Sean McDede

12/3/15

Professor Gallagher

Strategic Management

Built From Scratch by Bernie Marcus and Arthur Blank

Built From Scratch: How a Couple of Regular Guys Grew the Home Depot from Nothing to $30 Billion, tells the story of Bernie Marcus and Arthur Blank, and how they are responsible for one of the biggest entrepreneur successes in recent history. This novel shows, first hand, how they became leaders within the home improvement industry. This was no easy task, but these two had experience.

Bernie’s parents immigrated to America, and he grew up in a poor neighborhood, Newark, New Jersey. He dreamed of working in medicine, but could not afford the kickback he needed to pay Harvard Medical School to circumnavigate the quota they had at the time for people of Jewish ancestry. Bernie soon graduated from Rutgers, Newark, and worked as an intern in a pharmaceutical company. One day a customer came in that forever changed his life. Bernie was introduced to the world of discount stores when he met a man named Danny Kessler. A few years later Bernie worked alongside Arthur blank within one of the most successful home improvement chains at the time, Handy Dan’s Home improvement center. Bernie became the President and CEO, and Arthur was the vice president of finance. They were eventually fired, and faced legal trouble due to a false accusation. It was at this time that they decided to open up their own home improvement store, one that captured their own core values.

They had high hopes of a store that far surpassed Handy Dan’s Home improvement center. The idea was to build a store more than twice the size of Handy Dan, and they had dreams of tripling their amount of sales. The store was to have a high breadth and debt with an array of inventory at an affordable price, which followed a low cost pricing strategy. One of the most important values that Bernie and Author wanted was very similar to one of the qualities that made Starbucks so successful. They wanted a salesforce with extensive knowledge on the product they were selling as well as the ability to transport and sell the goods. This was to ensure that the customers had the most pleasant experience possible. If the customer had no idea how to accomplish a repair or some kind of innovation, then Bernie and Arthur wanted to make sure the salesforce was able to help them in any way possible. I would say that this is a specific asset that Home Depot has that makes it a VRIO resource. Bernie and Author eventually put their plan into place when they opened their first Home Depot on June 1979 in Atlanta.

In a way The Home Depot was a first mover because their store had a huge assortment of items as opposed to the typical hardware and lumberyard stores, and they faced the challenges you would expect to have. They started off with slow inertia, and had to come up with a strategy to get the business going. They enlisted the help of their future partner Pat Farrah, who become head of merchandising. Pat came up with an idea similar to what grocery stores do inside a check-out line. They put one of their best selling product, lumbar in the back of the store, and customers would pass by all the appliances as they went to get the lumbar. This caused a lot of impulse purchases, which along with the excellent customer service was a cause for repeat customers. Bernie wanted to expand the stores, but was running short on capital. He decided to take the store public on September 22, 1981 in order to continue his desired expansion, but still wanted to maintain control of the stores core values. The biggest reason for success at The Home Depot, was the companies culture.

Culture is the biggest control a company has, and Bernie created a strong company culture by the way he valued and treated his employees. He considered every single employee at The Home Depot to be an associate, from senior managers to cashiers. This was to create a sense of equality between employees. The Home Depot gave the sales associates a lot more power than your typical retail store because of how important they were in creating a positive customer experience. They wanted every associate to Home Depot to have a shot at being an owner to encourage their employees to work hard. If Home Depot made a lot of money, then all the associates make a lot of money. Having knowledgably and hardworking associates is what would lead to a positive customer experience. Bernie wanted every employee who worked with the store to understand just how important the customers were. The amount of money each customer would spend at Home Depot was not an important factor. Bernie made sure that someone who wanted to build a birdhouse would receive the same amount of attention as someone doing something as expensive as remodeling a kitchen. This was done to build strong relations with customers and hopefully gain a repeat customer. Bernie prided himself on the fact that he was not smart, and since he was not smart he decided to let the customers dictate what was the best strategy for the business. He gave the customers exactly what they wanted in a home improvement store.

Many people are unfamiliar with home repairs, and this made it hard for Home Depot to sell some of their products. They combated this dilemma in a similar way Apple did with their Macs. Many people would go inside an Apple store to buy an IPod, and while they were in the store they would have employees cross-sell and train possible consumers on how to use a MacBook. The Home Depot offered training courses on a number of home repair and improvement projects. Home Depot called these training classes: How-To-Clinics. These classes gave customers the confidence to remodel their own homes.

Another Problem The Home Depot faced was getting its brand name out to the public. When The Home Depot first started as a company, Bernie would bribe customers to come into their store by giving each customer a dollar. Within a few years, people began to associate Home Depot as a huge store with a variety of items at low prices as well as excellent customer service. Bernie even joked about how the size of the store was an illusion. He would put empty boxes on shelves where customers would be unable to reach to make it appear as if the store was bigger than it actually was. Now that Home Depot is a success they are able to spend much more on advertising and develop their brand, and as a result are able to reach many new customers. They are a frequent sponsor of professional sports events as well as sponsoring select TV programming. Home Depot is currently donating to many worthy causes such as hurricane victims, disaster relieve programs, and they even started a few other worthy causes such as KaBOOM (constructing playgrounds), and Christmas in April*USA (a volunteer home repair project.)

The Home Depot thrives on competition, similar to Coke Vs Pepsi discussed in class. Their biggest competitor currently is Lowes, but they are still far ahead of them at the time this book was written. The Home Depot does best, just like Coke and Pepsi, when in a competitive environment. Bernie claimed that if They did not have a competitor in the market, then they would have to create their own competition. This does not necessarily make Home Depot and Lowes rivals, depending on what industry you classify these two companies as.

Bernie did make some mistakes regarding Home Depot, but he managed to learn and come back stronger from the mistakes. One mistake would be the acquisition of Bowater Home Services, which ended up being a failure because of the differences in company culture. As a result of this mistake, Bernie made a decision to set their growth rate at a maximum of 25% new stores per year. Bernie felt that they got carried away with the success of the company, and let this success go towards his head.

The Home Depot wanted to appeal to their vendors to make them want to sell their products within the Home Depot. They accomplished this by giving them tours around the store, and considered advice and changes that the vendors would make. The goal of the Home Depot was to convince possible vendors that their company was the leader within the home improvement industry. The Home Depot currently carries home improvement brands as well as contracting brands, and is looking to gain a higher market share within the professional building/repair industry.

The Home Depot’s rampant success is due to its company culture, their excellent customers service, their High buyer power, their low-cost business strategy, and their willingness to learn from customers. Another part of The Home Depot’s success is due to the way the store operates. The store is open seven days a week, has long hours, and has encouraged their manufactures, with their higher buyer power, to make products that are user friendly. Within a couple decades, The Home Depot became the number one seller in the Home improvement industry, with a value exceeding 30 billion dollars.