00:00hi and welcome to the a 16z podcast I'm
00:02Hannah we talk a lot on this podcast
00:04about disruption but we don't talk as
00:06often about the flip side of that in
00:08this episode we wanted to dive into some
00:10of the lessons around one interesting
00:12story that continues to defy the general
00:14negative trend around physical retail
00:17the American chain of Dollar Store is
00:18dating all the way back to 1936 which is
00:21today a fourteen thousand store billion
00:23dollar success story in this
00:25conversation a 16-0 partner Jeff Jordan
00:28and I chat with Cal Turner jr. former
00:30CEO of Dollar General and the third
00:32generation and his family to run the
00:34the story behind Dollar General goes
00:36back to a farmer in the depression with
00:37a third-grade reading level all the way
00:39up through from facing chapter 11 to IPO
00:41and now a Fortune 300 company we talk
00:44about the lessons of leadership and
00:46management we can learn from the success
00:47story including the core principle that
00:49sustained the business through
00:51generations the inspiration that
00:53actually began the dollar day every day
00:55pricing philosophy the key turning
00:57points where the company had to reinvent
00:59itself and what keeps Dollar General
01:01alive and thriving in the age of the
01:03big-box store I used to be CFO of the
01:06Disney Stores in a prior life so I
01:08pretty familiar with physical retail and
01:11when I became a venture capitalist I
01:12blogged a lot about how digital was
01:15going to have a huge negative impact on
01:17physical retail and largely that has
01:19come true and then sometimes you come
01:21against a contra example like you I
01:23remember when we just called it retail
01:25your baby is thriving in an environment
01:29where very few physical retailers are
01:31thriving Dollar General has a market cap
01:34of about twenty eight billion dollars
01:35revenue over twenty billion dollars I
01:37don't think it is the best-known retail
01:41concept in the world and that's just a
01:43fascinating juxtaposition that company
01:46has always been under the radar screen
01:50when we went public in December of 1968
01:55Wall Street didn't know what to do with
01:58Dollar General we fit no category you
02:01created a category my dad indeed did
02:04that when he opened the first Dollar
02:06General Store in 1955 we lived in this
02:13and the company in the town and
02:15retailing were all just intermingled
02:19retailing invaded our family life
02:23we had to pray for snow if daddy was
02:25overstocked on overseas we had had to
02:29pray sometimes for the snow to melt if
02:31the customers couldn't get out and shop
02:35at Christmas time so that he could pay
02:38the banks off this year because he was
02:42always strapped for capital and always
02:44struggling but he knew the customer the
02:47business actually you described the
02:49roots as going all the way back to the
02:50Great Depression right the roots of the
02:52company go back to JL Turner
02:55my grandfather and JL Turner only had a
02:59third grade education when he was 11 his
03:02father was tragically killed and he had
03:06three younger siblings and it was a
03:08heavily mortgaged farm that doesn't
03:11sound like the beginnings of fortune I
03:16love the way you describe his perception
03:19of his third grade education in the book
03:20you said it turned him into a great
03:23observer and a great student for the
03:26rest of his life basically he never
03:27stopped learning from anybody else and
03:29that is the makings of a good leader
03:33that assumption that you should learn
03:36from others because everybody had
03:38something to teach him I think it's only
03:41manager who says I should teach
03:44everybody something a real leader wants
03:48to learn wants to ask different
03:50questions grow and develop it's so
03:52interesting as organizations get bigger
03:54the leader is less and less informed
03:57because people are intimidated to talk
04:00to them or they're not listening or
04:01whatever for me one of the biggest
04:03challenges was always really
04:05understanding the pulse of the customer
04:07of the company of the employees and you
04:10had to do that by learning everybody
04:12tells the boss what he or she thinks the
04:14boss wants to hear and if the boss
04:17really wants to hear their truth he or
04:21she has a big selling job to do to
04:23overcome that barrier between
04:26the CEO and everybody else let's talk
04:29about when it turned into Dollar General
04:32what was that like how did the business
04:35my dad observed that department stores
04:39would buy expensive newspaper ads in
04:43support of a dollar days sale he
04:48realized something was working for them
04:50or they wouldn't spend that much money
04:52consistently advertising so he said why
04:55can't we do that in the store every day
04:57would be dollar and he saw it as a way
05:01of simplifying retailing and a really
05:06broadcasting value to the customer
05:08because it's easy to understand the
05:11value at this even price it's easy to
05:15keep up with how much you're spending
05:17and our struggling customers had to keep
05:20up with what they were spending even
05:23while they were in the store and you
05:25could simplify keeping the books and
05:28checking out the customer and he
05:33presented it to his management group and
05:36every one of them had the same opinion
05:41that means it's a great idea but he was
05:44determined to try it and they put a
05:47Dollar General Store where they had
05:49failed to see if it was really viable
05:53and it proved to be indeed that I think
05:56an important context is who your target
05:59customer is because you said struggling
06:01customer one of the interesting concept
06:03I've experienced in my business career
06:04is it's so much easier to communicate
06:07when the investors use your product
06:09you've got a concept that most of
06:11investors probably never purchasing well
06:13our stores are in all of those small
06:15rural communities throughout our country
06:19and the struggling farmers and hard
06:23working people who really new value
06:26where our customers and my dad was
06:30always convinced we had smarter
06:32customers than our income and
06:36metropolitan clientele yeah I think you
06:39said somewhere that the
06:40were better at understanding real value
06:42versus perceived value and we better be
06:45sure at Dollar General that we always
06:48had real value for them because nothing
06:51else would work so there's an
06:53interesting subtlety you had in that
06:55because of your location philosophies
06:57small town rural your employees were
07:00actually your customers to your
07:01employees understood the needs of the
07:04customer because there were their
07:05neighbors you had a real North Star in
07:07this business you knew your customer
07:09there were someone who really valued
07:11value and you and your family engineer
07:13the entire concept around that so how
07:15did you keep that North Star I mean that
07:17definitely is this thread throughout the
07:19entire arc of the business that you knew
07:22your customers what are some of the
07:25lessons that we can pull out that people
07:27starting companies today that are trying
07:28to kind of zero in and really understand
07:31their core demographic or grow the
07:32business well is CEO am told all kinds
07:37of wonderful things about our programs
07:40and how well they're working in the
07:42stores but until I get out to hear from
07:45frontline employees and from the
07:49customers I don't get the Realtors
07:52staying in touch with your core
07:55demographic is important but that's even
07:57too impersonal a description you have to
08:00stay connected to the persons who are
08:04your customer at eBay we encourage our
08:07employees to trade buy and sell on eBay
08:09I'm on the board of Airbnb and Brian
08:11Chesky strongly encourages the employees
08:14to host or be a guest on the platform
08:16because it keeps you connected to the
08:18value and philosophy and you know the
08:21entire thing you represent your customer
08:24in sourcing whatever your customer needs
08:29we had to concentrate on the consumable
08:33basics and we had to remember we have
08:37the small stores that are convenient
08:40easily shopped and close to the customer
08:44that is the convenience we offer but we
08:47have to have low prices for our customer
08:51at all times we are talking about price
08:54which is obviously a theme that runs
08:55throughout this entire story given that
08:57Dollar General is ultimately you know
09:00kind of all about pricing can you talk
09:02us through what that kind of led to
09:04about thinking about pricing as a whole
09:06well after the Second World War
09:09my dad had bought too much of something
09:12as a wholesaler and he discovered that
09:16the retailers weren't cooperating even
09:20though the market had considerably
09:23plunged and prices had gone he couldn't
09:27talk retailers into getting with the
09:31market and lowering their price and
09:33buying more product and he realized that
09:36he was not going to be able to succeed
09:41without being directly in touch with the
09:45customer there's a real lesson in
09:47retailing there the retailers who
09:51maintain that direct personal connection
09:56almost with customer are the ones who
09:59are going to succeed no it is an
10:01interesting progression he couldn't have
10:02been a retailer until he understood the
10:04wholesale distribution but the wholesale
10:07for him was a limiter so he went direct
10:09to consumer yes exactly exactly I don't
10:12think of it as keying on price so much
10:16as it does on the total value you offer
10:19your customer what are you doing for the
10:23customer what is the value your customer
10:29needs from you as a retailer pricing is
10:33an important part of that but it's not
10:35all about price you have to attain a
10:38certain threshold of quality our price
10:42doesn't matter to these smaller general
10:45customers seems like all of the
10:47decisions almost flowed from that North
10:50Star that you kept you know right in
10:52front of you well yes and I learned we
10:55could recruit smart employees from our
10:59customer base and they can help us
11:03figure out this business with smart
11:07and smart employees but it was also I
11:11mean even though you've been driven by
11:13this very clear understanding of your
11:15mission and your consumers you went from
11:18everything from going public to thorny
11:20acquisitions to facing bankruptcy and
11:22now to bucking the overall retail trend
11:25so what were the hard decisions that you
11:26made at those critical points that you
11:29felt turned it around we redefined the
11:32business we were in the management team
11:35said look we're not a retailer we are a
11:39customer driven distributor of
11:42consumable basics the product is already
11:46distributed and it's out there close to
11:50the customer so when the customer runs
11:53out of consumable basics it's right
11:56there we have pre delivered now even the
12:01Amazons of the world have to get it pre
12:05deliveries geology we already have it
12:07there yep it's a model that works and
12:10I've seen continuing to work is that
12:14what you describe when you talked about
12:16the shift from your dad's buying habits
12:18as being one of the things that set you
12:20apart where instead of studying the
12:22competition he likened it to Christmas
12:24where you don't know what you're gonna
12:26now go sell it and then in the 1970s
12:28that there was some pushback there and
12:31the business model changed is that when
12:33you started thinking about it in this
12:35different way or how did that business
12:36model evolve when we did strategic
12:39planning I invited senior management to
12:43really be honest and one of them said
12:45well I'll tell you something that's
12:47wrong with the company you always quote
12:50your grandfather who says if it's about
12:53right it's half sold so look at all this
12:57half sold inventory we're stuck with
13:00we've got to work on the other day we've
13:04got to have customer pool what does the
13:07customer need your dad enforces
13:11everything out to the stores cause he
13:14knows what the customer needs but he
13:16over buys and we really need to learn
13:20customer needs instead of opportunistic
13:23retailing we need to develop some of
13:26that conventional retail skill of
13:30keeping stock because there are things
13:33the customer needs from us that your dad
13:36hadn't found a great opportunity by for
13:40one challenge to me is what turned the
13:42company around I mean that's a
13:45management lesson in itself and then you
13:47took that critique and you
13:49institutionalize it across a large
13:51sprawling organization and such that
13:53your customer could rely on being in
13:56stock on the basic needs and essentially
13:59flipped the merchandising philosophy on
14:02its head yes yes it was flipped on its
14:04head the hardest and toughest decision I
14:08ever had to make was the decision to
14:11fire my brother who was the chief
14:14operating officer and the company was
14:16really in trouble we were on the verge
14:19of chapter 11 and when you're in that
14:23situation and the CEO and the CEO oh
14:26don't agree on action to be taken action
14:33I was really ticked off to have to make
14:36the decision of whether to tear the
14:38family and the company apart by firing
14:40my brother with the benefit of hindsight
14:42was it the right decision it definitely
14:45was the right decision
14:46my brother wound up liberated to be
14:50himself and he had major success in his
14:54own right and it's better than it would
14:57have been if we'd stayed in business
14:59together I want to talk a little bit
15:01about technology because you talked
15:03about introducing computers into the
15:05company early on and your dad was very
15:07resistant to that what was that like
15:09watching the introduction of technology
15:12into a business like this which was
15:13about basic people relationships and
15:16value the processes of retailing are all
15:21enhanced by technology the repetitive
15:25stuff you have to do and indeed my
15:30father's opportunistic way of
15:33himself to be a buying genius meant that
15:36he didn't need a computer to tell him
15:38what to buy he already knew what to buy
15:41nor would he be happy if the computer
15:44told him he'd made a bad buy so we
15:47didn't get into technology for the
15:52merchandising or the customer side it
15:56was the process as it was distribution
15:59it was the reporting and the accounting
16:02but when you have little stores all over
16:05everywhere keeping up with everything is
16:09a human impossibility but it was
16:12required by your change of merchandise
16:14strategy if you want to be in stock
16:16every day on good value basics you can't
16:19do that across what's now 15,000 stores
16:22on a pen and paper ledger that ain't
16:24happening no exactly and my dad actually
16:28wound up pleased because it gave him
16:31store reports he read reports every week
16:35on every store until a few months of his
16:40death it might take him a month and a
16:43half to get through every store report
16:46but he would have a new stack put in
16:49front of him and he would write what in
16:51the company were called love letters
16:53he'd make special handwritten notes he'd
16:57walk the store manager to actually get
16:59on that operating report Jeff how about
17:02this particular demographic are there
17:04technologies that you think will really
17:05transform or that need to come or that
17:08you've started to see for this
17:09particular customer base technology why
17:12is this customer base is starting to
17:14look like the rest of the world really
17:15quickly the smartphone penetration is so
17:18ubiquitous out there now that the
17:20playing field has been leveled now it's
17:22interesting that creates other
17:23opportunities where investors an offer
17:24up and offer up the concept that is a
17:27classified site for the trading cleaning
17:30out your garage or buying something
17:32locally at a bargain that happens
17:34through a mobile phone and so people who
17:36value deals and are willing to put a lot
17:40of time into getting a better deal you
17:43know offer ups early core customer and
17:47it's arguably probably the same customer
17:48I always thought that we have the
17:51broadest customer base given that we
17:54were selling the consumable basics
17:57because pretty much everybody uses some
18:00and how did you coexist with Walmart at
18:03the time which was also exploding
18:04featuring everyday values in rural
18:07America are your towns different from
18:09their towns no no we're in the same
18:12markets in fact our stores close to a
18:14Walmart seem to do better than our
18:17stores that work close to a wall oh how
18:19interesting what why I remember years
18:22ago going through a Walmart Supercenter
18:25with David glass the CEO of Walmart and
18:28he talked about their store being a
18:30convenience and I said great big old he
18:35said we're convenient in we have
18:38everything a customer might want to buy
18:41under one roof I thought well my
18:43goodness in that interesting how being a
18:47convenient in the convenience store
18:49venue is completely different for these
18:53two companies targeting the same
18:55customer with a completely different
18:56approach they had everything under one
18:58roof but it was a really big roof yes
19:00but they needed to cater to every whim
19:03of the customer and every need of the
19:07customer we were going for the
19:09consumable basics so having seen this
19:13incredible change in the industry
19:16overall in the business having watched
19:19to go through such enormous evolutions
19:21but also stay very core to its key
19:23principles what do you think for a
19:26founder is striking out today trying to
19:28figure out their own business their own
19:30customers what are the pieces of advice
19:31you would give them stay connected with
19:35your customers and your employees who
19:38probably understand them better than you
19:41do don't build such bureaucracy that
19:45there are barriers between you and the
19:49customer don't take yourself too
19:52ask questions and listen well to the
19:59you've got to convince all those who
20:02follow you that you really respect them
20:06and you want to hear their truth you
20:10don't want them to spoon-feed your truth
20:14back to you the humility involved in
20:17that is for me of one of the really
20:18important things of some of the best
20:20leaders I know honor your people and
20:23don't use guilt or blame in building
20:27your management and your company
20:30I love the North Star of knowing exactly
20:32what you're trying to do and engineering
20:35the entire processes system around it
20:37the best founders I work with that's
20:39their goal to be relentless in you know
20:42making sure that that the organization
20:44lives up to that commitment just the
20:46coherence with which you know the system
20:49worked I mean it's interesting because
20:50it sounds simple but actually it must be
20:53incredibly difficult as things get big
20:55and there's all these layers a sprawling
20:58enterprise 45 states in small towns
21:01across the entire country
21:02it's pretty big all together at the end
21:06of last year 75 percent of the
21:10continental United States lived within 5
21:14miles of a dollar general store and I
21:18think it'll be closer to 80 percent oh
21:22Dollar General Silicon Valley here we go
21:29all right well thank you so much for
21:32joining us on the a 16z podcast yeah
21:34Thank You Hannah and Jeff I enjoy it
