6 Things Startups Can Learn from Walmart

6 Things Startups Can Learn from Walmart

Friday December 21, 2012,

6 min Read

Raking in tons of profit and being recognized all over the world like Walmart is definitely the dream of every entrepreneur. Seriously, who doesn’t want to be like Walmart?

While not everyone is in the mass merchandise distribution business, there are plenty of lessons to learn from their road to success. While there have been books, journals and tomes dedicated to the journey of Walmart, this post will focus on the operational takeaways that applies to startups.

Getting started on a great idea is just the first step in a long and windy journey. Unlike the heady days of the dotcom era where businesses can start and get sold off in a matter of months, the modern day startup will often have to stand on its own two feet for quite a protracted period. This requires a long-term vision and keeping alive until it is fulfilled.

So here are a few pointers that Walmart has perfected that would apply directly to entrepreneurial startups to stay alive until they succeed.

- Stretch suppliers: Why pay now when you can pay the same amount later?

Unless, there is an overflowing trust fund to draw from, every fledging business suffers from cash flow issues. According to Walmart, its payment cycles vary by category and most suppliers are paid within 30 to 45 days. However most suppliers realistically expect to see their money in 60 to 90 days. Walmart gets paid upfront for sales and can take almost 3 months to pay out – this makes their cash flow strong.

In Walmart’s case, it is because of the scale of their business that allows they to push suppliers around. Startups being small will not have the muscle but they have the potential to grow rapidly. Work out longer and flexible payment schemes on long-term relationships with necessary suppliers. This improves the cash burn rate, allowing startups to last longer and inch close to success.

- Cheap rent: Spending less on overheads means more money on other more important matters.

Walmarts are almost always located in low-rent areas outside of city centers. These are likely just warehouse buildings with the most basic amenities. These places may be out-of-the-way and visually unappealing but there is no lack of shoppers.

As a startup, the location of the office is definitely not the top concern. The aesthetics of the office is an even lower priority. With the emergence of SOHOs, working from home is a possibility. If the comforts of home is too alluring or it is inconvenient to have employees in your living space, consider co-working spaces like The Hub (available worldwide). Co-working spaces offer rent per table per month so if the company scales up or down, you pay as much as you use.

- Lowest possible wages: Just like the rent, get the manpower you need, for now, to save money.

Walmart is infamous for its “competitive” wages that are just above the legal minimum wage requirements. Paying staff to provide only the essential services allows Walmart to hire and replace staff when needed.

In startups, get the talent needed at this moment and pay the lowest required fee, and no more. In the initial phases, there wouldn’t be a need to pay for expensive experts. Just like there isn’t need a brain surgeon to prescribe penicillin where any doctor will do, hire the developers/sales/marketing/etc as required. When the business has expanded beyond what your current staff can provide, there should be sufficient cash then to bring in the big guns.

That being said, it doesn’t mean to get the lowest caliber of employees. A makeweight in getting good talent at affordable rates is to offer performance-based salary increments, stock options or a combination of both to them. Professionals with foresight will recognize the opportunity to own a piece of the business and will work harder to achieve long-term financial rewards.

- Keep marketing simple: Get all messaging directly to the point and deliver accordingly.

Walmart’s age old slogan is “Always Low Prices. Always.” and there is no fluff to this – Walmart’s business model and promise to its consumers is that they deliver low prices. The newly improved slogan says “Save Money. Live Better.” shoppers know that purchasing from them guarantees lower prices for better products.

While not limiting to just slogans, making straightforward messages – promising and delivering exactly that to the consumers keeps them loyal. Similarly, startups can do that instead of the using excessive jargon to sound impressive but misleads or confuses users. State clearly on the nature of the business then make a promise and keep it – this practice will not steer companies wrong.

- Data driven approach: Collecting, analyzing and acting on the data collected to improve processes.

With effective supply chain management, cross-docking and radio frequency identification (RFID), Walmart is a well-oiled efficiency machine. RFID keeps track of its gigantic inventory, when any item is running low, the system will automatically make orders. With cross docking, when the orders come in, it goes straight onto trucks to be delivered onto shelves without wasting storage space or time.

Also, with advanced inventory management, they know which products are moving and which aren’t. Thus determining the future orders to increase stock movement, revenues and profits.

New companies will need to know how to improve its processes. Doing the same things but faster, cheaper and better is the way to keep the business moving forward. This requires innovation and ingenuity on the part of the entrepreneur and his/her like-minded staff.

To help that process, understanding the data derived from analyzing the business is paramount. Conducting analytics on business performance and keeping track of key metrics will determine what is or what isn’t working. Then tweaking the business to arrive at the optimal result.

- Lowest prices and highest quality for consumers: All the cost savings lead up to making the consumers happy.

Walmart has continuously grown over the years due to selling better products and at lower prices than its competitors. This strategy of maximizing satisfaction for the consumers and not directly the returns for the company has served Walmart very well. Any small business will be wise to follow Walmart’s mantra.

Instead of keeping similar prices to competitors, which lines the coffers with more profit, startups can retain and gain new customers by lowering prices but not scrimp on the quality. Being able to achieve this will result in long-term profitability and a larger loyal consumer base to call upon.

In the end, nothing comes easy and success takes much practice. Walmart took 4 decades to grow to become the behemoth that it is today. Along the way, they did some things right and others wrong. So ideally, entrepreneurs can follow these tips to emulate their success – in a much shorter time.

John Fearon (CEO of Dropmysite Pte. Ltd.) has over 8 years experience in Internet marketing and e-commerce, providing consulting and services in the travel and entertainment sectors for HSBC and AsiaRooms. John’s current heading Dropmysite (which owns Dropmyemail.com) with a focus on business development around Asia.

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