Bernie Marcus: The Home Depot Story

“A Boston venture capitalist agreed to invest $3 million. But as Bernie was driving the investor to the airport after supposedly sealing the deal, the man revealed his conditions: eliminate all company cars, cut manager salaries by 10%, and no company-paid healthcare for employees. Bernie pulled onto the shoulder of the highway. Get out of the car. Get out of the goddamn car. The man thought Bernie was crazy. They were in the middle of nowhere.”— Bernie Marcus

Business & Entrepreneurship · Leadership & Management

DUR_ENDURING

Wrong partner worse than no money at all

“Ross Perot listened to their story and liked it. They had a deal for $2 million. But the deal fell apart over a car. Bernie had a 4-year-old Cadillac. Perot asked what kind of car. Bernie replied: It's a Cadillac. Perot: My people don't drive Cadillacs. My guys at EDS drive Chevrolets. Bernie explained the used Cadillac was cheaper than a new Chevrolet. But Perot repeated it a third time: My people don't drive Cadillacs.”— Bernie Marcus

Business & Entrepreneurship · Psychology & Behavior · Strategy & Decision Making

DUR_ENDURING

Small control issue signals massive future problems

“Rip Fleming at Security Pacific said no three times. Bernie threatened to camp out in his office with a sleeping bag. Rip fought for them inside the bank, got rejected 3 times by loan officers. Finally, Rip stormed into his CEO's office, slammed the door, and threw his resignation letter on the desk. You don't need a banker. You need a computer. Bernie Marcus and Arthur Blank are good people, and you have turned them down 3 times.”— Rip Fleming

Leadership & Management · Psychology & Behavior

DUR_ENDURING

Banker risked career for relationship capital

“Bernie developed a test that revealed everything about a store's health. When he walked in unannounced, he timed how long it took for an associate to recognize him, not because of ego, but because of what it revealed. If he could spend 45 minutes in a store without anyone recognizing him, he knew they had a serious problem. Nobody was making eye contact. If nobody was looking at his face, they weren't looking at customers' faces either.”— Bernie Marcus

Leadership & Management · Operations & Execution

DUR_ENDURING

Recognition speed reveals customer engagement level

“Ken warned Bernie: If I sell Sigaloff the stock, I'm signing your death warrant. You are a dead man. Bernie didn't believe it: Sigaloff doesn't know this business. I know this business. He needs me. Ken kept warning, Bernie insisted, so Ken sold at $25.50. In spring 1978, Bernie and Arthur show up for a planning meeting. Sigaloff had lawyers and stenographers waiting. They were fired on the spot. Sigaloff had already called the papers.”— Ken Langone

Psychology & Behavior · Leadership & Management

DUR_ENDURING

Competence doesn't protect from political elimination

“Saul Price showed Bernie a room piled floor to ceiling with depositions. These are depositions. This is what I've spent the last 3 years of my life going through. The lawsuit consumed everything, every thought, all of his energy. Even if you won, you still lost. Only the attorneys made money. Saul won his lawsuit but gained nothing. Then Saul asked: Bernie, do you think you're talented? Do you think you have the ability to build something?”— Sol Price

Strategy & Decision Making · Psychology & Behavior

DUR_ENDURING

Litigation costs everything even when you win

“Bernie believed businesses were built on relationships. When he worked with their banker Rip Fleming, Bernie told him everything: the good, the bad, the opportunities, the problems. It was total transparency. Fleming became Handy Dan's biggest supporter because of it. Sigaloff was the opposite. He viewed partners, especially bankers, as idiots to manipulate. His philosophy was keep them in the dark and feed them crap like mushrooms.”— Bernie Marcus

Leadership & Management · Strategy & Decision Making · Psychology & Behavior

DUR_ENDURING

Transparency builds allies; manipulation builds enemies

“Bernie visited Walmart headquarters to learn about their employee stock option plan. Sam Walton had something else on his mind: Why do you continue to run sales? Don't you run out of merchandise? Bernie: Yeah, we run out all the time. We have to hold back stuff in the back room. Walton: Why don't you go to everyday low prices like we have? Manufacturers could plan production, stores stayed in stock, employees weren't constantly repricing.”— Sam Walton

Strategy & Decision Making · Operations & Execution · Psychology & Behavior

DUR_ENDURING

Walton showed EDLP beats sales on all dimensions

“Bernie visited Two Guys 10 times in 2 weeks, studying every department, every detail. When he finally asked who ran the place, an employee pointed to Herb Hubschman. Bernie walked right up and poured on the charm. At the end of the tour, Bernie said: For the smartest guy in the world, you're the biggest schmuck I've ever met. Your cosmetics department is the worst I've ever seen. How can you let this happen? Herb admitted his brother ran it.”— Bernie Marcus

Business & Entrepreneurship · Psychology & Behavior · Strategy & Decision Making

DUR_ENDURING

Studied operation, identified weak point, sold fix

“Bernie's boss taunts him after firing: I'm going to fight you with the company's money, and you're going to have to fight me with your own money, which you don't have. Bernie calls his friend Ken devastated. Ken's response: You've just been kicked in the ass with a golden horseshoe. 18 months later, Home Depot opened. 20 years later, Bernie was worth billions.”— Ken Langone

Psychology & Behavior · Business & Entrepreneurship · Leadership & Management

DUR_ENDURING

Constraint became catalyst for entrepreneurship

“Ken negotiated with Sigaloff in the men's room. Sigaloff offers $10 per share. Ken says no, the price is $12. Sigaloff leaves, returns 2 minutes later: Okay, $12. Ken: No, you don't understand. You offered $10, I said no. I offered $12, you said no. Now you're back wanting $12. That offer is off the table. Now it's $14. This went back and forth for months until the price reached $25.50 per share.”— Ken Langone

Strategy & Decision Making · Psychology & Behavior

DUR_ENDURING

Rejected offers become invalid; price rises each round

“We didn't put in a rear entrance for lumber buyers. We had all contractors and professionals go to the front registers right beside do-it-yourself customers. That created action. We wanted the big stuff going out the front and loaded in the parking lot so that everyone saw it. The do-it-yourselfers saw that the contractor buying 2 units of sheetrock paid the same price as they did. There was no secret backdoor discount for contractors. We were priced right for everyone.”— Bernie Marcus

Business & Entrepreneurship · Psychology & Behavior

DUR_ENDURING

Visible equal pricing built trust through transparency

“Bernie would literally run into the parking lot after people who left empty-handed. What is it that we don't carry that you need? Why didn't you buy something? Usually: I didn't find what I came in for. Bernie's response: I'm so sorry. We carry it. We happen to be out. If you give me your name and address, I will deliver it to you personally. Then he would drive to a competitor, buy the product himself, peel off the price sticker, and personally deliver it to the customer's home.”— Bernie Marcus

Business & Entrepreneurship · Leadership & Management

DUR_ENDURING

Founder obsession with each lost customer built culture

“A woman wanted a chandelier. An associate helped her pick one. She got it installed at home but realized it was too small. She came back embarrassed, asking for a bigger one even though the first was exactly what she'd requested. The associate: Tell me where you live; on my way home, I will put the new one up for you, take the old one down, and we'll give you an adjustment. 6 months later, that same woman remodeled all 200 rental units she owned. Every single thing she bought from Home Depot.”

Business & Entrepreneurship · Economics & Markets

DUR_ENDURING

$75 service gesture returned $200k lifetime value

“Within months Bernie was running cosmetics, then sporting goods, then major appliances. By '78, Bernie was overseeing almost $1 billion in merchandise and nearly 70% of all appliances sold on the East Coast. So why has no one ever heard of Two Guys? Because when Herb died, outsiders took over and tried to expand too fast. They stopped focusing on customers and started focusing on their own careers. Customers vanished and the company collapsed.”

Strategy & Decision Making · Leadership & Management · Business & Entrepreneurship

DUR_ENDURING

Success killed by internal focus over customer focus

“In 1997, Bernie stepped down as CEO after 19 years at the helm. Arthur Blank took over with Bernie staying as chairman. In 2000, the board hired Robert Nardelli from GE. Arthur stepped aside. Nardelli brought military discipline and efficiency. He wasn't interested in orange aprons or walking the floor. Under his leadership, profit margins improved. They expanded past 1,000 stores. But something essential died. Customer service scores plummeted. Employee morale cratered.”

Leadership & Management · Strategy & Decision Making

DUR_ENDURING

Efficiency culture destroyed customer-first culture

“Ken Langone discovered that whoever controlled the 19% public stake in Handy Dan could effectively control the entire company. Because of fiduciary duty rules, the parent company which controlled 81% had to vote in the same proportion as the 19% owned by the public. So effectively, if you controlled the 19%, you controlled the company. Ken rushed to buy up nearly all of that 19%.”

Strategy & Decision Making · Economics & Markets

DUR_CONTEXTUAL

Legal loophole gave minority control through fiduciary rules

“Pat Farrah arrived early and found the store sparkling clean with waxed floors. He went ballistic: Who screwed up the store? The managers had brought in cleaning crews overnight as a surprise. You are out of your mind, Pat screamed. Get the forklifts. Bernie, Pat, and anyone they could grab spent remaining time racing forklifts around the store, deliberately skidding around corners, scuffing and scratching those beautiful floors to make them look like a working warehouse.”— Pat Farrah

Business & Entrepreneurship · Psychology & Behavior

DUR_ENDURING

Intentional scuffing signaled working warehouse not facade

“JCPenney wanted to sublease 4 massive department stores. The negotiations went great until Penney dropped a bomb: they had to take all 4 locations or none. This was insane. They barely had money for 2 stores. They hadn't proven the concept at all. But the deal was too good to pass up. They took it. They'd either open 4 stores and succeed spectacularly or fail.”

Strategy & Decision Making · Business & Entrepreneurship

DUR_ENDURING

Forced scale created binary outcome commitment

“Bernie's philosophy: Every customer is on loan. They'd choose you today but could choose someone else tomorrow. You have to earn their trust every single day with every single interaction through every single associate. That's why he chased customers into parking lots. That's why associates drove to competitors to buy products they'd run out of. Customers aren't transactions, they're relationships. The only relationship that survives long-term is the one where both parties win.”— Bernie Marcus

Business & Entrepreneurship · Philosophy & Reasoning

DUR_ENDURING

Customers on loan; trust earned daily