When we were small: Whole Foods
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Version 0 of 1. Welcome to “When we were small,” our series looking back at the small-business years of what became some of the country’s most recognizable companies, through interviews with their founders. John Mackey had just turned 25 years old when he opened a small vegetarian food market in an old victorian house in Austin, Texas. His business partner and girlfriend, Renee Lawson, was 21. Fast forward 36 years, and Mackey has grown Whole Foods Market into a natural and organic food empire, with nearly 400 locations, more than 80,000 employees and annual sales exceeding $12 billion. “Did I ever think it would get this big?” he said. “No, of course not.” In an interview, Mackey, who now serves as chief executive of the company, took us back to the small-business years at Whole Foods, including that first location in Austin, the firm’s most challenging period of growth, his decision to take the company public, and the one piece of advice he wish he had known when he was first starting out. What follows is a transcript of our conversation, lightly edited for clarity. J.D. Harrison: How did you get started in the food business? John Mackey: It started when I moved into a vegetarian co-op back in the ‘70s, and that’s really when I had my food consciousness awakened. I learned how to cook and eventually I became the food buyer for the entire co-op. Not long after that, I went to work for a small natural food store in Austin, and I became very excited and passionate about it. I didn’t know it at the time, but I had found my life’s work. Harrison: Okay, but how you decide to start your own store? Mackey: I came home from working at the store one night and said to Renee, “You know, we could do this, this isn’t that hard. We could open our own store.” She got excited about it, too, and we started researching and began to raise some money. We opened our first store in 1978. Harrison: How much capital did you start with, and where from? Mackey: Our goal was $50,000, but we could only find $45,000, so that’s what we started with. It was all equity investments, though my $10,000 portion was a loan from my father. Renee put in a few thousand dollars that she had saved up, and her family, my family and some our friends invested a little bit, too. So it was like a lot of entrepreneurial start-ups— it started with financing from family and friends. Harrison: Let’s talk about that first location. How did you find it? Well, we knew we wanted to be in central Austin, because that’s where we lived. The city was much smaller back then, so we just bicycled around looking for the right place. And we were so naive, we didn’t look for storefronts. Instead, we thought it would be fun to do it in a house, so we looked for ones that were zoned for commercial use. So we find this house, and it was vacant, so we rented it. I think the hardest thing was convincing the landlord to rent it to a couple of young kids, but I guess he liked our enthusiasm and excitement. Harrison: Can you walk me through the store? What do you remember? It was this old, three-story Victorian house, very charming. On the first floor, we had some cash registers in the front, two of them, and we had a little bulk food area. In another room, we had produce, and in the next room, we had a little dairy cooler and a little frozen food section. Most of the rest of the floor was lined with grocery and vitamin shelving. On the second floor, we had a vegetarian cafe, and it had some seating and little deck where people could eat outside. And on the third level, we had our little office that doubled as where we slept at night. Harrison: Wait, so you lived there, too? Right, we literally lived in the store. It was a single room that we used as an office, and we had a futon couch up there that we would sleep on at night and fold into a couch during the day. Harrison: Where did the food you were selling come from? Mackey: Back then, before the Internet, you had these paper catalogs that you ordered all the food from. So, we flipped through the catalogs, looked up the food we wanted, called them up, and they would show up in trucks. We would stick it on the shelves, our customers would buy it and we would restock the shelves. For two years, that was our little retail business. We only did about $400,000 in sales each year. Harrison: Now, back then it wasn’t called Whole Foods, correct? Mackey: No, it was SaferWay. It was a takeoff on the Safeway grocery stores, and being that age, we thought it was pretty clever. Harrison: When and why did you change the name? It was when we merged with one of our small store rivals. Our second year, we made a $5,000 profit, and as soon as we started making money, I wanted to grow. Looking back, the prudent thing probably would have been to stay there and make some money for a while, and then try to expand. But at that age, I was fairly ambitious. So, we decided to merge together with another little natural food store called Clarksville Natural Grocery. But they didn’t want to use our name and we didn’t want to use theirs, so we had to come up with a new, neutral name. We knew it was going to be a market, and we knew it was a food market. Well, what kind of food market? It’s kind of natural foods, kind of organic foods. So, we eventually settled on Whole Foods Market. So the four of us — their two founders, Renee and I — found a larger store about a half a mile away on a major strip road. We leased that space and opened the store in 1980. Harrison: So at these first two stores, you had to bring in some help, right? How did you decide who to hire? Mackey: Honestly, hiring was easy — people showed up and asked if they could get a job, and if we had an opening, we would interview them. If we liked them, we hired them. We mostly hired people who were like ourselves, who were into alternative foods and alternative lifestyles. Many of them had been stereotyped as hippies, but they really weren’t. I’m sure we were paying whatever the minimum wage was. I mean, Renee and I were only making about $200 a month. But when you’re young, you don’t need as much money. We were healthy, we shared houses with friends, most of us didn’t have a car. Harrison: So, what were the challenges during those early years? I think for any small business that’s bootstrapped, the overwhelming challenge initially is getting to positive cash flow. Our company was capitalized with $45,000, and we lost $23,000 our first year. Overcoming that cash flow problem was a real challenge, and until Whole Foods went public in 1992, so for 14 years, we never had enough money. It was always about making sure we had enough to make payroll, enough to pay our suppliers—that was definitely the biggest issue. Harrison: Were there any other obstacles that stand out? Mackey: Later on, it was the competitive challenges. At first, we really didn’t pay any attention to price, because there was no one out there selling the same foods we were. Supermarkets back then weren’t carrying organic milk and organic produce. If you’re successful, though, you will eventually spawn imitators and competitors, and once that started happening, we had to work to become more efficient and price conscious. Harrison: How did the company expand? Did you mostly build new stores or were you acquiring existing ones? Mackey: It was mix of both, and it was a gradual increase. By 1985, we were up to four stores. The most difficult part, though, was going from one store to two stores. Before that, you could personally be there to look after everything. Once you expand to two stores, you have to start developing systems to organize the company, developing processes and policies, making sure your culture is being extended. After you get that down, it all comes down to putting the right people in place to help you replicate those systems over and over again. Harrison: Why did you decide to take the company public in 1992? That decision was really made when we decided to raise venture capital money four years earlier. At that point, we wanted to continue to grow but had outrun our ability to get funding from friends and family. So we turned to venture capitalists, who I have learned are like hitchhikers with credit cards. They get in your car, and as long as you take them where they want to go, they will help pay for the gas. But if you get lost or wander off the road you promised you were going down, they will hijack the car, throw you out and bring in a new driver. We were very conscious that we had taken on these hitchhikers who wanted to get to an exit. So, we needed a plan, and we only had two options — one, we could sell the company, or two, we could take it public. Honestly, the day we went public was one of the happiest days of my life, not just because the venture capitalists were moving on, but because all those people who had shown faith in us and invested back in the early days, we delivered for them. Harrison: If you could go back to those early years and give yourself one piece of advice, what would it be? Mackey: I’m tempted to say make sure you have enough money, because that sinks so many small businesses. But my advice would actually be a little more subtle — and it’s that your organization is no better than the team you put in place around you. It all comes down to the quality of your people. Sure, I made a few strategic mistakes along the way, but my biggest mistakes were related to people, whether it was putting my trust in the wrong people, being slow to recognize that someone was in over his or her head, not putting enough premium on individuals who were aligned with the company’s philosophy. I made some mistakes in judgment, particularly as we were making acquisitions, sometimes leaving the former leaders of those businesses in our company for too long, even if they couldn’t adapt to our culture. So, I would tell my younger self to pay better attention to the people you promote into leadership positions. I was a little sloppy in that regard. I’ve learned that those are such important decisions and you have to make them carefully. Related: When we were small: Ben & Jerry’s Realted: When we were small: Samuel Adams Follow J.D. Harrison and On Small Business on Twitter. |