Sunday, March 25, 2007

Sam Walton's 10-Rules to running a successful operation

These are 10 rules given by Sam Walton, the founder of Wal-Mart to running a successful business that had worked for him during his lifetime.

On this list, there are a few which are needless to list. One of it is “work hard.” If you do not have that already, or you’re not willing to do it, you probably won’t be going far enough to need his list anyway.

Read it, step back and take some time to evaluate which rules work, which doesn’t for you. As Sam puts it, “They are some rules that worked for me. But I always prided myself on breaking everybody else rules, and I always favored the mavericks who challenged my rules.” Pay attention to rule 10, and if you interpret it correctly – as it applies to you – it could mean simply: Break all the rules.

Rule 1: COMMIT to your business. Believe in it more than anyone else. Sam overcame every single one of his personal shortcomings by the sheer passion he brought to his work. He noted: “I don’t know if you’re born with this kind of passion, or if you can learn it. But I do know you need it.” If you love your work, you’ll be out there everyday trying to do it the best you possibly can, and pretty soon everybody around will catch the passion from you – like a fever.

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

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

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

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

Rule 6: CELEBRATE your successes. Find some humor in your failures. Don’t take yourself so seriously. Loosen up, and everybody around you will loosen up. Have fun. Show enthusiasm always. When all else fails, put on a costume and sing a silly song. Then make everybody else sing with you. All of this is more important, and more fun, than you think and it really fools the competition.

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

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

Rule 9: CONTROL your expenses better than your competition. This is where you can always find the competitive advantage. For twenty-five years running – long before Wal-Mart was known as the nation’s largest retailer – Wal-Mart ranked number one in their 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. It is important therefore when you negotiate for cost of your business, you’d make sure you do not pay for a price where you buy into other people inefficiency.

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

Now personally for me, I disagree with Mr. Walton on setting a high goal. Instead I subscribe more to the idea of Mr. Buffett in looking for 1-foot hurdle to step over rather than a 7-feet hurdle to jump over. All of these are some very pretty ordinary rules, some would say even simplistic. The hard part, the real challenge, is to believe in it, have the discipline to follow through, and to constantly figure out ways to execute them. You can’t simply keep doing what works one time, because everything around you is always changing. To succeed, you have to stay out in front of that change.

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