How They Started Page 19
Founder: John Mackey
Age of founder: 26
Background: College dropout living in a vegetarian commune
Founded in: 1980
Headquarters: Austin, Texas
Business type: Natural and organic foods supermarkets
Texas in the late 1970s and early 1980s wouldn’t seem like the best place to start a business dedicated to natural and organic foods. A state dominated by the beef industry and famous for its barbecued ribs, it was hardly the place where an innovative, organic grocery store like Whole Foods Market would spring to life. Its founder, John Mackey, tough and combative, championed a brand and a direction that few would contemplate anywhere, let alone in a state where meat counts so much toward the local economy. Yet today the company has more than 300 outlets and has spread as far as Europe, boasting $10.1 billion in revenues for the full year to September 2011.
John and his then-girlfriend Renee Lawson Hardy went through a rollercoaster ride before attaining their success. Not only did they survive a tough recession and a skeptical consumer base, but also a flood, an eviction, and battles of conscience—not to mention many of the other challenges that can hit any business—before making a success of their natural food vision.
An organic awakening
John had no training in business; indeed, there was very little on his résumé prior to Whole Foods that would have foretold his huge future success. By the time he set up in business in 1978, he had dropped out of no fewer than three colleges across Texas. John was a hippie: just before establishing his first company, he was living in a vegetarian co-op that was essentially a hippie commune.
He wasn’t really interested in business and spent a lot of his time reading philosophy, cooking natural foods, and being outdoors. “I got interested in food when I was in my early 20s and moved into this vegetarian co-op. I wasn’t a vegetarian, but I figured the co-op would have a lot of interesting women living there,” he laughs in retrospect.
One of the interesting women he met there was Renee Lawson Hardy, who soon became his girlfriend, and sometime later helped co-found Whole Foods Market. John remembers that his time at the co-op was very important to him: “I learned how to cook and I became the food buyer. I got very interested in food; I sort of had an awakening about what’s happened to our food over the years,” he says.
John became increasingly dissatisfied by what modern culture had to offer in terms of food and the way it was produced. He found himself at odds with the high-yield, low-cost approach that most US food producers adopted. He became concerned about health and the impact that food has on a person’s well-being. Also, he was troubled by the way animals were treated and became a vegetarian as a result. Later in life he would go even further and restrict himself to a vegan diet.
Garage business
In 1978, John and Renee were just 25 and 21, respectively. John’s “food awakening” had a profound effect on him. He went to work for a small natural foods store, which was his first taste of working in a retail environment, and he loved it so much he eventually decided to open a similar store himself.
John remembers, “I pitched the idea to my girlfriend: ‘Hey, why don’t we go do our own small store?’ She loved it, and we went out and hustled everybody we knew and raised $45,000 and opened the first store.”
To raise the money, John and Renee approached family, friends and acquaintances at the co-op—many of whom were hippies and were lured by John’s energy and passion for natural foods but still expected a modest return for their cash.
John’s biggest benefactor was his father, from whom he borrowed a crucial $10,000 that gave him a foundation. Later that same year, he was able to raise an additional $35,000 of equity investment with which he and Renee were able to officially co-found their first store, SaferWay Natural Foods (a pun on ubiquitous supermarket chain Safeway). The first SaferWay store opened its doors in Austin, Texas, in 1978 and was little more than a small shop in a garage.
Two years later, in 1980, he and Renee would team up with two other young entrepreneurs to create Whole Foods Market, launching their first store, a 10,000-square-foot outlet on Lamar Boulevard in Austin. As one of the very first supermarket-style natural foods stores in the country, the store thrived from its opening day.
“I pitched the idea to my girlfriend: ‘Hey, why don’t we go do our own small store.’ She loved it and we went out and hustled everybody we knew and raised $45,000 and opened the first store.”
Nevertheless, it was a big gamble. At the time there were just a handful of supermarkets in the US only selling organic foodstuffs. At the time, the term “organic” hadn’t even been properly defined or regulated by the US Department of Agriculture (and wasn’t until 2002, with the help of Whole Foods). John and Renee were pioneering a new concept of food, focused on production methods that emphasized the use of renewable resources, treated animals humanely, and didn’t use genetically engineered pesticides or genetically modified ingredients or synthetic preservatives.
It was fun: local farmers would drop off produce in old pickup trucks, and John would buy nut loaves and muffins from hippie bakers. The shop was strictly vegetarian like its founders and achieved some $300,000 in sales in its first year. This didn’t equate to making a profit, however.
“We didn’t know what we were doing; we managed to lose $23,000,” John says. “We lost half of the money which was invested in the first year. But I’m a quick learner, so we made a small profit in the second year. The first thing I realized was that the store was too small and we needed to get to a larger location if we were really going to be successful.”
The small store didn’t always have enough storage space, so Renee and John kept some of their vegetables at their rented home. However, their landlord objected to this and the couple were subsequently evicted. With cash tight and with few other options available to them, they opted to live at the store. Life was far from glamorous. The store didn’t have standard bathroom facilities so they had to be inventive when it came to personal hygiene. In order to bathe, they used a Hobart commercial dishwasher to which they attached a water hose.
Organic growth
After two years, John had learned a lot from running a business and decided that he needed to think bigger if he was to be successful. However, some of his initial investors were not so sure: they were more interested in growing the SaferWay shop slowly and making some of their investment back. But John was determined to change locations. As he explains: “I didn’t think we’d be competitive there over the long term.”
“The first thing I realized was that the store was too small and we needed to get to a larger location if we were really going to be successful.”
The investors were adamant, though, and refused to put any more money in unless John could find other investors. “Their basic strategy was that they didn’t think anybody would be stupid enough to invest in this business … but I was very persuasive,” he recalls.
John was friends with the owners of another natural foods store and suggested that they merge to form a larger business. In some ways it was an offer that the other business couldn’t afford to refuse.
“They were a competitor but they were friends of mine. So I didn’t go up there and threaten them and say, ‘Join with us or we’re going to drive you out of business,’” he explains. “I went up there and said, ‘We’re going to open a 10,000-square-foot store about a mile from here. Wouldn’t it be a lot more fun to join forces together rather than compete when our store’s going to be four times bigger than yours?’ And they saw the logic of that argument.”
Ethical roots
John’s first store, SaferWay, had been a wholly vegetarian-focused business, but he realized that he couldn’t sell just vegetables if he was going to run a supermarket. He opted to stock other products, too, such as meat, seafood and dairy products. For a vegetarian this wasn’t an easy decision, and some criticized him for this.
John explai
ns, “When we made the decision to open a bigger store, we made a decision to sell products that I didn’t think were healthy for people, such as meat, seafood, beer, wine and coffee. We didn’t think they were particularly healthy products, but we were a whole food store, not a ‘holy food’ store. We’re in business not to fulfill some type of ideology, but to service our customers.”
However, John did steer clear of the many brands and suppliers that other supermarkets buy from and always focused on buying from more ethically defensible sources. Typically this meant smaller farms where animal welfare was paramount.
Floods of interest
The new store opened in 1980 in Austin as Whole Foods Market. It was the first supermarket-style natural foods store in the country with 10,500 square feet of space and a staff of 19. The store was a hit with customers—sales started pouring in and the store was profitable almost straightaway.
Word of mouth quickly spread about this new, sizeable health store, and people took notice—there were fewer than half a dozen natural foods supermarkets throughout the whole of the US at the time. Consumers who had grown tired of processed foods flocked to buy Whole Foods Market’s healthful, high-quality, natural vegetables and groceries. In some cases the goods were more expensive, but customers still bought them and became very emotionally attached to the company. Pleased by his customers’ loyalty, John didn’t yet know how important it would become.
“We were a whole food store, not a ‘holy food’ store. We’re in business not to fulfill some type of ideology, but to service our customers.”
Within a year of opening, a spring flood almost wiped out the whole business. The shop was filled with water and mud and $400,000 of stock was lost. The company, which didn’t have insurance to cover the damage, was brought to the brink of extinction. But that same day, loyal customers began to arrive with brushes and buckets and began work clearing the floor of the store that they loved. Even the bank lent a hand, rapidly arranging financing to keep the business afloat. Within 30 days, Whole Foods Market was back up and running.
A growing business
John and his colleagues knew they were on to a winner and looked to expand the business as quickly as possible. The second store opened in 1982, and the business soon crossed state lines and has since moved into 38 states. It did this through a mixture of organic growth and acquisitions. Since its formation the business has made 16 major acquisitions, buying companies such as Whole Food Company, Wellspring Grocery, Bread & Circus, Mrs. Gooch’s, Fresh Fields, Bread of Life, Amrion, Merchant of Vino, Allegro Coffee, WholePeople.com, Nature’s Heartland, Food for Thought, Harry’s Farmers Market, Select Fish, Fresh & Wild and Wild Oats Markets. For the latter, Whole Foods Market fought a seven-month battle with the Federal Trade Commission, which scrutinized the merger with an eye to potential anti-trust concerns before green-lighting the deal in August 2007.
Primarily, these have been businesses that already closely matched the outlook and ethics of Whole Foods. However, some have criticized Whole Foods, suggesting that as it grows it is likely to lose its ethical spirit. John denies that this has been the case and believes that big businesses can be a force for good.
“America has a romance with small businesses. And it has mistrust of the large businesses,” he says. “Whole Foods is out to prove that wrong. I don’t see any inherent reason why corporations cannot be just as caring and responsible as small businesses.”
But as its business has expanded, so has its range. It now offers a wide range of alcoholic drinks, meats, seafood, and even novel items such as yoga mats, as well as its traditional fare of organic fruit and vegetables. The business has grown and expanded while its founders have learned and adapted to the world around it.
Although expanding his range has had dramatic effects on the growth of his business, it has also ignited controversy among his early, strictly vegetarian backers, leading John to become something of an anti-hero in that community. In the beginning, local farmers and hippies dropped off produce at his small garage shop. When he started offering beer and wine, steak and lamb, and air-freighted fruit in the winter in order to grow interest in his business, he invited some criticism.
Whole Foods Market now offers it all, from beer to rack of lamb, but John has helped fend off criticism by doing so in the most ethical manner possible, even setting the benchmark that competitors have been forced to follow. Working with organizations like People for the Ethical Treatment of Animals (PETA) and the Animal Welfare Institute, John has set more rigorous standards of humane treatment for the animals it sources from local farmers.
“I don’t see any inherent reason why corporations cannot be just as caring and responsible as small businesses.”
For instance, animals must have access to clean water and the outdoors, be allowed to hunt for their food and be free from mutilation. In some cases this has required suppliers to adapt their production facilities, but John says that the Whole Foods team has met little resistance.
“I think one of the most misunderstood things about business in America is that people are either doing things for altruistic reasons or they are greedy and selfish, just after profit,” John has said. “That type of dichotomy portrays a false image of business. It certainly is a false image of Whole Foods. The whole idea is to do both: the animals have to flourish, but in such a way that it’ll be cheap enough for the customers to buy it.”
The dividends are undeniable, as the company continues to grow, with revenues of $12 billion in its sights for the end of its fiscal year 2012 (a staggering sum in an organic food retail industry that is worth around $30 billion in the US).
But John says that he never had any clearly defined plan for growing the business. “Twenty-five years ago? No. I mean, we didn’t have this in mind until a year or two before we opened the store up. There’s a misconception somehow or another that there was some master plan and I’ve been fulfilling the master plan that we made up 25 years ago, but … it’s a discovery process. We’ve been making it up as we go along.
“We didn’t have a plan,” he adds. “My girlfriend and I started it because we thought it would be fun. It was an adventure. Imagine a couple of young people that are taking backpacks and going to Europe and they know they’ve got three months over there but they don’t necessarily have a complete itinerary worked out, exactly where they’re going to go, because they don’t know who they’re going to meet and they don’t know what kind of adventures they’re going to have. The plan will unfold as they go along.”
Where are they now?
In 1992, with 12 stores and $92 million in sales, Whole Foods floated on the NASDAQ stock exchange to raise money for growth and acquisitions. Today, Whole Foods Market is the world’s largest retailer of natural and organic foods with more than 300 stores in North America and the UK. It also employs about 60,000 staff, or “team members.” Importantly, Whole Foods Market has maintained its ethical stance with regard to farming and sustainable practices. It also engages and supports projects and charities that promote sustainable and equitable food production. Impressively, while doing all this it has remained a great place to work and was named one of the best companies to work for by Fortune magazine.
The company continued its expansion through the early 2000s, breaking into the UK market in 2004 with the acquisition of seven Fresh & Wild stores. As of 2011, the company had signed 52 leases for new stores to add to its already existing fleet of 300 outlets. It lays claim to being the ninth-largest food and drug store in the US.
Despite his company’s rapid growth, John kept an open mind toward new business ideas. In recent years, for instance, he has offered $10 million in low-interest loans to local farmers and food producers to help them expand their enterprises, while other ventures such as his Whole Planet Foundation have taken on a more global agenda to help end poverty in developing nations.
Unlike many other successful entrepreneurs, John still sits at the helm of the company, retaining an active ro
le in the company’s affairs as its CEO. However, he now draws little money from the company and in 2006 announced that he was reducing his salary to just $1 a year. John also sold his stock portfolio to charity and established a $100,000 annual emergency fund for staff facing personal problems.
He wrote: “I am now 53 years old and I have reached a place in my life where I no longer want to work for money, but simply for the joy of the work itself and to better answer the call to service that I feel so clearly in my own heart.”
Dubbed “the Bill Gates of organic foods”, John’s lack of experience led him to try things that others might be afraid to do. Inexperience can actually be an advantage, not a drawback: “I didn’t have any biases. I didn’t know how it was ‘supposed’ to be done. I didn’t have any preconceptions about how business had to be. This meant I made mistakes. We reinvented the wheel a few times, but I didn’t know what I couldn’t do. And so I was free. We were free to be creative and inventive and to try new ways of doing things.”
BlackBerry (RIM)
Wireless success
Founders: Mike Lazaridis (shown) and Doug Fregin
Age of founders: Both 23
Background: Engineering students
Founded in: 1984
Headquarters: Waterloo, Ontario, Canada
Business type: Mobile communications
Mike Lazaridis is every inch the inventor. Since co-founding Research In Motion (RIM), one of the most profitable device makers in history, he has earned a reputation for being a true visionary of mobile communications—with good reason. This is the man who was studying wireless technology in the late 1980s, before most people even had a home PC. The primary fruit of this research, the BlackBerry device, now enables millions of users around the world to check, send and receive emails while on the move. RIM generated revenues of more than $19.9 billion in the fiscal year ended February 2011.