Ownership Gospel

Below are some excerpts from the book – ‘Built from Scratch‘ – by The Home Depot co-founders, Bernie Marcus and Arthur Blank with Bob Andelman. We are particularly interested in the areas that demonstrate the primacy of the ownership stake principle over a ‘good job with fancy titles and excellent benefits’.

For the avoidance of confusion, when we refer to ‘ownership’, it is not about residential homes (which do not generate income, have fluctuating values and obligations [mortgage payments] attached) – for an aspiring MCWB (Middle Class Wealth Builder), the only ownership that counts is that of income producing assets (precious metal mines, crude oil wells, stabilized commercial real estate, royalty streams from entertainment [e.g. songs, movies, comedies, books], well run businesses and so on).

1. (Bernie Marcus)

“In June of 1968 I joined a manufacturing company called Odell Inc., as president and chief operating officer. Odell was a $50-million-a-year manufacturer of consumer products such as Esquire shoe polish, Tintex, and Tidy Bowl. I stayed at Odell for two years, enduring a hostile-takeover battle with Papercraft. In June 1970, I read the handwriting on the wall and left Odell for Daylin Corporation as a vice-president in its North Bergen, New Jersey, offices. My initial responsibilities included supervising the 34-store Millers/Gulf Mart Discount Stores operation, working with Dave Finkle, chairman of the executive committee, to coordinate the corporate-wide merchandising of our hard-goods lines, and supervising drug and toiletries merchandising in the chain of Great Eastern Discount Stores – a direct competitor of Two Guys.

I never had any real money to speak of in those days, despite holding lofty titles in some of America’s best retail companies. And by 1972, I had an ex-wife, Ruth, two kids in college, Fred and Suzanne, and a new wife, Billi, and another child, Michael Morris. No matter what I was paid, it wasn’t enough. Real money is in equity, and that I didn’t have.

2. (Bernie Marcus & Arthur Blank)

“The Home Depot got its start when Ken Langone reached out to his own investment group for seed money. We had convinced him that our new retail concept had such a good blend of low price, wide assortment, and customer service that it couldn’t miss. It was destined to become the first nationwide home improvement store brand, and once Ken believed, he set out to convince the rest of the world on our behalf.

We had never met most of Ken’s group, so he set up a meeting in New York. We felt like beggars, asking these successful people to invest in our company. Not that that [it] was necessary; they gave us a rousing reception. Why? These were the people who had bought Handy Dan stock between $3 and $9 a share and sold it at $25.50 a share. Of course they loved us!

Of course, while they had made tons of money, we were broke.

That irony wasn’t lost on Ken.”

3. (Bernie Marcus)

“A key part of our plan to form what became The Home Depot was our partnership. Arthur [Blank] no longer wanted to work for me – or anyone else, for that matter. We were each going to bring an equal measure of necessary ingredients to the recipe, based on our individual strengths, so we agreed to be partners.

I took the traditionally higher titles of chairman and chief executive officer because of my greater experience, and I ended up with slightly more stock for that reason, 18 percent to Arthur’s 15 percent. Arthur became president. (Once Pat [Farrah] concluded his and Homeco’s bankruptcy proceedings, he was granted an amount of stock that was almost, but not quite, equal to Arthur’s holdings.) But the idea from day one was that the gap would close, both financially and in terms of the company hierarchy.”