Start With Why (23 page)

This is an idealistic concept and in the real world that level of discipline is not always possible. I understand that sometimes we have to make short-term decisions to pay bills or get some short-term advantage. That’s fine. The Celery Test still applies. If you want a piece of chocolate cake, go right ahead. The difference is, when you start with WHY, you know full well that the chocolate cake is a short-term decision that doesn’t fit with your beliefs. You’re under no illusions. You know you are only doing it for the short-term sugar rush and you’ll have to work a little harder to get it out of your system. It’s astounding the number of businesses I see that view an opportunity as the one that’s going to set them on a path to glory, only to have it blow up or slowly deflate over time. They see the chocolate cake and can’t resist. Starting with WHY not only helps you know which is the right advice for you to follow, but also to know which decisions will put you out of balance. You can certainly make those decisions if you need to, but don’t make too many of them, otherwise over time, no one will know what you believe.

But here’s the best part. As soon as I told you the WHY, you knew that we were going to buy only celery and rice milk even before you read it. As soon as I gave you the filter, as soon as I said the WHY, you knew exactly what decisions to make before I said so.

That’s called scale.

With a WHY clearly stated in an organization, anyone within the organization can make a decision as clearly and as accurately as the founder. A WHY provides the clear filter for decision-making. Any decisions—hiring, partnerships, strategies and tactics—should all pass the Celery Test.

Mark Rubin is a good parent. He spends a lot of time with his two daughters, Lucy and Sophie. One Saturday afternoon, his wife, Claudine, took Lucy to a friend’s for a playdate and Mark was left home to look after five-year-old Sophie. Feeling a little tired, Mark really wanted to just have a little time to relax on the couch and not have to play tree house again for the ninth time that day. To keep Sophie occupied, he opted for the TV as babysitter. Mark had two brand-new DVDs to choose from. He’d seen neither of them and heard nothing about either of them in the press or from any of his friends with small children. Mark didn’t feel like watching the cartoon himself—the plan was to let Sophie enjoy the movie in one room while he watched something in the other room. One of the DVDs was from some company he’d never heard of and the other was from Disney. Which one did he put in the DVD player? Which one would you put in the DVD player?

The answer is so clear it verges on a silly question, but let’s consider the facts for fun. Both DVDs were cartoons. Both were age-appropriate for a child. Both had a couple of good reviews on the packaging. The only difference is that we trust the DVD from Disney. Disney is not a perfect company. They occasionally have management and leadership issues. Their stock price sometimes goes down. They have lawsuits filed against them all the time. Some would lump them in with all the other nasty corporations that work to appease Wall Street. So why would we trust them?

Disney operates with a clear sense of WHY—they exist to promote good, clean family fun and everything they say and do has, for decades, worked to prove it. The reason we trust Disney is simple; we know what they believe. They pass the Celery Test. They have been so consistent over time in everything they say and do that parents trust them enough to expose their children to Disney content without vetting it first. This has nothing to do with quality products. This is not rational.

Southwest Airlines also passes the Celery Test. The company has been so consistent over time that we almost know what to expect from them. The airline offers only open seating on its flights, for example. It’s one of the things they do to prove that they believe in freedom. It just makes sense. A company that serves the common man and values equality for all so much could never have a class structure. If Delta or United or Continental tried to do the same, it wouldn’t make sense, open seating doesn’t fit their way.

Birkenstock sandals, tie-dyed T-shirts, daisy chains and a VW van. All are symbols of the hippie ideals of peace, love and all things vegetarian. So it was a bit of a surprise in 2004 when Volkswagen introduced a $70,000 luxury model to their lineup. The company famous for putting a vase for fresh flowers on the dashboard of their new Beetle introduced the Phaeton in an attempt to compete with high-end luxury cars, including the Mercedes-Benz S-Class and the BMW 7 Series. The V-8, 335-horsepower car boasted some of the most advanced features in the industry, like an air compressor suspension system and a draftless four-zone climate control. It even included an electronically controlled shiatsu massage system in the seats. The car was an astounding achievement. It was very comfortable and was a monster on the road, outperforming other more established luxury cars in its class. The critics loved it. But there was a small problem. Despite all the facts and figures, features and benefits, and regardless of the world-renowned German engineering, few people bought one. It just didn’t make sense. What VW had done was inconsistent with what we knew them to believe.

Volkswagen, which translated means “people’s car,” had spent generations making cars for you and me. Everyone knew what VW stood for—power to the people. It brought its cause to life in products that were all about quality that the average person could afford. In a single swoop of German ingenuity, VW had been put completely out of balance. This is not like Dell coming out with an mp3 player or United starting the low-cost airline Ted. In those cases, we had no idea what the companies’ WHYs were. Absent any knowledge or feeling for their WHY, we couldn’t bring ourselves to buy products from them that went anything beyond WHAT they do. In this case, VW has a clear WHY, but WHAT they produced was completely misaligned. They failed the Celery Test.

Toyota and Honda knew this better than Volkswagen. When they decided to add luxury models to their lineups, they created new brands, Lexus and Acura respectively, to do it. Toyota had become a symbol of efficiency and affordability to the general population. They had built their business on a suite of low-cost cars. They knew that the market would not pay a premium for a luxury car with the same name or with the same logo on the hood. Although a luxury car, Lexus is still another WHAT to Toyota’s WHY. It still embodies the same cause as the Toyota-branded cars, and the values of the company are the same. The only difference is WHAT they are doing to bring that cause to life.

The good news is, VW hasn’t made the same mistake again, and their WHY remains clear. But if a company tries too many times to “seize market opportunities” inconsistent with their WHY over time, their WHY will go fuzzy and their ability to inspire and command loyalty will deteriorate.

What companies say and do matters. A lot. It is at the WHAT level that a cause is brought to life. It is at this level that a company speaks to the outside world and it is then that we can learn what the company believes.

“A lot of what goes on these days with high-flying companies and these overpaid CEOs, who’re really just looting from the top and aren’t watching out for anybody but themselves, really upsets me. It’s one of the main things wrong with American business today.” This is the sentiment passed down from the founder of one of the most vilified companies in recent history.

Raised on a farm in America’s heartland, he came of age during the Great Depression. This probably explained his predisposition for frugality. Standing five feet nine inches and weighing only 130 pounds when he played football in high school, Sam Walton, the founder of Wal-Mart, learned early the value of working hard. Working hard leads to winning. And as the quarterback on his high school football team, he won a lot. In fact, they went on to become state champs. Whether through hard work, luck or just an unflappable optimism, Walton got so used to winning all the time that he couldn’t fully visualize what losing looked like. He simply couldn’t imagine it. Walton even philosophized that always thinking about winning probably became a self-fulfilling prophecy for him. Even during the Depression, he had a highly successful paper route that earned him a decent wage for the times.

By the time Sam Walton died, he had taken Wal-Mart from a single store in Bentonville, Arkansas, and turned it into a retail colossus with $44 billion in annual sales with 40 million people shopping in the stores per week. But it takes more than a competitive nature, a strong work ethic and a sense of optimism to build a company big enough to equal the twenty-third-largest economy in the world.

Walton wasn’t the first person with big dreams to start a small business. Many small business owners dream of making it big. I meet a lot of entrepreneurs and it is amazing how many of them tell me their goal is to build a billion-dollar company. The odds, however, are significantly stacked against them. There are 27.7 million registered businesses in the United States today and only a thousand of them get to be FORTUNE 1000 companies, which these days requires about $1.5 billion in annual revenues. That means that less than .004 percent of all companies make it to the illustrious list. To have such an impact, to build a company to a size where it can drive markets, requires something more.

Sam Walton did not invent the low-cost shopping model. The five-and-dime variety store concept had existed for decades and Kmart and Target opened their doors the same year as Wal-Mart, in 1962. Discounting was already a $2 billion industry when Walton decided to build his first Wal-Mart. There was plenty of competition beyond Kmart and Target, some of it much better funded and with better locations and seemingly better opportunities for success than Wal-Mart. Sam Walton didn’t even invent a better way of doing things than everyone else. He admitted to “borrowing” many of his ideas about the business from Sol Price, the founder of Fed-Mart, a retail discounter founded in Southern California during the 1950s.

Wal-Mart was not the only retail establishment capable of offering low prices either. Price, as we’ve already established, is a highly effective manipulation. But it alone does not inspire people to root for you and give you the undying loyalty needed to create a tipping point to grow to massive proportions. Being cheap does not inspire employees to give their blood, sweat and tears. Wal-Mart did not have a lock on cheap prices and cheap prices are not what made it so beloved and ultimately so successful.

For Sam Walton, there was something else, a deeper purpose, cause or belief that drove him. More than anything else, Walton believed in people. He believed that if he looked after people, people would look after him. The more Wal-Mart could give to employees, customers and the community, the more that employees, customers and the community would give back to Wal-Mart. “We’re all working together; that’s the secret,” said Walton.

This was a much bigger concept than simply “passing on the savings.” To Walton, the inspiration came not simply from customer service but from service itself. Wal-Mart was WHAT Walton built to serve his fellow human beings. To serve the community, to serve employees and to serve customers. Service was a higher cause.

The problem was that his cause was not clearly handed down after he died. In the post-Sam era, Wal-Mart slowly started to confuse WHY it existed—to serve people—with HOW it did business—to offer low prices. They traded the inspiring cause of serving people for a manipulation. They forgot Walton’s WHY and their driving motivation became all about “cheap.” In stark contrast to the founding cause that Wal-Mart originally embodied, efficiency and margins became the name of the game. “A computer can tell you down to the dime what you’ve sold, but it can never tell you how much you could have sold,” said Walton. There is always a price to pay for the money you make, and given Wal-Mart’s sheer size, that cost wasn’t paid in dollars and cents alone. In Wal-Mart’s case, forgetting their founder’s WHY has come at a very high human cost. Ironic, considering the company’s founding cause.

The company once renowned for how it treated employees and customers has been scandal-ridden for nearly a decade. Nearly every scandal has centered on how poorly they treat their customers and their employees. As of December 2008, Wal-Mart faced seventy-three class-action lawsuits related to wage violations and has already paid hundreds of millions of dollars in past judgments and settlements. A company that believed in the symbiotic relationship between corporation and community managed to drive a wedge between themselves and so many of the communities in which they operate. There was a time when legislators would help pass laws to allow Wal-Mart into new communities; now lawmakers rally to keep them out. Fights to block Wal-Mart from opening new stores have erupted across the country. In New York, for example, city representatives in Brooklyn joined forces with labor unions to block the store because of Wal-Mart’s reputation for unfair labor practices.

In one of the more ironic violations of Walton’s founding beliefs, Wal-Mart has been unable to laugh at itself or learn from its scandals. “Celebrate your successes,” said Walton. “Find some humor in your failures. Don’t take yourself so seriously. Loosen up and everybody around you will loosen up.” Instead of admitting that things aren’t what they used to be, Wal-Mart has done the opposite.

The way Wal-Mart thinks, acts and communicates since the passing of their inspired leader is not a result of their competitors outsmarting them either. Kmart filed for Chapter 11 bankruptcy protection in 2002, and then merged with Sears three years later. With about $400 billion in annual sales, Wal-Mart still sells more than six times as much as Target each year. In fact, looking beyond discount retailing, Wal-Mart is now the largest supermarket in the world and sells more DVDs, bicycles and toys than any other company in America. Outside competition is not what’s hurting the company. The greatest challenge Wal-Mart has faced over the years comes from one place: itself.