Live Episode! The Home Depot: Arthur Blank

Dec 27, 2017

In 1978, Arthur Blank and his business partner Bernie Marcus were running a successful chain of hardware stores called Handy Dan – but then, they were unexpectedly fired. The next year, they conceived and launched a new kind of home improvement store that flopped on opening day, but went on to become one of the biggest private employers in the U.S. The Home Depot now earns annual revenue of almost $100 billion. Recorded live in Atlanta.

► 00:00:00

support for this podcast comes from American Express open if you listen to how I built this you're curious about ideas and you probably have some ideas of your own American Express open can help you with money and know-how so you can turn those ideas into action visit to get business done you open the doors to Home Depot and is there just a mad rush of people to come in not as expected I'd be I'd be a mile statements so we agreed we weren't going to talk to each other the morning open up to two stores and my three older children they were each given $500 one in one dollar bills so it's six o'clock at night there was standing in front of the stores still handing out $1 bills so we had this grand opening and nobody came

► 00:01:00

from NPR it's how I built this show of that innovators entrepreneurs idealists in the stories behind the movements they built I'm Gyros and on this special live episode when Arthur Blank got fired from his corporate job in his mid-30s didn't wallow in self-pity he got Revenge by building a business plan for a new company the Home Depot

► 00:01:32

so back in 1979 when Home Depot opened its first store in Atlanta there were of course other hardware stores but at the time there was nothing quite like Home Depot for starters it was huge almost twice as big as its competitors and second it offered things like free workshops and staff who could tell you how to fix stuff at home but most importantly Home Depot was cheap like 10 to 20 percent cheaper than other hardware stores now initially Home Depot wasn't a sure thing in fact on day one it wasn't clear it would work but today Home Depot is a company that does almost a hundred billion dollars in annual revenue and it's one of the 10 biggest private Employers in the US and the story of how Arthur Blank and his mentor burning Marcus built it will inspire anyone who's ever been fired because if those guys had never got fired from their

► 00:02:30

and comfortable corporate jobs they'd have never started Home Depot now Arthur and Bernie no longer run the company but they still own lots of shares and Home Depot's made them Rich Arthur blanks net worth is estimated at more than four billion dollars and one other thing about Arthur he is beloved in his adopted hometown of Atlanta and a big part of that has to do with his stewardship of the Atlanta Falcons which he now owns Arthur Blank sat down with me in front of a live audience at the Buckhead Theater in Atlanta and we started out by talking about his Boyhood and growing up in Flushing New York

► 00:03:14

what what are your earliest memories of your childhood oh Lord probably fighting with my brother that would be one it was you your brother your mom and your dad yes exactly we live in a small apartment it was a it was a one-bedroom apartment one bathroom we shared that shared the actually my brother and I share the bedroom and my mom and dad slept in a little pullout thing in the foyer I went out in the morning stayed out all day and came home and it got dark and and it was a you were a middle class family right very middle-class family yes yeah what did your what did your dad do my dad was a pharmacist he passed away when he was 44 I was 15 at the time several years before that he had left he was working for his brother in a retail drugstore and he started his own

► 00:04:11

my circle Distribution Company to hospitals and nursing homes and doctors across the country when he passed away my mother was only 37 at the time and without any business background she went in and started to run the business my mother was one of these people which you know failure was not part of her vocabulary and she was going to succeed and she was going to do whatever it took to be successful in the business and I would go to school and I was playing football then and my football practice come home I'd start dinner I did the family laundry and just did a variety of things to support the house as best they could and try to be as good a friend to my mother's I could be I member will periodically I would take her and go bowling and I remember one time she was very young-looking somebody would ask me well is that your girlfriend I said no that's my mother not my actually like my girl

► 00:05:12

she was always very young at heart very young and spiritual of to dance very much of a caring person you went off to college at Babson College is a small business college in Massachusetts was that was that your intention to get into business out of school well I think really what happened after my dad died we talk about what's going to happen to the family business we had hoped you know my mother would you know get remarried she did she seated I wishes she did several times over she would she would laugh at that too but she wouldn't she wouldn't think that would be very funny so but in any event so my brother was going to take over the pharmaceutical and of the business and I would take over the business end of the business so that was really the plan he went to pharmacy school I went to business school and I was able to develop some skills in terms of

► 00:06:11

work with others and be inclusive and and be a good leader so that that was very important for me in college so out of college you I guess you start work as an accountant right for a couple of years right right for five years but I kind of realized during that period of time I didn't want to spend the rest of my life recording what other people were doing and making sure the books are balanced and all that kind of stuff and giving good audit advice but I wanted to be on the other side of the desk if you will or I actually was could help make the decisions and help Drive the business and build a businesses so I guess it was in your mid 20s or late twenties you went and worked for a company called daylan what what was what was daylan daylan was a conglomerate when that word was really fancy and Drew High P/E ratios the great majority of the company ended up being in bankruptcy I was running a chain of drugstores I originally started out as a CFO there we were the only

► 00:07:11

a part of the company that was making any money and had a small Home Improvement Center company in California called handy Dan Home Improvement centers there were also making a little bit of money but the rest of the companies are losing money so I had an option to stay there and continue just to run the business as it was or potentially go to California I had met my partner at HD Bernie Marcus through Dale and Bernie was running the discount store division for them that wasn't doing well and so that's when I was twenty four or five years old I mean I was a young man just it just to be so just to clarify you were right you were the CEO of this the drugstores that railing around and Bernie was involved with their discount stores right both of those businesses were sort of collapsing and and you had this option to go work for another business they own which was handed in which was the specific that the drugstore business were running was actually very profitable right

► 00:08:12

the pack the parent company had no money to give us for expansion and I don't want to be part of that I don't want to be just maintaining 75 stores until he got 75 years old so I decided then he thought I was going to leave or whatever and they and they offered me this opportunity in California to work with Bernie and Bernie and I had been very close so then I went to work for Bernie in California at Handy Dan Home Improvement centers my wife then didn't want to go to California because she was positive that we would be consumed by a quake of some sort but she ended up she ended up coming and we end up having some kids there I've had kids all over your name and age I have a child I've got five six wonderful children and my wife has three children so and I always consider the Home Depot to be my seventh child so so you say you moved to Southern California you start working for

► 00:09:11

you down Bernie Marcus is there as well but what he's about I guess about 14 15 years older than you what was he sort of like a mentor to you yeah Bernie is he's 14 years my senior and probably you know combination of brother and a father figure having lost my dad and a rabbi I mean it's he's always considered himself to be a rabbi and and so I and he's a great Storyteller I'm a great joke teller and I'm not a great Storyteller but I'm a great audience he would tell the same stories and I would keep laughing at the same story so I was it was like a great partnership because he loves hearing you know me laugh and it was like a marriage it was like a marriage it was like a very good marriage so what did you what did you and Bernie start to do it handy dandy did you start to you were trying to make this into a successful company so what were some of the things that you were doing at that company

► 00:10:11

experimenting with it that company at the time well that company Hannity on Home Improvement centers was and we operated kind of a traditional model 40,000 square feet 40 percent gross margin 40 Associates on the floor and it was by far the most successful chain of Home Improvement Center stores in the country then and we had a tax treaty with our parent company parent company being dalen and so we would send our tax monies that are going through the government we sent directly to today land so we were a favorite child in that company because we were kind of keeping the company afloat if you will with our tax money at some point the parent company was bought by guy named Sanford sigilyph right who was actually quite famous at a time he was in these Wicks commercials and he was his real name was Ming the merciless right me that's right and he actually told you know that right yeah and he comes into the company right and he fires you guys he gets rid of you what do you what do you remember about

► 00:11:11

day they were you shocked yeah yes I was shocked yeah I mean I we were at that time we were running the most successful Home Improvement Center company in the United States and Bernie and what is named Sandy's merciless Ming single office single off right he and he and Bernie would get into fights during board meetings and they both were very you know self-confident strong people Sandy had a difficult time because basically all the profitability all the cash flow from Dale and was coming from this Home Improvement Center company burning was properly you know taking credit for the results that we were producing Sandy didn't like that so this was you know more of the Giants and they own more stock and we did and so called my wife and I told her and she started laughing she didn't believe you but she didn't believe me she loves a joke she said well the time and how can you be fired I said well I try to explain you know political Strife in the

► 00:12:11

this context to her and so I said she said I still don't believe he has to I'm gonna get in the car and start driving home and by the time I got home Wall Street Journal had called the house the only times are called the house the Orange County newspaper called I mean they were there were people on the phone that wanted to talk to me so booking has she said I guess you weren't joking why I said no not no not so well me you were 36 you had kids I guess at that point right three children then where are you that's called first batch that's what they call themselves right did you did you have I'm just curious I mean you know you've got this job you move to California it's very successful you've got this career ahead of you I don't know where you were you worried did you feel like the rug was pulled from out out from under you well I you know I you know I was shocked and but you know I mean given the financial background that I

► 00:13:11

had we had saved up some money I wasn't you know I wanted to take my time as the Bernie and think through the options that we had you know he was still a fairly young man at that point as well and didn't want to rush into anything so I took basically the better part of the year off I did a lot of running ran my first marathon that year spending time with my kids I mean I did a lot of things I wanted to do was looking at a lot of different Alternatives we wanted to think about outside the box and and Bernie had said well you know if we were ever to LeapFrog our own business handy Dan Home Improvement centers what kind of Home Improvement centers store could we not compete against and so he said we could never compete against the big Warehouse No-Frills downmarket low prices great service great services so instead of kind of taking that handy Dan model of the forest for million dollars forty percent margin 40 staff people Etc

► 00:14:11

we said let's try to LeapFrog the industry you know dramatically

► 00:14:15

how did you when Bernie came to you and said hey here's the business plan you were in you were in right away you said let's do this thing well we did the business plan together and I and burn and I the Bernie lived in the San Fernando Valley for those of you that know Allah its for three hours or three-day drive that you get from Orange County to San Fernando Valley and so we would talk a lot by phone and I would develop really all the business plans and work on the models and things that nature I would send them to him he would look at whole we'd meet at a coffee shop that was somewhere in the middle which we met at I don't know how many times but they had a table it was kind of named after us and we kept developing this model of developing it and finally I remember one night I had you know all these papers spread out on a dining room table and I you know I called Bernie and I said you know listen partner I mean I've applied you know five years of experience in large public accounting firm my own business experience my experience running

► 00:15:15

change drugstores and these numbers don't add up huh and I still remember what Bernie said on the other end of the phone you just said change the numbers changing numbers like change the number so I mean his argument which really was valid was that look this is a model we don't have any of these stores we're just projecting what one might do and but you know at that time I mean so I understood I said but it's got to be we had to present this to very sophisticated investors and have it makes some sense and be plausible but reality is that the investors who invest in our company was a hundred and forty four of them really what they were buying into was just myself and burning yeah because you had to have the experience we had the experience and they look back at Handy Dan Home Improvement centers and they said what betting on people here we're not going to bet on the on the on on that experience on that smallest or Arthur why did you guys decide to start this

► 00:16:15

pretty in Atlanta you were based in Southern California at the time how did you pick this area well I lived in Atlanta with the chain of drugstores was based in Griffin Georgia right Griffin is the first city south of Atlanta I always remembered land I was a growth City growth Market I love the city so we asked Bernie let's you know let's go to Atlanta and you know that time this is ought to imagine because Atlanta even today qualifies as a national park based on number of trees that are still up in Atlanta despite all of development here but there was less than a million people living in Atlanta at that time so when I drove a Bernie around land of look at the sites to 85 which is everybody is familiar with it

► 00:17:05

although all you could see was trees and so every once in a while every 10 minutes Burmese a there's nobody living here off them so we can open up a business is nobody living here is nothing but Teresa I have to get off the highway driving around for a little bitch almost and walk you know division subdivisions get back on Highway Drive some more he said I still not enough people is nobody here I just wanted all these trees so we did that like the two hours we drove around to 85 and got off and with the subdivision so finally he became convinced that Atlanta would be an important growth market and it was even growing that was less than a million people we opened up here in 1979 and today it's something north of 7 million people so on that opening day in 1979 you had you'd raise the money to open two shops you're in Atlanta you open the doors to Home Depot and is there just a mad rush of people to come in

► 00:17:58

not as expected I'd be I'd be a mile statement so we agree Bernie and I went to one store and bought in a Pat and other associates obviously went to the other store we agreed we weren't going to talk to each other the morning and my three older children they were each given $500 one in one dollar bills and I told them I said look at me I told her mother they'll never said they'll be back in school by eleven twelve of the very latest so it's six o'clock at night there was standing in front of stores still handing out $1 bills so we had we had this grand opening and nobody came

► 00:18:38

in just a minute how the Home Depot went from a flop on opening day to the largest Home Improvement chain in the world stay with us I'm guy Roz and you're listening to how I built this from NPR

► 00:18:57

support for this NPR Podcast comes from American Express open listeners to how I built this are curious curious about how good ideas become great businesses and chances are you have some good ideas of your own but as you know and business there can be a lot of roadblocks American Express open knows how hard it can be to get things done and they want to help with money and know-how so you can turn those ideas into action visit to get business done

► 00:19:29

hey welcome back to how I built this from NPR I'm guy Roz so Arthur Blank and his business partner burning Marcus opened their first two stores in the Atlanta area in 1979 but to say the least it didn't quite go as expected and so over the next year they worked really hard to identify what wasn't working and they experimented with different pricing and different merchandise to try and get more customers into the front door we spent really the next year in one of our core values is to listen and respond and listening I probably spend 75% of my time as did Bernie as did really most of our Associates on the floor of the store finding out from customers what is it they like what didn't like and we kept changing the mix adding things taking things off changing prices changing assortments changing vendors making sure we had service levels in areas they wanted them so we kept refining the model every competitor

► 00:20:29

came into our stores and visit us and said I mean these can use bad words here because this it was like kind of a live radio thing but these whatever you want to call us they're crazy the stores are much too big prices are much too low they have what way too much product in stock they have too many services I mean the math isn't going to work huh and of course the math during 79 wasn't working as great and fine tune that got it where it needed to be exploded an 80 and 81 and the numbers were incredible and we went public in 81 obviously we got a great you know a great reception from the stock market and then it's a long story after that but that point forward we knew we were going to be very successful that's why I want to ask you about how you and Bernie thought of the company and you have to of course agree on what it's going to be what the values of the company are so what were the core values of Home Depot

► 00:21:26

well I think that you know we never really wrote them down I remember I went to lunch at Bernie and I said you know we're living these values which by far and away is the most most important thing that we can do but they're not written down and I'm gonna give you some shocking news today that I've kind of figured out and know to be true and that is that you and I are going to approve a lot of stores in the future that we will actually never see will never be in the man never get a chance to go visit them I remembered stopped eating lunch but then I for can we see your nuts he said that's crazy how can we improve stores and never go visit him I said Bernie because we we spent about half our time in our stores and I said if you do the math of it we visit certain numbers of our existing stores every year and we just realized that the too many new stores and so I said we need to document lead to write down and you know I think the beauty of our core values which are really focused on

► 00:22:25

Associates and people and relationships and community and giving back and the people who were serving Drive everything that we're doing those are the ones that we listen to those the ones who respond to those that ones we care for those who ones we nurture and that's the mentality of the training that we've given to all of our Associates you went Home Depot went from zero Revenue in 1979 to 700 million in 1985 the fastest company in US history to hit 40 billion dollars in Revenue how did you manage that growth was that overwhelming they story Sam Walton Sam what was the founder of Walmart Sam was speaking at a retail conference I went to and somebody asked them and the company had gone from 10 billion to 20 billion or something today I don't know what they own half the world but but they my whatever you know between name and Amazon River but but we said well how did you get from 10 to 20 billion dollars and 7 so we opened up one store at a time

► 00:23:25

and it's all we did and so really at HD we had a five-year plan we had a one-year budget we had all of that but we focused on every single store and our plan was that each store had to be better than the last though he opened up so we didn't have any planograms we didn't have any you have to do it this way we didn't let the model get Frozen we didn't let it we made the folks running the store think about this the last or how do I make this story better how do I own it how do I feel accountable for it how do I inject my ideas into it and how do I make it better so every store got better what about your personal life I mean did it take a toll on the time you were able to spend with your kids your family and you must have worked been working all the time I thought you weren't going to ask me about my personal one you can ask me whatever you want I told guys to anything you want to talk about is fine

► 00:24:23

I think it's one of the things I'm most proud of my oldest daughter who she was running a non-profit for young women in San Francisco and when they did a retirement dinner for me in 2001 she couldn't be there she couldn't get away and she did a video piece and she sent it and I still remember you know what she said their instance dad you know I never realized I was going up you know the size of the Home Depot and the success of it because you always there for me you always events that were important to me always there when I was doing dance recitals you always there you know important school programs whatever it may be and and I worked around the kids schedule and I would work early in the morning I work late at night I put them to bed and work after that and so I always make sure that was bounced in my life and I think you know I've often asked by Young Folks most people younger than me so it's easy for me to find people that want that advice today but I always

► 00:25:23

you know make sure you have balance in your life and because too many young Executives men all women they their attitude is that we got to work now work hard and you know put my career in fifth gear and go go go and so when you return home and 10 years you're not going to recognize your kids and your spouse is going to look at you and say who you again so I think it's important to find balance in your life you stepped down stepped away from the company left the company at a pretty young age were 58 this is 2001 why did you leave where you just kind of your time there was no I told the board at that time I mean I done in the earlier days in the company the first I don't know how many years but I was a 23 year period of time that it was it was great fun it was all his adventures starting a new business you know going half broke figure out how to work through that

► 00:26:23

responding to customers and as time went on I spent found myself spending more time in meetings more time doing things that I had to do that were part of the job and didn't dislike doing them but they weren't as much fun for me anymore so when I really felt that 23 years was a long time for somebody in my position first as president later CEO and chairman and what have you and and Bernie and I'd always you know operate as a very close partnership I'm it was really more like two brothers working together to Partners working together anything else and you still talk to him right well I talked to him as often as I can we probably had two dinners and a lunch in the last 60 days together so I see him I see him a lot and you know it's it's always great to do that so I felt the time was right we began to do a search the board found a candidate that was his name is Bob nardelli going to get some hisses from my

► 00:27:22

HD folks in the audience now but they brought in Bob nardelli as the CEO the board made that decision and and I was sure happy I wasn't there during the six years that he was there so that would have been the worst time in my life but that but that was a time in your life when you really made your biggest mark on the city of Atlanta by buying the Falcons right I mean that way can you can you explain what was the I mean what did you this Burning passion to own the Falcons was it was it sort of a chance to run a business again what was the thinking behind behind doing that well I was a season ticket holder since I had moved to Atlanta and I didn't realize this but the commissioner before the Commissioner Goodell commission attack debu at the closing One Import the theme you said you realize team you just bought his never had back-to-back winning seasons and I said Paul you know Paul's the smartest guy in the room not because you

► 00:28:23

just because he really was the smartest guy in the room I said that can't be correct so I went back and I checked and it turned out that was correct so I realized all those years that I was a season ticket holder and I would have such angst over the Falcons I understood why because it was you know constantly like this so I said to myself I can either sit and complain about it for the next you know 40 years of my life or just try to buy the thing would fix it so so I felt you know buying a team of fishing you seem like more fun and sitting there and just watching the play and lose the games and what have you so that was in 2001 and I've just finishing up our 17th years as owners and we've had we've had we've had multiple back-to-back winning seasons multiple championships played well last year the Super Bowl we just we forgot there was a fourth quarter and the game really well

► 00:29:22

three quarters and somehow you know

► 00:29:27

this has been to say the least a an interesting year and the NFL do you feel like players who are trying to bring awareness to the way our Criminal Justice System treats black men and women versus whites by not standing for the national anthem do you feel like that well I acceptable yeah I think it's I think it's less acceptable to deny people at First Amendment rights so I think that's also having having said that I mean I think that players should stand and should and should stand respectfully for the national anthem and I would tell you there were Seventeen hundred fifty players in the NFL and I will tell you these players have great respect for the military and so it's not about the military to them it's just that becomes an opportunity a platform for them to speak about

► 00:30:27

their concerns about social injustice police accountability their focuses on turning that platform down to progress on these issues and making sure that owners and organizations and America are listening to voices that cannot be heard and I think I'm all for that

► 00:30:53

how much of your is a question asked everybody comes in the show how much of your success do you attribute to your intelligence and your hard work and how much of it to luck and timing well I think that luck and timing is a big deal I mean I really do a lot of it is success is based on timing and luck and being the right place but then seizing opportunities I think being willing to go out of your comfort zone and I'm a big proponent of Outward Bound of done I don't know how many Outward Bound courses myself but we did a lot of that in terms of the the training at HD but a lot of it is based on their philosophies to serve to strive and not to yield so I think that having that that entrepreneurial drive and spirit to get up every day to have purpose in your life every day to become better every day I'm doing this because I have a passion for doing it and I love being of service to other people in whatever form that I can be

► 00:31:52

Arthur Blank founder Home Depot owner of the Atlanta Falcons thank you

► 00:32:02

that was my conversation with Arthur Blank founder of the Home Depot live in Atlanta Georgia at the Buckhead Theater and in addition to the Falcons Arthur owns Atlanta's new major league soccer team Atlanta United that started playing in 2017 and by the way in case you were wondering the guy who fired you in 1978 Sanford sigilyph did you ready ever have any contact with him after Home Depot like did you never never know I used to think he's burning we ought to send her a thank you note you know every every anniversary date we were fired and he didn't want to do that anyway he did us a favor

► 00:32:43

hey thanks for listening to this special live episode of How I built this this episode was produced by Casey Herrmann with music composed by rum teen Arab Louis thanks also to neva Grant Santa's myshkin poor Claire Breen Jeff Rogers are in turn is Diana mushtaq and Gyros and you've been listening to how I built this from NPR