SELF-MADE MAN

Fired at thirty-five, Arthur Blank goes on to co-found one of the world’s most successful companies

IT WAS 1978, AND ARTHUR BLANK had just received some bad news. He picked up the phone to call his wife, Diana, to tell her that he and his mentor and friend, Bernie Marcus, had just been fired. Blank, thirty-five, had been vice president of finance, and Marcus was president, of Handy Dan Home Improvement Centers, which at the time was the largest and most successful chain of home improvement stores in the country.

“She started laughing, thinking I was joking with her,” Blank recalled. “Eventually, after she started getting phone calls at the house from business media reporters, she realized it was true.”

And that is the beginning of one of the most remarkable stories in the annals of American business. Blank and Marcus rebounded from their Handy Dan firings to found The Home Depot Inc., the world’s largest home improvement retailer, the sixth largest retailer in the United States, and the eighth largest retailer in the world. As I write this, the company is valued at more than $89 billion.

Blank also went on to purchase the NFL’s Atlanta Falcons, and he and Marcus, both billionaires, have become noted philanthropists.

Yet back in 1978, he was shocked about being fired because he didn’t see it coming.

“Bernie got caught in the middle of a political situation and power struggle with the chairman of Daylin Corporation, which was the parent company of Handy Dan,” Blank said. “His name was Sandy Sigoloff, and internally he was known as Ming the Merciless, a title that actually made him proud.”

Instead of looking for another executive position, Blank decided to tap into his inner entrepreneur.

“I was young and confident enough to know there would be other opportunities for me. A friend asked me to open a CPA practice with him, but I didn’t want to go in that direction. And I had offers to run other retailers. . . . But Bernie and I decided to stick together and build something on our own.”

The two started out by sketching their ideas on a clean sheet of paper in a local coffee shop, and eventually came up with a business plan.

“Bernie and I always knew the kind of home improvement retailer that Handy Dan would not be able to compete with: a large-format, deep-discount, high-service home improvement retailer. So we already had a Home Depot–type formula in our heads.”

For Blank, the seeds of his Home Depot success were planted early. Blank’s dad, Max, a neighborhood pharmacist, died of a heart attack when Arthur was just fifteen. Max was only forty-four.

It was a formative moment for the young entrepreneur-in-the-making. Max Blank had little life insurance, and his death forced Arthur’s mother, Molly, to take over Sherry Pharmaceutical, the mail-order pharmacy business that Max had created.

As Blank recounts in Built from Scratch, the story of the founding of Home Depot, his mother, despite having no business experience, did a very good job. She grew the tiny enterprise into a business with several million dollars in volume.

“She showed us by example that with hard work and resilience, you can be successful,” Blank said.

Blank’s parents, and his mother in particular, instilled values in him and his brother, Michael, as youths that shaped their adult lives.

“She also taught us the value of giving back. We had very little financially when I was growing up, but my mother always found a way to give back to the community, to help others. ‘You are your brother’s keeper,’ she would say. Everything we do in life is a gift. It’s our responsibility to share that gift, and to give back what we can to the world.” Today, at ninety-seven years old, she would say the same thing.

“So I think it was probably a combination of confidence, values, and some good DNA passed on from both my parents that molded me.”

In college, Blank started a couple of small ventures. He paid for his education in part by starting a landscaping business. He also ran a dry cleaning– and laundry-delivery business.

He earned a degree in accounting in 1963 and postponed joining the family business to take a job with the Big Eight accounting firm Arthur Young & Company. A few years later, he decided to join the family business to help his mother and brother. But working with family was hard. His mother eventually sold the business to Daylin Corporation, and a couple of years later, Arthur became chief financial officer of Elliott’s Drug Stores/Stripe Discount Stores.

Blank soon became president of the division. Then, in 1974, Daylin went through some tough times and sold several divisions, including Blank’s. That’s when Bernie Marcus, who had met Blank at Daylin corporate events, called with an invitation.

“I joined Handy Dan in 1974, at Bernie’s request, as corporate controller, and had worked my way up to vice president of finance—effectively their CFO—at the time we were fired, which was in 1978.”

Together, Blank and Marcus came up with their idea for Home Depot, a big-box store that would have a huge variety of home improvement items, great service, and very low prices.

“Bernie and I were an interesting duo because, while we both had a high degree of confidence in ourselves, we also had enough humility to realize we didn’t have all the answers. I think one of the key reasons Home Depot became so successful is because we hired the best people we could find and listened to them. More importantly, we listened to our customers and then responded to them. It’s a pretty simple formula, but you’d be surprised at how many mistakes are made in business by giving customers what we think they want as opposed to what they say they want.”

(Somebody like Apple innovator Steve Jobs is obviously the ultimate exception to this rule. He came up with products that people didn’t even know they wanted but then went on to crave.)

Getting funding for their new venture wasn’t easy, because, Blank said, they were selling a dream rather than a financial model.

“We didn’t make it about hammers, nails, lumber, etcetera; it was about fixing people’s problems and making their dreams come true.”

After a number of failed attempts to attract investors, co-founder Ken Langone was able to put together a group of investors who provided the seed money for the business to get started.

The challenges were many for Blank and Marcus in the early entrepreneurial days of Home Depot. For one, most of the inventory in the first store was fake.

“We didn’t have enough capital to fully stock the stores—to create the wow factor we needed—so we borrowed empty boxes from one of our vendors to put on the top racks, and we stacked empty paint cans ten feet high.”

Even with some money, convincing vendors to supply the new company with merchandise wasn’t easy.

“For some vendors, it took years to convince them to sell their products to us. Kohler, the kitchen and bath products supplier, is a good example. We knew we needed products like Kohler’s to satisfy our customers. I don’t know how many meetings, dinners, and attempts at wooing Herb Kohler it took, but I know it took us years to convince him.”

Believe it or not, Home Depot’s founders had a hard time in those early days getting customers to come into their stores.

“On the day we opened our first two stores in Atlanta, we kept our kids out of school and put them in the parking lot of our stores handing out seven hundred one-dollar bills to entice customers in. I remember thinking we’d be able to get the kids back to school by lunchtime, but by the end of the day they were still in the parking lot—with the money. Bernie, Pat Farrah—a co-founder and our senior merchant—and I met for lunch that day and just looked at each other. Our big day had not gone as we had planned.”

The company’s first two stores got off the ground much more slowly than they had anticipated, and the company went through half of its seed money in the first nine months of operation, Blank said.

Home Depot’s advertising also wasn’t paying off—customers just weren’t showing up. Then, one of their ideas clicked.

“Pat Farrah had an opportunity to buy a truckload of fireplace screens at a greatly reduced price. Rather than applying a normal markup, Pat marked them up just two dollars and placed an ad in the newspaper. A fireplace screen that normally sold for $139 was advertised for $35, and people came in droves to buy them. We sold out in four days.”

After that, word of mouth started to take hold.

“People drove to our stores from faraway cities because someone had told them about our big stores, great prices, and great service. That also led us to change our advertising focus from products to more of the Home Depot “concept,” meaning the size of the store, the scale of inventory, and the levels of service.

“All of these things put us on the right path,” Blank said.

So what advice does one of America’s greatest entrepreneurs have for people who want to start their own business?

“Find something you believe in and have a passion for,” said Blank. “Be resilient during setbacks, and develop the ability to handle adversity. Surround yourself with people who share your vision and can work together to make it happen.

“Finally, don’t buy into the notion that it’s too difficult to start a new business in today’s environment. The things that made Home Depot successful—wide assortment, low prices, great service—are not restricted by the government, bankers, or SEC regulations. Let the attorneys, board members, and bankers worry about those constraints. Our country needs people with the creativity, unencumbered minds, and risk-taking personalities to carry on the American Dream.”

What lessons can you draw from Blank’s story?

Be prepared to rebound from setbacks.

• Blank’s road to the top wasn’t always paved smoothly and yours probably won’t be, either. The Home Depot co-founder got axed from Handy Dan before he and Bernie Marcus could regroup and flesh out the concept for what would be a mainstay of American capitalism. So often in life we need to face adversity to rise above it. Every setback in business is a learning experience. When you’re an entrepreneur and something doesn’t go as you planned, you need to ask yourself, “What did I do wrong and how can I improve it next time?”

Gain industry experience.

• After the Handy Dan firing, Blank didn’t choose to launch a new business in some field that he hadn’t the first clue about. He went back to basics in home improvement retailing, the very market that he had been unceremoniously booted from. And therein lies the lesson: Know your market intimately.
• If you’re an entrepreneur eyeing a field that’s ripe for your idea, product, or service, I want you to consider first working in that field for somebody else. This is particularly true in franchising, but also when you’re talking about a built-from-scratch operation like Home Depot. Don’t let your employer know your plans. You want to learn on their dime and make mistakes on their dime, not on yours, until you perfect your vision.

Use loss leaders to build a customer base.

• In the company’s early days, Home Depot struggled until they hit on the idea of deeply discounted fireplace screens to get potential customers excited. In business, that’s what’s called a “loss leader.”
• It’s the idea that you offer a low price on a product or service to introduce your business to new clients. The goal is to build repeat customers who get wowed by what you have to offer at regular price.
• Daily-deal websites like Groupon tried to make the idea of loss leaders viral. But the shortcomings of that approach are now apparent; too many people tend to buy the face value of the coupon being offered and not a penny more, and they don’t often make the conversion from one-time customers to long-term clients.
• You probably don’t want to advertise your loss leader in a newspaper like Home Depot did. But you could use Facebook. Consumers are increasingly looking to the social media world, particularly Facebook, to deliver the deals from businesses they like.

Romance your employees.

• Most successful capitalists get that way because they use enlightened self-interest. They romance their employees so the employees will romance their customers—in a non–sexual harassment sort of way, of course!
• My late dad always used to say about business, “It’s never the horse, it’s the jockey.” The idea is that it isn’t the product or service you’re selling, but how you execute your business and treat people who work for you.
• After Blank’s tenure at the company, Home Depot started lagging in the customer service department. Bob Nardelli had come in and fired the full-time employees. They hired cheaper part-timers who didn’t have nearly the level of experience or knowledge to offer customers. As a result, sales suffered mightily, and Home Depot has spent the last few years trying to undo the damage now that Nardelli is gone.
• In business, you’ve got to execute. And that always starts and ends with how you treat your employees.