Great companies stand the test of time. They change the world. They are household names.
If you want your company to follow a similar trajectory, this is the interview for you.
In this episode, I talk with Gary Hoover. Gary is the teacher, mentor, and an experienced entrepreneur. He is the founder of BOOKSTOP, which he sold to Barnes & Noble and Hoovers, Inc., which he sold to Dun & Bradstreet. He is currently the founder and CEO of BigWig Games.
During our discussion, we dissect four great companies (Amazon, UPS, PepsiCo, Whole Foods) and discuss strategies you can implement in your startup immediately. Enjoy!
Have comments, questions, ideas, or feedback? I want to hear it. Tweet me at william_griggs.
Companies Dissected In This Episode
- Whole Foods Market
- The Three Greatest American Companies of All Time by Gary Hoover
- Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist
- Data Science for Business: What you need to know about data mining and data-analytic thinking
- The Entrepreneur’s Guide to Business Law
- Peter Druker’s Books On Amazon
Startup Slingshot Radio’s audio transcription is done by GMR Transcription
Gary Hoover: Oh, it’s great to be here William. This is my first and most important podcast of 2015, and so I’m really looking forward to talking to you about business and business ideas. You have so many great people that come along and talk. People like Brad Feld, his book Venture Deals; it’s one of only two books that I absolutely require my entrepreneurship students to buy. So, cool, great to be here, thanks for having me.
William Griggs: Yeah, you’re a great company, but you bring a whole different set of experiences than Brad or any guest that we’ve had so before we dive into your background, before we dive into the interview, just to take a step back, most of the audience that I hear from, they’re playing this game of entrepreneurship to change the world. They see a problem in the world, they wanna fix it. Unlike shows or podcasts on Internet marketing or passive income, they’re not in it to make a quick buck or scam some people out of their money; they’re really in it for the long haul. They’re in it to make something worth remembering, make something that’ll change the world.
With that in mind, the goal of this episode is pretty simple. First, we wanna get to know you a little bit Gary; get to know your background. Second, we wanna get to know how you think, you know, we’re treating this sort of like a case method. In a business school, we all understand, you know, our audience will understand your perspective, your background, they’ll get to hear how you think about businesses and that’ll hopefully be very different from how they think about it and it’ll open them up to a new kind of path of thinking.
And then finally, three, we’re just gonna start diving into some really successful companies and pull out what makes them great so our audience can be better informed as they think about building their business so they can think about different aspects, whether it’s the business model, the culture, leadership tactics; they can start to think about how you think about successful businesses so they can start applying that. But before we dig in, tell us briefly about your background. I teased it in the introduction, but feel free to go all out. We don’t want people turning this interview off. We want them to keep listening.
Gary Hoover: Yeah, sure. Great, thanks. Mine’s pretty straightforward. It’s a little unusual I guess. I grew up in a General Motors factory town, Anderson, Indiana. Sixty thousand people live there and 27,000 worked at General Motors so compared with where I live now, Austin, Austin metropolitan area is about 1.9 million people and about 13,000 work at Dell, which I’m pretty sure is still our biggest private employer. So, in Anderson, Indiana, you had twice as many workers in a city, one-thirtieth is big. So, it was life itself.
And yet my teachers, who were teaching me about governors and kings and queens and generals and their strategies and decision making and leadership styles, they never mentioned anything about companies, you know, really talking about business still might be kinda taboo in a lot of American classrooms. Anyway, and I held up my hand and I said, “Well, what can you tell me about General Motors? I mean this is all real cool about kings and queens and everything, but what about GM?” And they said, “Oh, they make Pontiac, Buick, Oldsmobile.”
I said, “No, no, I know that.” And I said, “Who started it, why did they start it, who runs it today, are they smart or are they stupid? How’s it gonna do against new products coming in from overseas?” And the teachers looked at me like I was crazy and I’m like, or you know, they didn’t know the answers. And I was in a news stand with my big brother and big sister and mom and dad, and my sister’s looking at dog magazines, my brother’s looking airplane magazines and I discover the Fortune 500, the great American business magazine, Fortune, every year publishes a list of the 500 biggest U.S. companies.
And I saw that and the biggest was General Motors, biggest and most profitable company on earth at that time. Went running to my parents, said, “You gotta get me a subscription to this magazine. This is the coolest thing I’ve ever seen.” And they thought I was weird, said, “Oh, why don’t you go play basketball like a normal Indiana kid?” Anyway, I got that subscription and two months later, I entered the seventh grade.
I now own almost every Fortune since the beginning of 1930. I live in an 8,000 square foot one-bedroom house with over 50,000 books. If you piled them up, they’d be twice as tall as the tallest building in the world. And while business is way less than half of my library, probably 10 to 15 percent, my business history library is I can say honestly exceptional. I have General Motors’ first annual report from 1909, owned and signed by the chairman. I have Moody’s Manual, Volume I, No. 1. Anyway, so I’ve been a business junkie.
I’ve read the Fortune 500 52 years in a row now and went on very briefly, work on, studied economics at the University of Chicago, Milton Friedman and three other Nobel Prize winners. That was a wonderful experience. They hadn’t won their Nobel’s yet when I had them in class. Two years on Wall Street picking retail stocks because I fell in love with retailing soon after I fell in love with business. Two years as a department store buyer in Dallas for Federated Department Stores to really learn how it works because Wall Street often doesn’t – well, the majority of Wall Street analysts, in my experience, don’t really understand their industries.
Now, the 20 percent or 30 percent or 10 percent that really do are wonderful, but anyway, after working on Wall Street, I realized no, I better go work in the trenches and see how it really works. And then five years with one of their competitors, May Department Stores Company, doing acquisitions, looked at 400 candidates, finally built up the courage at the age of 30 to quit, start my dream company. The first chain of book superstores called Bookstop. After seven years, the venture capitalist fired me, sold it to Barnes & Noble, but I’m glad Barnes & Noble bought it. They did a great job.
Then I started a business information company called The Reference Press, which over time morphed into Hoovers.com, which is a major player in company information on the Internet, went public, bought by Dun & Bradstreet. Lost all my money on Venture No. 3, TravelFest, travel superstore chain, when the airlines stopped paying commissions on airline tickets.
Raised half the money and couldn’t raise the other half in the recession of ’08 for the first chain of for-profit museums and put that on the backburner and have now created Bigwig Games to make business simulation games using real business data, which are games I created as board games in the 1960s and ‘70s and have always wanted to put on the computer, and we have one game called Restaurant Bigwig out for the iPad only. And that’s my whole life story, and I’m sticking to it.
William Griggs: Yeah. No, that’s awesome. That gives our audience an amazing background and amazing perspective on what you’ve been able to accomplish, where you’ve been, where you’ve hit hard points, where you’ve hit success points and so let’s just dig into it.
Gary Hoover: And I speak and travel. I’ve been to 44 countries. I knocked down two new ones in the last four months, and I hope to see every country on earth. And I talk and I blog and have my own classes and I was the first entrepreneur-in-residence at the McCombs Business School at the University of Texas here in Austin, and I’m currently entrepreneur-in-residence at the School of Information at UT Austin.
William Griggs: Very cool, we’ll put a lot of these links in the show notes below the interview so that people can dig back in and learn more about Bigwig, they can learn more about Hoovers World, your blog, they can learn and read more about all that stuff. So, let’s dive in.
We teased a little bit earlier, we wanna dive into some very specific, very successful companies, get your brain wrapped around them, get you talking about why you think they’re successful, where they’re coming from, where they’re going. So, let’s start with Amazon. It’s one that most people, I would say everyone listening to this broadcast, is familiar with, if not spending most of their money on because of Amazon Prime. So, how are you thinking about Amazon and the fact of what do they do?
Gary Hoover: Boy, I’ll probably get myself in trouble. I have lots of thoughts about Amazon. I mean I am a book collector. I have been an author, I’ve been a book publisher and a book seller and so I’ve been into books since 1957. I started my collection when I six or something. Boy, where do I start on Amazon? I believe that Jeff Bezos is brilliant, and I think he’s really an exceptional individual. The fact he’s gotten Wall Street to go along with not making any money for so many years shows his powers of sales and persuasion are awesome. The reality is all these people love his website and because of the network effects – and an example.
So, I buy a lot of books online, in bookstores, used bookstores. We sold our company to Barnes & Noble and I really love that company and I’m hoping Barnes & Noble bricks and mortars stores lasts forever, you know, they’ve got a lot of challenges and Borders didn’t make it. That was another fine company, made some strategic mistakes and is gone now, but the thing is so I’ve been saying why I should buy all my online books at Barnes & Noble instead of Amazon because I know those people and have friends that work there.
Well, I went to do that after having shopped on Amazon for a few years. Amazon remembered every book I’ve ever bought and Barnes & Noble didn’t, right, and because I hadn’t been buying at Barnes & Noble and when you’re a heavy book collector like me, there’s probably once or twice a week I go to buy a book and it says oh, you bought this three years ago. And so, Amazon saves me a lot of money. Well, so if you’re with me, I’m gonna trapped, much like with the airline frequent flyer programs. I couldn’t change airline if I wanted to, right? I don’t want to at this point.
I like the one I’m working with, but they get their hooks into you so deep through their loyalty programs, well, Amazon, because it tracks everything that I’ve done, everything I bought and when I bought it and does a good job of it, it just makes it that much more magnetic. So, it’s really hard to compete with them. I won’t call them a monopoly because they got competition all around and a little company called Wal-Mart is not to be sneezed at, online or bricks and mortar.
And I don’t know if you saw the news today that well, there’s a rumor, I didn’t see all the details, Amazon might be looking at picking up some of the Radio Shacks, you know, they’re going bankrupt, and using them somehow. And they’ve looked at opening a space in Manhattan. So, there are a lot of issues. I mean I think it’s probably not healthy for society to have one company have such a big share of the market. They need a strong competitor. That would be better for them and everybody else in the long term.
I don’t know who that might be. Wal-Mart is probably your best shot. In some things, like Amazon Marketplace, eBay is a possibility, but I recently mused to my friends that Amazon should buy eBay. You would think, and I trust, Washington would stop them, but the reality is, they don’t stop much these days. You know, it gets weird. They do really weird things like Whole Foods and Bazaarvoice, but then they let stuff like Macy’s buying everybody go through. I’m a free-market capitalist. I studied under Milton Friedman so I absolutely do not believe that the government should do anything to stop Amazon.
Having said that, I think maybe the customers should be careful about giving all your business to one company. And then I would add to that, you know, I really have tremendous respect for the guy, and would love to meet Mr. Bezos, but let’s face it. He and Steve Jobs are not the most ethical business people I’ve dealt with so, I mean that I’ve studied in terms of their behaviors. So, there are other people much higher on my list than those two. When you put it all together as far as the way they treat competition, I mean I guess what I would say is from all my observations, Jeff Bezos is a take no prisoners kinda guy.
I think anything you might ever say, oh, John Rockefeller did this and it was awful. He was a piker compared to what some of these people are doing today as far as the way they maybe have abused some of their business relationships. Like I said, this will probably get me in trouble. What else about Amazon? I mean obviously, it saves the world a huge amount of money, I mean their efficiency and what they’ve done, but at the same time, every time you spend a million dollars at Wal-Mart, if you’re a big Wal-Mart spender, every million dollars spent there creates four or five jobs.
Every million dollars spent at Amazon creates like 1.2 or something like that last I looked. So, you can make a case that the rise of Amazon has cost the United States more jobs than the loss of General Motors over the years, how many people General Motors has laid off, something like that. You know it was 400,000 jobs that Amazon has cost society. Now, again, when I say cost, as a free-market liberal as I call myself, that’s great. That’s why we got rid of horses and buggies and moved to cars and are moving to Uber and all that, but it’s very disruptive.
It causes a lot of agony and when you got a company like Amazon, you know, they’ve really thrown their weight around with the book publishers, they really tried to get nasty with the authors and then they finally had to back off. They’re a very feisty company, right? You put all that together, I don’t see any stopping them. It’s hard to evaluate the stock because it is so crazily priced relative to its profitability and, you know, it took a dive here recently, but it’ll come back. The Amazon lovers are Amazon lovers and probably not get shaken loose as far as investors.
Is it a great company? I mean it’s a great innovator. I’d put it up there maybe with Henry Ford, but if you notice my newsletter I wrote, which you can see on Hoovers World, the three greatest companies in American history, Ford Motor was not, General Motors was. It is such an earth shaking and shattering company, and it’s just so aggressive, I mean you know started as a bookseller and it took all the other categories and now it’s moving into Cloud services so it’s going after all the server guys.
It is an amazing story, much like Apple, in terms of well, I don’t know if I’d go so far as saying unprecedented, but in both cases, you’re getting pretty darn close in the history of business as to what they’ve achieved. Apple last year sold $90 billion worth of iPhones, and if you’ve noticed, they’re way up this year from that. Ninety billion is more than Proctor & Gamble’s total revenue from all products and services. It’s just crazy that one item could be bigger than Proctor & Gamble and have a minority market share and be a company that almost died. Yeah, okay, next question.
William Griggs: Yeah, no, that’s really interesting. I mean just to reiterate for those listening at home, some of the things that you touched on, it seems like was the leadership, right, you started with Jeff Bezos, you talked about his sales prowess, how he’s kind of won over the public markets with selling this long-term vision of sacrificing profit margins now for growth and expansion.
It seems like also one of the pieces you touched on was, and correct me if I’m putting words in your mouth, but it seems like one of the nuggets that you were talking about as well is, you know, they started off with books, right, so they found something that worked, scaled it, got the whole world buying books there then added DVDs, added a bunch of other products, now to apparel, now then they were able to leverage that scale to offer data services, things that they were needing just to operate their own business, now they’re offering those as a service.
Talked about how they’re extremely efficient, you talked about how that has an impact on the economy for better and for worse, depending on your view. It’s also interesting to think about kind of that investment focus. There’s this concept of the hook model, which is all about how do you build a habit within inside a product, and one of the things that they have is like you’re talking about, that loyalty. They use data, they serve data, they try to use an algorithm to predict what you should buy next, they tell you what you’ve already bought, they have these hooks.
It’s kind of like a Pinterest model in a way where, you know, you’re not gonna leave Pinterest because all your pins are there, you know, you’re not gonna leave Amazon because they have you invested in the Kindle ecosystem or they have you invested in the Amazon Prime account now with offering photos and free storage of photos. Now they have another hook in there that you’re gonna stick around.
And then it also seems like you were talking a little bit of that wow factor of, you know, they released that video of the drone delivering to your home and they also, one of the other wow moments that happened to me recently was, I accidently re bought a DVD I already owned and when I went to return it, they said you can keep it, right? They made it appear to be a favor.
Gary Hoover: Oh, did they? They haven’t done that to me yet.
William Griggs: Yeah, they made it appear to be a favor for me, but I’m assuming that the cost of returning it, re shelving it, all that stuff, is not worth their cost, but they position it as hey, give it to a friend type of thing.
Gary Hoover: Yeah, no, no, I mean it’s awesome what they’ve done. And overall, throughout its history, I give Amazon very high marks for being customer centric, the website easy to use. By comparison, I think LinkedIn is awful, Facebook is mediocre. Trip Advisor is the only one that’s really got all its act together, and this is my own personal opinion as a user, but having said that, Amazon’s, for me, stopped improving some years ago. I could probably write a 15 page memo on how they could make my life better as a very, very heavy buyer of books and other products, electronics on there.
They bought AbeBooks, which is a great company, but they just let it stall in the water and unlike the company before they bought it, they stopped innovation. There are all kinds of things they should do to it and it’s a very critical book site for book lovers. So, yeah, no, no, it’s an interesting company.
William Griggs: Yeah, well, maybe if you write that 15 page report, send that to Jeff at Amazon.com, you might get your personal meeting.
Gary Hoover: Yeah, I can tell you, I’ve been really tempted and I’m trying as we’re talking here, trying to look it up online and not having success. So, I was gonna verify, but you know, Amazon is not the biggest company headquartered in Washington State. Do you know what is in terms of dollar revenue, the biggest Seattle company?
William Griggs: I’m gonna go with Microsoft.
Gary Hoover: No.
William Griggs: No? Boeing.
Gary Hoover: No.
William Griggs: Oh, I don’t know then.
Gary Hoover: This was two years ago, and I don’t think it’s changed. In revenues, the biggest Seattle company is Costco.
William Griggs: Ah, interesting.
Gary Hoover: It was two years ago.
William Griggs: Different profit margins.
Gary Hoover: I found the 2012 list and can’t find the 2014 updated list. Anyhow –
William Griggs: Yeah, let’s dive into the next company. Let’s start talking about UPS.
Gary Hoover: Yeah, I actually did a little guest editorial for our business journal here in Austin a couple years ago making the case that UPS was the greatest American company today. The essay I wrote that’s on Hoovers World talks about the three greatest companies in U.S. history were the Pennsylvania Railroad from 1880 to 1920 give or take, General Motors from about 1925 to ’75 and IBM from maybe 1930 to 1980. And then the issue is well, who’s next or who else might be in there, either historic or future companies, my case for UPS, I mean there would be no Amazon without UPS. UPS is perhaps the greatest Internet company.
UPS is an absolute machine. I mean deliver whatever, you know, billions of packages by the hour or whatever. You can look it up. There’s on Amazon, you can find a video about it too, of a UPS facility. It’s from a National Geographic series, something Factories, Awesome Factories or something. Anyway, it’s just unbelievable and it’s a machine, you know, the people that work there, the drivers are not allowed to walk to your door, they have to run. When their bosses ride with them, they have a stopwatch in their hand and they’re timing every single move.
They’re not allowed to make left turns across traffic, you know, their whole route system is all structured to go right, right, right, right, right to save time. The people, you know, they’re average ninety grand a year, those drivers. Last I checked with my driver, there’s maybe a five-year wait to get on. They employ massive numbers of people. It was in my editorial, but I wanna say 300,000 total, 250,000 in the U.S. They are a U.S. Union Teamsters employer who’s had relatively little labor trouble. Over the years, they had a couple of strikes, but overall, everybody’s happy. Nobody ever leaves.
Full paid benefits for all the employees or all the key people. So, the drivers, my driver said he had a friend, another driver, had 13 kids, all of them had 100 percent healthcare until the age of 27, you know, health insurance. And yet, they don’t charge much for their stuff. Unlike Apple, I mean they really, I mean what they charge, you think about what you’re getting at Amazon Prime or something, you know, and I know that Amazon alone spends over a billion dollars a year with UPS. So, it’s just in terms of the jobs it creates, the quality of the jobs, the function it performs in our society, the smoothness and efficiency with which it does it.
And I don’t know if I’d give them extra points, but a little icing on the cake the fact they’re so invisible in terms of most conversations are about sales force and Amazon and Instagram and not about UPS, but it’s unbelievable and I believe it’s a case where having an outstanding competitor in Federal Express makes them even stronger because I believe it kinda goes hand in hand that Fred Smith is the greatest living active American entrepreneur. So, there you got the greatest entrepreneur fighting the greatest company. What better story could you have?
William Griggs: Yeah, it’s very interesting. You touched on a lot of points. It seems pretty interesting. Just to drive home again for the listeners, it seems like where you’re talking about them being great operators, right, they’re running like a well-oiled machine, fine-tuned machine, whatever analogy or metaphor you wanna use, and you’re thinking about the fact that the delivery guy runs, they’re not taking left turns. So, it seems like taking that back to the beginning, it seems like they know very specifically what their core metrics are and how are they going to improve them.
It seems like it’s delivery time, it’s the number of packages delivered per driver. If it’s all that different stuff, it seems like that’s the takeaway to think about, you know, what are those core metrics that UPS is tracking, what’s core to their value proposition, delivery time, hitting those delivery days, that type of stuff, communication and then how is that gonna be actually manifested in the actual end, employees, and then the other piece it seems like, and I wasn’t aware of, is the fact that they actually do treat their people so well and that could be, you know, for a lot of companies, that could be seen as a very expensive proposition. For others, it’s seen as a competitive advantage.
They have people that stick around, they have people that hustle that love their job that wanna stick around and do better for the company so they can do better for themselves as well. So, that’s really interesting. And obviously, you talked about the job creation front, which seems to be the opposite of Amazon, the fact that they’re so invisible, which is so true, right? You never really think about how good or bad they are until you have one package that didn’t show up or didn’t show up on time.
And so I kind of sometimes think of it as the left tackle in college football or pro football. They can block that defensive end all game long, but if they give up one sack, it’s like, you know, you then realize that they’re actually there. So, that’s kind of an interesting thing to think about.
Gary Hoover: Yeah, the other thing I’d say that ties into all that is in my experience talking to people who’ve been in the software and tech industries and so on is unless you’ve been in a geographically distributed industry, people who haven’t done that have no clue how radically different it is. I mean obviously, my life’s been in retailing and my own company, Bookstop, the biggest we got up to was Miami to San Diego, it was like 27 stores.
But I’ve worked closely and steady closely, people are running two and three thousand stores, you know, because when you’re a Goldman Sachs or a venture capital firm or even a lot of tech firms and you’ve got 20 offices or 40 offices or 60 offices or 200 offices, I mean it’s child’s play and I mean all those UPS, 300,000 people, most of them don’t see their boss all day, right? These are independent people running all over the globe in everything from venetian gondolas to jet airliners, you know, UPS and FedEx pilots get paid better than the other airline pilots, the passenger airline pilots.
You know you have this massive system and you think about it, if you’re the CEO of an airline and UPS is, I forgot, second or third biggest airline in the world, you know, it’s huge, you’re gonna try to go to bed at night, you got people’s lives at stake, a passenger carrier obviously even more so, but to carry that off and to execute daily in tens or hundreds of thousands of physical locations is just a miracle and it’s a radically different proposition from what Google does.
You with me? And I’m not denying anything about Google or Amazon or anybody else. Amazon probably thinks they got enough headaches with what do they got, 20 or 60 warehouses, but you know, you come down to 7-11, they just crossed 50,000 outlets. Think about that, even communicating with your 50,000 managers.
William Griggs: Yeah, it’s crazy.
Gary Hoover: Everything and so, yeah, a logistics company like UPS, all it is is numbers and execution. However, I will say in all these great companies, ultimately, all that really matters is how good are they at what they do? Do they deliver great value for their customers in whatever their products and services are and to me, ultimately, that’s all that matters and obviously a lot of things go into achieving that.
William Griggs: Yeah, very interesting. So, like you said, going into achieving that, it seems like to keep everything going, we talked a little about the metrics. It seems like they probably just have some ridiculous set of systems and software that would allow them to execute on such a high level so that’s something that, you know, as the companies, as the people are listening to this podcast get started, it’s thinking about, you know, how do you start to, as you’re starting to scale the organization, how do you start to put some structure in place, how do you start to put the system and the software in place that makes everything move a lot faster and a lot smoother?
Gary Hoover: Yeah, and the other thing I’d say, when you’re talking about those kind of execution things really, the science side, one of the best books I haven’t read in ages that I’d recommend is called Data Science for Businesses. I think that’s what it’s called. It won’t be hard to find, Data Science for Business or for Businesses. What I found in consulting and meeting a lot of companies is you really never know until you get into a company how mathematically sophisticated it is. Obviously, Wal-Mart and Amazon both have reputations of being very scientific companies.
But years ago, I did some consulting work for a company that had Harry and David, the Fruit of the Month Club, and those guys had full-time Ph.D. statisticians onboard 40 years ago. I think, I’m not sure, I need to check, I think there’s a good chance they were more scientifically sophisticated in their mail order catalogue operation, they may well have been ahead of Sears. And, you know, Wal Mart is famous within retailing for having the most advanced algorithms and all that and yet, you know, they were a Johnny Come Lately, they were a little company.
They didn’t have big computers. They actually cut a deal early on with an outfit called Teradata and they figured out ways to make faster computers so that Wal-Mart actually got information faster than Sears. So, I’d say be careful about assuming a giant, well-run company is also scientifically the most advanced. PACCAR, one of my favorite companies, they make Kenworth and Peterbilt trucks, and without divulging any secrets, when I got to some part of their operation that involved how well they communicated with their parts suppliers, supply chain management, and I said well what do you Ford and GM do?
They said oh, no, GM and Ford can’t, you know, they’re in the dark ages. They can’t – well, Ford was working on it, but contracted out to a third-party company. Only PACCAR was scientifically sophisticated enough to in-house do this very cool stuff that I shouldn’t talk about. So, you never know where it’s coming from. Look, hey, to what degree is the CEO? Does he read textbooks?
Bill Gates reads textbooks, you know. To what degree to the leaders, are they really conscious and heady about using science, which if you read Hoovers World, you know I’m also talking about how we can overdo science. But, yeah, I can assure you, UPS has gotta be a very, very heavy numbers, metrics-oriented company.
William Griggs: Very cool. Let’s dive into the next one, PepsiCo.
Gary Hoover: Yeah, you know, PepsiCo is just one of my favs, long term. A lot of it is just its among the companies I’ve started, it seems to have a – it’s way, way at the top of the list in terms of the consistency of great leadership. You had this guy, Al Steele, that really took on Coke and made Pepsi successful. I think he was in the ‘50s. I’m drawing a blank on the other early guy’s name. Because it was a struggle, you know, they were far, far, far behind Coca Cola, and out of nowhere, out of North Carolina, but then became a New York company.
And then well, by the time I was reading Fortune in the 1960s and ‘70s, a guy named Don Kendall ran it, and he was really good and a real people guy and all this. Roger Enrico that ran it and took on Coke and beat up on Coke when Coke did the new Coke, he wrote a book. He was a sharp, very broad-based guy. The current CEO, Indra Nooyi, I heard her speak when she came to McCombs here at UT Austin, really exceptional. On Hoovers World, if you look her up, I did a blog post, I was so blown away.
And so because if you study most great companies, one of the 40 or 50 books in my list of the most important books that haven’t been written yet, one of them is why do leaders choose such loser successors, and you just see it over and over. Over and over and over where the great guy or woman that does great stuff, their successor is a basket case. And in terms of their final results, you know, the head of Procter & Gamble, Lafley, one of my favorites, he picked his own successor when he retired after ten years. And within whatever, four or five years, they asked that guy to leave and they called back in the old retired guy.
It’s complex. I think people might tend to pick people like themselves. They might tend to pick yes men. The great Alfred P. Sloan, the greatest manager who ever lived, when he had to pick his successor at General Motors, he refused to participate and said I shouldn’t even be in the room, that should be the board’s decision. PepsiCo has over and over had these outstanding people. You add to that that all these people, the fast food business was the hottest thing on earth in the 1970s, and everybody bought into it.
America’s first or second biggest food company, General Foods, bought Burger Chef, which at one point, I believe, had been larger than McDonald’s, was definitely a close No. 2. Destroyed it; it went away. Shakey’s Pizza, the No. 1 pizza chain in America by a wide margin got bought; it went away. Over and over, I looked at a list the other day of all the hot companies in the restaurant business in the ‘60s and 80 percent of them, nobody remembers anymore.
One of the ones that got bought – Taco Bell and Pizza Hut got bought by Pepsi, and they decided it’d be a good idea to control the restaurants because Pepsi never made much headway against Coca Cola in fountain sales, you know, for restaurants, which is very, very profitable for everybody, and so they said let’s create our own chain of restaurants. So, they bought two and they later bought KFC. Well, there Kendall and the guys were smart enough to say this isn’t the right business for us. It doesn’t fit with everything else we do. We need to get out of it. We made a mistake.
And they spun out what called Tricon, later renamed Yum! Brands. If you study, it’s one of the best companies in America. It’s an awesome company whereas most of the other companies that got bought, one exception was the Olive Garden/Red Lobster thing, General Mills did a good job with it and spun it out. But so PepsiCo had the vision to undo a mistake. That’s pretty rare.
And then I guess another thing I’d give them high points for is I believe overall they were much more agile and adept at diversifying away from core carbonated soft drinks than Coca Cola was in terms of they got Tropicana early, they built the Aquafina brand up, they bought Gatorade when that company was in the trouble, the parent company and all that. They were just very smart about that, and I haven’t said that, you know, both Coke and Pepsi are probably in my top, certainly Top 20 if not Top 10 U.S. companies. They are both made great by the other’s competition, and Coca-Cola, it’s in a different class from any of these guys.
At one point, it made more millionaires than any other company on earth. Coco-Cola, it’s the biggest private employer in the continent of Africa. Okay? Coca-Cola is its own world. To be No. 2 to them probably means you ought to commit suicide and go home to start with. Pepsi has pulled that off, remained the No. 2, but plowed and then, you know, they’re a real moneymaker, at least a few years ago. I need to double check, but their real money comes out of Frito Lay.
But then they bought Quaker Oats because they said look, that’ll give us a healthy oriented brand because nobody’s ever gonna believe that Frito Lay and Doritos are healthy even if you take all the trans fats out of them. That’s what Ms. Nooyi explained when she spoke to us. So, those are my – and look at this, hey, I always start with what’s the track record, what’s the earnings growth, how’s the stock done over the last 20, 30, 40 years, you know, short term, and so I look at that first.
It’s not a great company if it’s losing money year after year or fires the head guy, but Procter & Gamble was founded in 1837. I believe their average CEO has been in 10 to 12 years. John Deere, founded 1837, average CEO in 10 to 15 years. This is kind of the opposite of college football, you know, where you lose one game and you’re fired. This is a whole different trip and a whole different trip of much of what goes on in MBA programs and venture capital. And people that write business plans with exit strategies are never gonna build companies like these.
William Griggs: Yeah, it’s interesting. So, you talked a lot about the power of the executive team, getting those right people, getting those people that have that long-term vision. You even talked about the successor plan as you’re thinking through who’s gonna take over the company, I mean really if people in the audience are thinking about building something great, this is something they eventually have to get to. It’s not necessarily something they’re thinking about Day 1, but they have to think about eventually is how do you build that executive team around you? How do you build that successor plan?
And then you talked about, you know, their ability to undo a mistake. That was really interesting. That was a good example in the fact that they were able to diversify a way and try to out innovate themselves with the Aquafina brand, the Minute Maid, the Frito Lay. That’s really some cool takeaways and some good things that people can think about.
Gary Hoover: Yeah, actually, you mentioned Minute Maid. That’s a Coca-Cola brand. I have to keep them in the chiller.
William Griggs: Got you there.
Gary Hoover: And they actually owned it ages ago so that was an incredibly smart move. They bought it from Bing Crosby I believe, gosh, in the ‘50s or ‘60s. But yeah, later, Pepsi was the real aggressive one on noncarbonated, non-cola beverages, but they’re both huge in it now and the world’s biggest food company, Nestle, is I’m pretty sure No. 1 in water. And they’re a great company, I don’t rate them quite as high as Coke and Pepsi, but they are an amazing company.
William Griggs: Very cool. Do we have time for one more company?
Gary Hoover: Sure.
William Griggs: Yeah, let’s dig into Austin’s own Whole Foods Market.
Gary Hoover: Yeah, I mean I came to Austin in 1982 and opened my first Bookstop at Research and Burnet in September of ’82, and I didn’t believe that part of Austin was that attractive to open in. I tried to find a location near 38th and Lamar or Koenig at Burnet. If you’re an Austinite, no space is available. People weren’t building new retail centers here. Nothing much was going on. And I finally found a shopping center where I thought this is way too north, and the guy who was leasing it to me said well, there’re these hippy guys have a little store Downtown Austin called Whole Foods Market, and they know the Austin market and they’re gonna open their second store out here so go meet them.
And I went over to this warehouse and met this dude name John Mackey and his two partners and they had one store doing, I don’t know, about $10 million a year. And so I was writing the inventory control software for Bookstop in Dbase II at 3:00 a.m. the night before opening, and he was moving shopping carts around the parking lot at 3:00 a.m. the night before opening. And then later, from what, ’88 to ’92, I served on the Whole Foods board of directors and friends with those folks and saw them in the early growth and through the IPO and so, you know, I am extremely biased.
And for years, I never said too much about Whole Foods, I mean unless somebody asked me and, of course, I was honest, but I tell you, over the last probably four years, I’ve really, even if I’d never met them, even if I’d never been on the board, it is one of the greatest retailers I’ve ever studied. And not Top 4, but I mean it is an awesome outfit. In terms of the intelligence, it is one of the most finely crafted enterprises I have ever studied. I believe it is the greatest company to have been created in Austin so far. It and National Instruments, I think are our two greatest – trying to think if I’m leaving anybody out.
But clearly, there’s one four-letter company that I’m skipping because it was never a great place to work and what the four-letter company did was amazing and the man’s amazing and I really like him and everything, but the odds of Dell lasting are not high as an independent company. Whole Foods, it’s in their hands. They can sell to Kroger if they want, but hopefully they’ll buy Kroger. I don’t know, I was on the board of Whole Foods when they talked about oh, other venture capitalists are getting in and they’re probably gonna put more money in it and they’re big Eastern guys, should we sell out to them?
And I’m like no, no, we’re the winners here. And John prevailed, they didn’t sell out to the other guys and in fact, they bought out those guys and they bought over 30 other companies. It’s just it’s a great place to work, it serves great quality products, it’s all about people and their passion for what they’re doing. John Mackey is a health food nut. He’s not focused on money. He’s a kind of a philosopher guy, you know, but he’s focused on why don’t people eat better? I’m not his best student. He’ll tell you that. I’m still doing Coca-Cola and hot dogs so I take a lot of flack. Just to see it and to watch it and see it evolves because it was not a great company when I was on their board, far from it.
I could have written a lot about oh, we should do this better and this better, but when venture capitalists asked me, they said, “Gary,” the ones that backed Bookstop, they said, “We’re looking at Whole Foods.” They said, “Do you think it’s A., a fad, or B., not a fad and one of the big guys will jump in and chew them up?” And that second line is something I’ve heard all my life from some investors and a lot of venture capitalists. It’s just nonsense. When has anybody in the retail industry that was an old big guy chewed up the new little guy? Find me an example. There’s probably one somewhere. No, the little guy invents the new thing and chews up the old guy. That’s the way it works.
And I think it’s probably broadly applicable beyond retailing. But I told him, “Look, it’s not a fad. Natural foods and organic foods are gonna boom over time, and the HEBs and Krogers of the world are never really gonna understand this like Whole Foods does.” And what I knew was that Mackey and his team were really great learners, really great curious people who are absolutely totally committed to the purpose of the enterprise. And who had a nice car or this or that, that never mattered. And I’m not knocking all that, I believe in wealth and believe in capitalism, as does John Mackey. His book, Conscious Capitalism, is one of the great books around.
So, it’s just a beautiful company to have witnessed its evolution, and I don’t believe its string is over. I think with their brains – I just walk in their stores, look in the eyes of the workers, look at the chalk on the walls, look at the signs at the front door, look at the displays of the fresh fruit, everything is done with such precision and loving care and that is really hard to do when you’re running 300 of those puppies.
William Griggs: Yeah, no, those are all good points. I mean it’s really interesting, like you were talking about, you know, you see some commonalities around great places to work, the way you talk about UPS, you talk about the passion for it, it seems like this one’s the perfect example for that, right?
They’re being true to themselves, they’re being true to the origin story, to the executives, to the founders, what they wanted to build, a problem they wanted to solve in the world and they’re doing that and they keep that endgame in mind, that fact that they want to impact the way people eat and that affects what products they stock, how they’re training their employees, how they’re treating their employees, all that stuff. It sounds like they’re being very authentic with whom they are and where they wanna go and that’s kind of flowing out of them in terms of their strategy.
Gary Hoover: Sure, and how many of all these cool tech companies are gonna create 80,000 jobs, 80, 00 jobs that people love? And obviously, some tech companies create value above Whole Foods, but I don’t even know, what’s it worth, $20, $30, $40 billion? I mean she’s doing $13, $14 billion in annual revenue last I looked. You know, it’s a big deal, it’s a big deal. And my dad was a grocer, ATB owned a fifth of Bookstop, I was on the Whole Foods board, I’ve spoken at a lot of grocery store conferences so I love that industry.
The supermarket was one of the most important inventions in American history, a guy named Kullen in Queens, Long Island in 1930, usually gets most of the credit. You know now it’s an amazing industry, and I will say we are really, really blessed to have HEB here. Anybody who travels the country, the others that I have high respect for among the traditional grocery store operators, supermarket operators, are Publix in Florida, which has a higher return on capital than Exxon Mobile, and it’s one of the 10 or 15 most profitable giant companies in America.
They’re a lot bigger. They’re like a $30 billion company, owned by the employees, can’t buy stock in it. And the other, the greatest of them all in my book is Wegmans, $5 billion family-owned operation out of Rochester, New York. That is the most awesome grocery store on earth, a mainline supermarket. I treat Whole Foods as a niche in its own way whereas Wegmans is like a Central Market and an ATB and a Whole Foods all in one building, and they’re taking by storm the New York suburbs, the Washington suburbs. I think they’re in the Boston suburbs, family-owned business out of Rochester, New York.
William Griggs: Very cool, very cool.
Gary Hoover: So, yeah, I mean to me what’s fascinating is the way upstarts compete with old guys and the way you can dance around the elephant’s feet and conquer them. You know the dynamics of competition, and not that the big guys don’t have a lot of things to their advantage, you know, half the people in the world are scared to death of Wal-Mart, but no real retailer is scared of Wal-Mart.
Now, I mean you don’t wanna go head to head, you don’t wanna open a tiny little grocery store across the street from him with a lousy selection, but anyhow, yes, no, I do love retailing. And for anybody that wants to look into the other things, that essay about the three greatest companies in American history, if they go to Hoovers World, they’ll see it real quick as they scroll down.
William Griggs: Yeah, very cool. I have a ton of links that I’m gonna put in the show notes. Before I sign off, you know, at the very beginning of the interview, you talked about Brad Feld’s book being one of the books you require people to read. Do you wanna share the second book?
Gary Hoover: Yeah, the other book that’s pretty much required, and these are more tactical, you know, I’m into the strategy and the philosophy, but one is Venture Deals by Brad Feld and another fellow, and get the second edition, the new one. And the other is called The Entrepreneur’s Guide to Business Law, and I wanna say her name is, there’re a couple authors, but I wanna say Constance, Dauby, D – A – U – B – Y, but if you go to Amazon or barnesandnoble.com and type in The Entrepreneur’s Guide to Business Law, it’ll show up, there’s only one.
The thing is, between those two books, they’ll save you $50,000.00 to $200,000.00 in legal fees and consultants. Venture Deals is awesome.
William Griggs: Yeah, for sure.
Gary Hoover: Because he tells how you, as an entrepreneur, how you outsmart the venture capitalists, and he’s one of the smartest venture capitalists. And all the terms, because people are always asking do I do C Corp or a Sub S, how do I compensate my board, how do I pick the board members, do I have a compensation committee, should I do a debt deal or an equity deal, all these details, which really depends on your situation, what kinda company and industry you’re doing and all that. But that book, and there was nothing like it before, and I have every book there was about raising money man, starting back in the ‘70s about venture capital and all that.
That’s the first book that really lays it all out. But also, somewhere on my Hoovers World, is a list of my basic business reading list. There are so many books and obviously when you go through as many books as I do. On the Hoovers World blog, I think I must have over 100 book reviews, both video and text, and I cover everything, architecture, travel, but a lot or a fair amount are about business and stuff. Yeah, anybody, they can always email me. There’s a contact thing, Gary@HooversWorld I think works fine. That’s easy, Gary@HooversWorld.com. It comes right to me, and so if anybody wants to know, they got a question in a certain area, wanna know a good book about it.
But a lot of my book lists, a lot of them are out of print, very few of them were published in the last 10 or 15 years and they’re really books about the basics and core principles. And the one thing I always say over and over, read Peter Drucker. My courses, people have to read Drucker’s Innovation and Entrepreneurship. You can’t go wrong by reading Peter Drucker, but I have dozens of other books that I think are really important too.
William Griggs: Very cool. I got tons of links that I’ll put up in the show notes to all these different posts, all these different books we’re talking about. Gary, thanks for joining us today.
Gary Hoover: Okay William. Well, thank you so much for having me. It was great fun.
Gary Hoover’s Bio
Gary Hoover began his entrepreneurial journey at an early age. His question about enterprises was, “What separates the losers from the winners?” He began subscribing to Fortune Magazine at the age of 12, and has acquired most of the issues back to 1930. He also began keeping a list of ideas for new businesses.
As part of his education, he studied economics at the University of Chicago under Milton Friedman and two other Nobel Prize winners, served as a securities analyst for Citibank on Wall Street, worked as a buyer for Federated Department Stores, and headed up acquisitions and strategic planning for the May Department Stores Company.
At the age of 30, after he finally took the plunge and created pioneering book superstore BOOKSTOP, which helped change the nature of book shopping in America. This company was sold to Barnes & Noble for $41.5 million cash when it was 7 years old, and became a cornerstone for their industry-dominating superstore chain.
After he and his partners sold BOOKSTOP, Gary returned to his first love of understanding businesses, and began the company that became Hoover’s, the world’s largest Internet-based provider of information about enterprises. Hoovers.com covers thousands of companies around the world. In July of 1999, Hoover’s went public and in March of 2003, the company was purchased by Dun & Bradstreet for $117 million. Like BOOKSTOP, Hoover’s has changed the way we do things and today employs over 400 people.
Gary also ventured into the travel business with TravelFest Superstores, which failed when airlines stopped paying commission to travel agencies, and the museum industry with new conceptions of what a museum is and should be. He continues to add new ideas to his list of business ideas, now numbering over 230.
In the 2009-10 academic year, Gary served as the first Entrepreneur-in-Residence at the Herb Kelleher Center for Entrepreneurship at the McCombs School of Business at the University of Texas in Austin. There he focused on inciting and inspiring entrepreneurial thinking among students of all types, graduates and undergraduates, inside and outside of the business school. He reviewed approximately 400 business plans and ideas in this role, as well as teaching a Foundations of Entrepreneurship course. In 2012, Gary was appointed Entrepreneur-in-Residence at the School of Information at the University of Texas at Austin.
In 2009 he launched www.hooversworld.com, a blog which includes reviews of books, ideas, and places from Gary’s iconoclastic angle. In 2011 he began a video blog, which can be found at the same website or at http://www.youtube.com/hooverbits. His book is available at http://www.scribd.com/doc/25085990/The-Art-of-Enterprise-by-Gary-Hoover-January-2010. He also gave five lectures on the history of various industries (movies, airlines, autos, retailing, and computers) which can be viewed at http://blogs.mccombs.utexas.edu/mccombs-today/gary-hoover-video-library/.
Beginning in 2010, Gary started teaching students of all ages Entrepreneurial Thinking through his own Hoover Academy. Understanding and researching companies are also popular courses. Over 300 people have graduated from Hoover Academy programs ranging from 3 hours to 12 weeks. He has also begun offering online video courses.
In the summer of 2012, he incorporated his fifth startup, Bigwig Games, to produce business and social science strategic simulation games for the iPad and other tablet devices.
Gary lives in Austin, Texas, with his 55,000-book library. He speaks to conferences and corporate groups and works to encourage innovation and entrepreneurial thinking on every continent and in every industry, for profit and not for profit. He has also supported the University of Chicago, where Hoover House dormitory opened early this century.
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