the popularity of Yahoo Mail, Yahoo Sports, and Yahoo Finance to get advertising revenues growing again.

Mayer’s Arrival Was Too Late for Yahoo

Marissa Mayer could not succeed in reviving YahooMayer came to Yahoo with extraordinary credentials, drive, technical savvy, celebrity, and charisma. Her tenure was centered on answering the single question, “What is Yahoo? What should become of Yahoo?”

The odds of Mayer succeeding to revive Yahoo as an independent internet content company were very bleak right from the beginning, because Mayer took on an increasingly irrelevant business with very little actual or potential operating value—either as an internet content company or as a media company. Carlson appropriately concludes,

Ultimately, Yahoo suffers from the fact that the reason it ever succeeded in the first place was because it solved a global problem that lasted for only a moment. The early Internet was hard to use, and Yahoo made it easier. Yahoo was the Internet. Then the Internet was flooded with capital and infinite solutions for infinite problems, and the need for Yahoo faded. The company hasn’t found its purpose since—the thing it can do that no one else can.

Since the publication of the book in December 2014, Mayer has dedicated her leadership to selling Yahoo’s core internet businesses and its patent portfolio. Yahoo is expected to then convert itself into a shell company for its investments in Alibaba (15.5% economic interest) and Yahoo Japan (35.5%.)

Recommendation: As a fast read, Marissa Mayer and the Fight to Save Yahoo! is great. Beyond Nicholas Carlson’s gossipy narrative and his pejorative depiction of Mayer’s management style, readers of this page-turner will be interested in Yahoo leadership’s strategic and tactical missteps. Particularly fascinating are how Yahoo missed opportunities to buy Google and Facebook when they were mere startups, the rebuffing of an acquisition bid from Microsoft, a lack of strategic focus, the leadership skirmishes with activist investors, the revolving door at the CEO’s office, and an Asian-asset drama.

Silicon Valley’s Founding Fathers / Book Summary of David Packard’s “HP Way”

Bill Hewlett and David Packard: Silicon Valley's Founding Fathers

'The HP Way' by David Packard (ISBN 0060845791) David Packard’s The HP Way recalls how he and Bill Hewlett started one of the world’s most successful corporations in 1937 with just $538 (today’s $8,850 when adjusted for inflation) and a rented one-car garage in Palo Alto, California. That garage is recognized today as the birthplace not only of Silicon Valley, but also of a new management approach.

Bill and David first met as electrical engineering students at Stanford University. Despite their different dispositions, they shared a passion for the outdoors and, with a professor’s encouragement, started Hewlett-Packard (HP) to commercialize the latest “radio engineering” theories. Over the decades, HP invented many groundbreaking electrical gadgets that were crucial to the development of radars, instrumentation devices, computers, and other technological revolutions.

In addition to their technical innovations, Bill and David established many progressive management practices that prevail even today. Starting in the initial days at the garage, the culture that Bill and David engendered at HP was unlike the hierarchical and egalitarian management practices that existed at other corporations of their day.

HP Garage: Birthplace Silicon Valley & New Management Style The essence of the “HP Way” was openness and respect for the individual. (Bill Hewlett once sawed a lock off a tool-room cabinet and left a note, “HP trusts its employees.”)

Management by objectives, managing by wandering about, nursing-mother facilities, flextime, decentralization, intrapreneurship, catastrophic medical insurance, profit sharing, employee stock ownership, tuition assistance, and many other management principles that dominate human resources practices today were all pioneered—if not invented—at HP.

Recommendation: Read. The HP Way tells the story how Bill and David built a company based on a framework of principles and the simplicity of their management methods. Good to Great author Jim Collins once wrote in commending David Packard’s The HP Way, “The greatest lesson to be divined from this book isn’t so much how to create a similar company but how creating a company based on a strong and clear set of values can lead to outstanding success.”

Postscript: Notes from ‘The HP Way’

  • Like Sam Walton, the other illustrious entrepreneur of their generation, Bill and David grew up witnessing Americans’ hardships during the Great Depression. This made them risk-averse; they vowed never to incur long-term debt to expand their fledgling company.
  • On the day Hewlett-Packard went public in 1961, David Packard took a subway instead of a taxi to Wall Street, lost his way, and reached the New York Stock Exchange late.
  • The foundations that Bill Hewlett and David Packard established individually with 95% of their stakes in HP are today two of the most prominent philanthropies in America.

Lessons from Sam Walton: Learning from Failure

Sam Walton (1918–1992) experienced failures and setbacks. And, like all successful people, the iconic founder of Walmart and Sam’s Club prided himself on learning from those experiences.

Lessons from Sam Walton's Autobiography: Learning from Failure

Walton’s Initial Success … and Then, in a Heartbeat, Failure

By 1950, a 32-year-old Sam Walton had established himself as a successful retailer in Newport, Arkansas. In 1945, Walton had purchased a Ben Franklin variety store and set up a five-year personal goal to make it the most profitable variety store in the region. By 1950, Walton had a record $250,000 in sales and $30,000 to $40,000 in profit (some $2.5 million in sales and $300,000 to $400,000 in profits in today’s dollars.) His success had attracted a lot of attention.

Not only that, the young Walton family—Sam, his wife Helen, and four young children—had firmly established itself in Newport. Sam and Helen were very active in the community and had taken up prominent civic and church duties.

An innocuous legal oversight cost him this success. When he had signed the lease on the property rental for his Ben Franklin variety store in 1945, thanks to inexperience and excitement at becoming a merchant, Walton had agreed to give back the landlord 5% of sales. He later discovered this was the highest any retailer had paid for rental.

More significantly, Walton had also neglected to add a clause in his lease that would give him the option to renew the lease after five years. Therefore, in 1950, when the lease on Walton’s Ben Franklin store expired, his sneaky landlord knew there was nowhere else in town for Walton to relocate his store. The landlord refused to renew Walton’s lease at any price! The landlord bought Walton’s well-established store along with its fixtures and inventory and transferred the store to his son. Walton was devastated; he had no choice but to give up his successful store. In his best-selling autobiography Made in America, Walton recalled this as the lowest point of his business life:

I felt sick to my stomach. I couldn’t believe it was happening to me. It really was like a nightmare. I had built the best variety store in the whole region and worked hard in the community, done everything right, and now I was being kicked out of town. It didn’t seem fair. I blamed myself for ever getting suckered into such an awful lease, and I was furious at the landlord. Helen, just settling in with a brand-new family of four, was heartsick at the prospect of leaving Newport. But that’s what we were going to do.

Walton family: Sam Walton, his wife Helen Walton, and four young children

Sam Walton Was Not One to Dwell on Disasters

All the hard work he had put in to build a successful store and the earning power he had established over five years had become worthless because of an innocuous mistake. Nevertheless, Walton didn’t let this disaster get him down.

I’ve never been one to dwell on reverses, and I didn’t do so then. It’s just a corny saying that you can make a positive out of most any negative if you work at it hard enough. I’ve always thought of problems as challenges, and this one wasn’t any different. I don’t know if that experience changed me or not. I know I read my leases a lot more carefully after that, and may be I because a little wary of just how tough the world can be. Also, it may have been about then that I began encouraging our eldest boy—six-year-old Bob—to become a lawyer. But I didn’t dwell on my disappointment. The challenge at hand was simple enough to figure out. I had to pick myself up and get on with it, do it all over again, only even better this time.

This Newport experience turned out to be a blessing in disguise for Walton. His family relocated to the relatively obscure Bentonville, Arkansas, for a brand-new start. Walton started over and established himself as a retailer again—only in even bigger and better ways. In 1962, Walton decided that the future of retailing lay in discounting. His strategy of buying low, selling at a discount, and making up for low margins by moving vast amounts of inventory, made Walmart the most successful retailer ever. From 1985 until his death in 1992, he was the richest man in the world.

Successful People Learn from Failure and Get On

'Sam Walton: Made In America' by Sam Walton (ISBN 0553562835) Walton’s was a typical entrepreneurial response to failure—successful people take risks, fail sometimes, but pick themselves up, ask what they can learn from the experience, and try again, even harder the next time.

On a related note, Bill Gates, the most successful entrepreneur of his generation, once said, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.”

Complement this lesson on failure with J.K. Rowling’s reflections on the benefits of failure in her famous 2008 commencement address at Harvard: “Failure meant a stripping away of the inessential. I stopped pretending to myself that I was anything other than what I was, and began to direct all my energy into finishing the only work that mattered to me…The knowledge that you have emerged wiser and stronger from setbacks means that you are, ever after, secure in your ability to survive.”

Serendipity and Entrepreneurship in the Invention of Corn Flakes

In previous articles about Johnson’s Baby Powder and Picasso’s Blue Period, I discussed serendipity as a rich phenomenon that is central to entrepreneurial and artistic processes. In this article, I will discuss another case study of ideas born by chance and reinforced by casual observation and customer input.

One of America’s Favorite Cereals was Invented by Fortuitous Accident

Will Keith Kellogg invented corn flakes in 1894 at a sanitarium in Battle Creek, Michigan Will Keith Kellogg invented corn flakes in 1894 at a sanitarium in Battle Creek, Michigan. Will worked there as an assistant to his brother Dr. John Harvey Kellogg and helped research patients’ diets.

One day, while making bread dough at the sanitarium, Will accidentally left boiled wheat sitting out overnight unattended. When he returned to roll the wheat into dough, he discovered that it had dried out and was flaky. Interested to see what would happen, Will passed the flaky dough through the bread rollers and baked them to create a crunchy snack. He seasoned the flakes with salt and fed them with milk to the sanitarium’s patients. The wheat flakes were an immediate hit. Indeed, after some patients left the sanitarium, they ordered Kellogg’s flakes by post.

Will Kellogg’s Entrepreneurial Ingenuity

Serendipity and Entrepreneurship in the Invention of Kellogg Corn flakes Will Kellogg then tinkered his recipe for wheat flakes and ultimately settled on using corn in place of wheat as the flakes’ main ingredient.

In 1906, Will Kellogg launched “The Battle Creek Toasted Corn Flakes Company.” In addition to inventing corn flakes, Kellogg had a genius for business and marketing. He was a pioneer in testing markets, sampling products, using multi-color print advertisements, and developing innovative marketing campaigns.

Kellogg was keen on using slogans to promote his company’s products. In 1907, he introduced a marketing campaign that declared, “Wednesday is Wink Day in New York.” Every woman who winked at her grocer on a Wednesday received a free packet of corn flakes. Corn flakes sales skyrocketed.

Will Kellogg was also a prominent philanthropist and, in 1934, started the W. K. Kellogg Foundation.

The company Will Kellogg founded eventually became Kellogg Company, a prominent cereal and convenience foods multinational.

Ten Rules of Management Success from Sam Walton

Sam Walton (1918–1992,) the iconic founder of Walmart and Sam’s Club, was arguably the most successful entrepreneur of his generation. He was passionate about retailing, loved his work, and built and ran Walmart with boundless energy.

'Sam Walton: Made In America' by Sam Walton (ISBN 0553562835) “Made in America” is Walton’s very educational, insightful, and stimulating autobiography. It’s teeming with Walton’s relentless search for better ideas, learning from competitors, managing costs and prices to gain competitive advantage, asking incessant questions of day-to-day operations, listening to employees at all levels of Walmart, and inventing creative ways to foster an idea-driven culture. “Made in America” is also filled with anecdotes from Walton’s associates and family members—in fact, some of their opinions are less than flattering.

Former CEO of General Electric Jack Welch once said, “Walton understood people the way Thomas Edison understood innovation and Henry Ford, production. He brought out the very best in his employees, gave his very best to his customers, and taught something of value to everyone he touched.”

Here are ten insightful management ideas from “Made in America” with the relevant anecdotes from Walton or his associates.

  1. When hiring employees, look for passion and desire to grow. Having the right skills and qualifications is no doubt essential in a potential employee, but a better predictor of long-term success and career advancement is his/her passion for learning new things, commitment to a task, and a drive to get things done. A former Walmart executive recalls, “Sam would take people with hardly any retail experience, give them six months with us, and if he thought they showed any real potential to merchandise a store and manage people, he’d give them a chance. He’d make them an assistant manager. They were the ones who would go around and open all the new stores and they would be next in line to manage their own store. In my opinion, most of them weren’t anywhere near ready to run stores, but Sam proved me wrong there. He finally convinced me. 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.”
  2. Delegate and follow up. Delegation is indispensable; yet it remains one of the most underutilized and underdeveloped managerial skills. One element of effective delegation is consistent follow-up. Far too often, managers will delegate a task and then fail to follow up to see how things are going. Such failure to follow-up is tantamount to abdication of accountability for results, which still lies with the manager. Former Walmart CEO David Glass recalls, “As famous as Sam is for being a great motivator … he is equally good at checking on the people he has motivated. You might call his style: management by looking over your shoulder.”

Management Ideas from Sam Walton

  1. Persist and rally people to the cause. Passionate managers demonstrate the energy and drive needed to rally their teams around a shared vision. They engage their employees with the same messages over and over, escalate their sense of urgency, and get their vision implemented quickly. Former Walmart CEO David Glass recalls, “When Sam feels a certain way, he is relentless. He will just wear you out. He will bring up an idea, we’ll all discuss it and then decide maybe that it’s not something we should be doing right now—or ever. Fine. Case closed. 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.”
  2. Mentor, critique, and inspire employees. Mentoring employees is an effective way to improve employee performance and build trust and loyalty. Effective mentoring is not merely telling employees what to do. It is helping them broaden and deepen their thinking by clarifying their goals and asking the right questions. Effective mentoring is also about supporting employees as they learn and practice new skills and habits. Walton writes, “I’ve been asked if I was a hands-on manager or an arm’s-length type. I think really I’m more of a manager by walking and flying around, and in the process I stick my fingers into everything I can to see how it’s coming along. I’ve let our executives make their decisions—and their mistakes—but I’ve critiqued and advised them.”
  3. Invest in frontline employees for better customer relationships. Much of customers’ opinions about a business come from the myriad interactions they have with customer-interfacing frontline employees, who are the face of any business. If a business doesn’t get these customer experiences right, nothing else matters. Walton writes, “The way management treats the associates is exactly how the associates will then treat the customers. And if the associates treat the customers well, the customers will return again and again, and that is where the real profit in this business lies, not in trying to drag strangers into your stores for one-time purchases based on splashy sales or expensive advertising. Satisfied, loyal, repeat customers … are loyal to us because our associates treat them better than salespeople in other stores do. So, in the whole Wal-Mart scheme of things, the most important contact ever made is between the associate in the store and the customer.”
  4. Treat employees like business partners and empower them by sharing information. Effective managers foster open communication by treating employees as co-owners of the business and sharing operational data regularly. Managers empower employees by helping them understand how their contribution makes a difference, discussing opportunities and challenges, and encouraging them to contribute to solutions. Walton writes, “Our very unusual willingness to share most of the numbers of our business with all the associates … It’s the only way they can possibly do their jobs to the best of their abilities—to know what’s going on in their business. … Sharing information and responsibility is a key to any partnership. It makes people feel responsible and involved …. In our individual stores, we show them their store’s profits, their store’s purchases, their store’s sales, and their store’s markdowns.
  5. Never be satisfied. There’s always room for improvement. Effective managers never rest on their laurels and are persistently dissatisfied with the status quo. They possess a pervasive obsession for discovering problems and improving products, services, and people. Home Depot founder Bernard Marcus recalls, “If you ask Sam how’s business, he’s never satisfied. He says, ‘Bernie, things are really lousy. Our lines are too long at the cash registers. Our people aren’t being helpful enough. I don’t know what we’re gonna do to get them motivated.’ Then you ask some of these CEOs from other retail organizations who you know are on the verge of going out of business, and they brag and tell you how great everything is. Really putting on airs. Not Sam. He is down to earth and knows who he is.”

Insightful Management Ideas from Sam Walton

  1. Appreciate employees and give honest feedback. A key determinant of employee engagement is whether employees feel their managers genuinely care. Do the managers provide regular, direct feedback, both appreciative and corrective? Do they coach employees in their learning and career growth? Walton writes, “Keeping so many people motivated to do the best job possible involves … appreciation. All of us like praise. So what we try to practice in our company is to look for things to praise. … We want to let our folks know when they are doing something outstanding, and let them know they are important to us. You can’t praise something that’s not done well. You can’t be insincere. You have to follow up on things that aren’t done well. There is no substitute for being honest with someone and letting them know they didn’t do a good job. All of us profit from being corrected—if we’re corrected in a positive way.”
  2. Listening to employee’s complaints and concerns could be a positive force for change. Effective managers provide their employees the opportunity to not only contribute their ideas, but also air concerns and complaints. By fostering an environment of open communication, managers who handle employee opinions effectively not only boost employee motivation, performance, and morale, but also benefit from learning directly about problems with teams, organizations, and businesses. Walton writes, “Executives who hold themselves aloof from their associates, who won’t listen to their associates when they have a problem, can never be true partners with them. … Folks who stand on their feet all day stocking shelves or pushing carts of merchandise out of the back room get exhausted and frustrated too, and occasionally they dwell on problems that they just can’t let go of until they’ve shared it with somebody who they feel is in a position to find a solution. … We have really tried to maintain an open-door policy at Wal-Mart. … If the associate happens to be right, it’s important to overrule their manager, or whoever they’re having the problem … . The associates would know pretty soon that it was just something we paid lip service to, but didn’t really believe.”
  3. Learn from the competition. Effective managers understand that keeping tabs on competitors, copying their innovations as much as possible, and reaching out to customers the way competitors do is a great strategy for growing business. Sam Walton’s brother Bud recalls, “There may not be anything (Walton) enjoys more than going into a competitor’s store trying to learn something from it.” A former K-Mart board member recalls, “(Walton) had adopted almost all of the original Kmart ideas. I always had great admiration for the way he implemented—and later enlarged those ideas. Much later on, when I was retired still a K-Mart board member, I tried to advise (K-Mart) management of just what a serious threat I thought he was. But it wasn’t until recently that they took him seriously.”

Success Conceals Wickedness

Biographies of Steve Jobs (by Walter Isaacson,) Jeff Bezos (by Brad Stone,) and Elon Musk (by Ashlee Vance)

Two common themes in the biographies of Steve Jobs (by Walter Isaacson,) Jeff Bezos (by Brad Stone,) and Elon Musk (by Ashley Vance) are these entrepreneurs’ extreme personalities and the costs of their extraordinary successes.

The world mostly regards Musk, Jobs, and Bezos as passionate, inspiring, visionary, and charismatic leaders who’ve transformed their industries. Yet their biographies paint a vivid picture of how ill-mannered these innovators are (or were, in the case of Jobs). They exercise ruthless control over every aspect of their companies’ products but have little tolerance for underperformers. They are extremely demanding of employees and unnecessarily demeaning to people who help them succeed.

  • Steve Jobs was renowned for his cranky, rude, spiteful, and controlling outlook. Biographer Isaacson recalls, “Nasty was not necessary. It hindered him more than it helped him.” Jobs famously drove his Mercedes around without a license and frequently parked in handicapped spots. For years, he denied paternity of his first daughter Lisa and forced her and her mother to live on welfare. He often threw tantrums when he didn’t get his way and publicly humiliated employees.
  • In a 2010 commencement address at Princeton, Jeff Bezos recalled his grandfather counseling, “Jeff, one day you’ll understand that it’s harder to be kind than clever.” Still, according to Brad Stone’s biography, Bezos often imparts insulting rebukes and criticisms to employees: “I’m sorry, did I take my stupid pills today?” “Are you lazy or just incompetent?” “Why are you wasting my life?” and “Do I need to go down and get the certificate that says I’m CEO of the company to get you to stop challenging me on this?”
  • According to Ashlee Vance’s biography, when an executive assistant asked for a raise, Elon Musk asked her to take a two-week vacation while he contemplated her request. When the assistant returned from vacation, Musk fired her.

“Success covers a multitude of blunders”

The great Irish playwright Oscar Wilde once remarked, “No object is so beautiful that, under certain conditions, it will not look ugly.”

The other great Irish playwright George Bernard Shaw wrote, “Success covers a multitude of blunders.”

British politician and historian Lord John Dalberg-Acton famously said, “Power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority: still more when you superadd the tendency or the certainty of corruption by authority. There is no worse heresy than that the office sanctifies the holder of it. That is the point at which … the end learns to justify the means.”

Ethics Violations by NBC News Anchor Brian Williams

Ethics Violations by NBC News Anchor Brian Williams In 2015, NBC suspended prominent news anchor Brian Williams after internal investigations revealed no less than 11 instances where he either embellished facts or bent the truth. Members of his team and NBC staffers who knew about these ethics violations chose to overlook because he was powerful. According to The New York Times,

Mr. Williams has been drawing 9.3 million viewers a night, and his position seemed unassailable. Even as the stature of the nightly newscast faded in the face of real-time digital news, Mr. Williams was one of the most trusted names in America … He was powerful. Williams had the ear of NBC boss Steve Burke. He was a ratings powerhouse. And he spent years overseeing TV’s most watched newscast. He was a winner, for himself, those around him and those above him—until it became clear the man who is supposed be among the most trusted in America had issues with telling the truth.

Power Corrupts the Mind

Brilliant men and women engage in morally wrong conduct simply because they can. They can get away with extreme pride, temper, abuse, and other disruptive behaviors because their spectacular success can and does cover many of their sins, even in the eyes of those at the receiving end of their crudeness.

Our high-achieving culture adores the successful, the powerful, and the rich. And part of this adoration is the exemption we grant these celebrities from the ordinary rules of professional civility.

Idea for Impact: The more people possess power and the more successful they get, the more they focus on their own egocentric perspectives and ignore others’ interests.

How Johnson’s Baby Powder Got Started: Serendipity and Entrepreneurship

1921 Advertisement: Johnson's Toilet and Baby Powder - Antiseptic Borated Talcum Powder

Making Fortunate Discoveries Accidentally

Alexander Fleming, the Scottish biologist famous for his 1922 discovery of penicillin, once said, “Have you ever given it a thought how decisively hazard—chance, fate, destiny, call it what you please—governs our lives?”

Serendipity is the accidental discovery of something that, post hoc, turns out to be valuable.

'Serendipity: Accidental Discoveries in Science' by Royston M. Roberts (ISBN 0471602035) The history of science is replete with such serendipitous discoveries. “Happy findings” made when scientists accidentally discovered something they were not explicitly looking for led to the discovery or invention of the urea, dynamite, saccharin, penicillin, nylon, microwave ovens, DNA, implantable cardiac pacemaker, and much more … even the ruins of Pompeii and Newton’s law of universal gravitation. (I recommend reading Royston Roberts’s Serendipity: Accidental Discoveries in Science)

In each of these instances, the crucial role of discovery or insight occurred in accidental circumstances. Therefore, we must understand serendipity’s role in terms of the circumstances that surround it.

Serendipity has also played a pivotal role in establishing many successful businesses. In fact, serendipity is a rich idea that is very central to the entrepreneurial process. As the following case study will demonstrate, many experimental ideas are born by chance and are often reinforced by casual observation and customer input.

Johnson & Johnson Got into the Baby Powder Business by Accident

Johnson & Johnson Got into the Baby Powder Business by Accident In 1885, entrepreneur Robert Wood Johnson was deeply inspired by a lecture of Joseph Lister, a British surgeon well known for his advocacy of antiseptic surgery. Johnson started tinkering with several different ideas in an effort to make sterile surgery products.

A year later, Johnson joined his two brothers to establish Johnson & Johnson (J&J) in New Brunswick, New Jersey. Their first commercial product was a sterile, ready-to-use, medicated plaster-bandage that promised to reduce the rate of infections after surgical procedures. As business developed, the Johnson brothers compiled the latest medical opinions about surgical infections and distributed a booklet called Modern Methods of Antiseptic Wound Treatment as part of their marketing efforts.

Within a few years, a doctor complained to J&J that their bandages caused skin irritation in his patients. In response, J&J’s scientific director Dr. Frederick Kilmer sent the doctor a packet of scented Italian talcum powder to help soothe the irritation. Since the doctor liked it, J&J started to include a small sample of talc powder with every package of medicated bandages.

By 1891, consumers discovered that the talc also helped alleviate diaper rash. They asked to buy it separately. The astounded J&J’s leadership quickly introduced Johnson’s Baby Powder “for toilet and nursery.” Over the years, J&J built on that huge initial success and created the dominant Johnson’s Baby product line with creams, shampoos, soaps, body lotions, oils, gels, and wipes.

J&J Got into the Sanitary Protection Products Business Too by Accident

Serendipity also played the key role in establishing J&J’s sanitary napkin business. In 1894, J&J launched midwife’s maternity kits to make childbirth safer for mothers and babies. These kits included twelve “Lister’s Towels,” sanitary napkins to staunch post-birth bleeding. Before long, J&J received hundreds of letters from women who wanted to know where they could buy just the sanitary napkins. In response, J&J introduced disposable sanitary napkins as part of its consumer products line. J&J thus became the first company in the United States to mass-produce sanitary protection products for women.

Lessons from Sam Walton: Cost and Price as a Competitive Advantage

I recently finished reading “Made in America”, the bestseller autobiography of Sam Walton (1918–1992.) The book is very educational, insightful, and stimulating.

Walton, the iconic founder of Walmart and Sam’s Club, was arguably the most successful entrepreneur of his generation. From 1985 until his death, he was the richest man in the world. On the 2015 list of the world’s richest individuals, his descendants ranked at #8, #9, #11, and #12.

Despite his immense fortune, Walton lived a humble life right up until his death. He as an enthusiastic outdoorsman and lived in a modest home in Bentonville, Arkansas, for 33 years. On quail hunting trips, he slept in smelly, old beat-up trailers and ate peanut butter sandwiches for breakfast, lunch, and dinner. He even drove a red 1985 Ford pickup and famously said, “What am I supposed to haul my dogs around in, a Rolls-Royce?”

Sam Walton's Red 1985 Ford Pickup Truck

Cost and Price Control

One of the book’s key takeaways is to “control your expenses better than your competition.” Walton says that this focus on cost-efficiency contributed more to Walmart’s enormous success than did any other aspect of his business model:

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.

A Child of the Great Depression Takes to Retail

Walton was a child of the Great Depression. The poverty he experienced while growing up in a rural Missouri farming community taught him the value of money, hard work, and perseverance.

Walton learned the value of a dollar early from his parents, who financially struggled to raise their family. The two squabbled constantly, except on one topic. “One thing my mom and dad shared completely was their approach to money: they just didn’t spend it.”

Walton was just plain cheap. His devotion to bargain became Walmart’s underpinning. He lived by a simple formula: pile it high, sell it cheap. “Say I bought an item for 80 cents. I found that by pricing it at $1.00, I could sell three times more of it than by pricing it at $1.20.” He refused to increase profit margins at the expense of price: “I might make only half the profit per item, but because I was selling three times as many, the overall profit was much greater. Simple enough.”

The Lasting Impact of Sam Walton

'Sam Walton: Made In America' by Sam Walton (ISBN 0553562835) In 1962, Walton decided that the future of retailing lay in discounting. He studied his competitors and borrowed liberally. His strategy was to buy low, sell at a discount, and make up for low margins by moving vast amounts of inventory. Over the decades, Walmart has relentlessly squeezed as much value as possible from its supply chain and passed those savings on to consumers.

Walton’s passion to serve as the “agent” for consumers has changed retailing forever. It’s hard not to overestimate Walmart’s influence on local communities and economics. Walmart’s obsessive focus on low prices changed the way Americans shop. Its bargaining power, superlative size, and logistical efficiency not only dampened inflation, but also brought about productivity gains throughout retailing and manufacturing. Its dominance has attracted backlash from labor unions, anti-sweatshop campaigners, and anti-sprawl activists. Critics also blamed Walmart for contributing to the movement toward overseas production jobs, and for destroying small-town merchants.

However, Walmart’s business model has struggled overseas, especially with profitability in countries where it operates three fourths of its international stores.

Sam Walton’s Influence on Entrepreneurs

Walton inspired legions of other entrepreneurs who thrive on managing costs and prices to gain competitive advantage. Prominently,

  • Dell’s Michael Dell kept costs low by using direct sales as his primary sales channel and orchestrating Dell’s supply chain with that of its suppliers.
  • Ryanair’s Michael O’Leary used absurdly low fares to generate demand from fare-conscious travelers who would have otherwise used alternative means of transportation or would have not traveled at all. O’Leary’s operating costs (aircraft, equipment, personnel, customer service, airport access, and handling) are one of the lowest in the airline industry.
  • Amazon’s Jeff Bezos used innovative sales-discounting methods and a strong emphasis on customer service to grab market share from traditional retailers. Without the burden of operating physical stores, Amazon’s efficiency has played a key role in the structural shift away from brick-and-mortar retail.

The “wheel of retailing” theory in corporate strategy posits that a lower-cost innovator eventually undercuts every dominant merchant. To combat the risk of cost-leadership from Amazon and other online retailers, Walmart has made major investments in e-commerce, even at the risk of cannibalizing its in-store sales.