whole foods

Chapter 4: How John Mackey’s Vision Saved Whole Foods from Drowning

On Sunday, 24 May 1981, Austin, Texas, was hit by a severe flood: the first, and at that time only, Whole Foods store was eight feet underwater.

Overnight, the company went from being profitable, loved by its customers and employees alike, to $400,000 in the red.

There was no insurance, no off-site inventory, no backup of any kind. Would the business survive?

At the time, the obvious answer was “No.”

The day after the flood was the Memorial Day holiday. Management and team members were despondent. As Whole Foods’ founder, John Mackey, relates the story in his book Conscious Capitalism, it was “the end of a dream” and “the end of the best job we ever had.”

As they began to see what they could salvage, an amazing thing happened:

“Dozens of our customers and neighbors started showing up at the store . . . bringing buckets and mops and whatever else they thought might be useful. They said to us, in effect, ‘Come on, guys; let’s get to work. Let’s clean it up and get this place back on its feet.’”

Such customer reactions lifted the spirits of the entire Whole Foods team, founders and employees alike. It’s hard to imagine many other businesses so inspiring their customers.

That’s just the beginning of this Whole Foods story. In addition to the customers who rallied around:

  • Employees worked to clean up the store without pay. Of course, they would draw pay when Whole Foods was back on its feet—but would that ever happen? At the time, no one could know for sure.
  • Suppliers extended credit “because they cared about our business and trusted us to reopen and repay them.”
  • Whole Foods’ shareholders came up with additional investments— and the company’s banks even loaned the company more money!

To understand the magnitude of Mackey’s achievement, imagine for a moment that your business was eight feet and $400,000 underwater.

Would your employees rally around? Would your neighbors and customers show up to help clean up the mess?

Even if they did, what’s likely to happen if you go down to your bank, red- inked balance sheet in hand, and ask your “friendly” banker to lend you more money? Which response would you expect:

  1. “Sure, here’s another four hundred thousand dollars on top of what you already owe us, plus a line of credit to tide you over.”
  2. Uncontrollable laughter—and the moment you’ve walked out the door, the lawyers are called in to initiate bankruptcy proceedings so the bank can grab whatever leftovers it can ahead of your other creditors.

Then you call your suppliers and ask them to replace, on credit, the ruined stock that you still haven’t paid for. The most likely result: a race between your bankers and your suppliers to see who’ll be first in line at the bankruptcy court.

Whole Foods’ suppliers and banks both chose the first option.

Why?

The “Counterculture Capitalist”

John Mackey fully embraced the counterculture movement of the sixties and seventies, studying ecology and Eastern philosophy, embracing yoga and meditation, becoming a vegetarian, topped off with a beard and long hair. He be- came involved in the food co-op movement, agreeing with their motto: “food for people, not for profit.” But he soon discovered that co-ops were dominated by internal politics, the “most politically active members” focusing more on “which companies to boycott” than on serving their customers. He concluded he could do better and “became an entrepreneur to prove it.”

Immediately he was transformed in the eyes of his former associates into another “evil, exploiting businessmen” and came under fire for charging too-high prices and paying too-low wages.

Yet Mackey persevered, discovering that business is the opposite of the counterculture myth of venality and greed: that a business can only succeed with the voluntary cooperation of everyone it deals with—customers, employees, investors, and suppliers.

John Mackey’s Vision: A Business Based on Love and Caring

Just one thing changed in Mackey’s transition from co-ops to a for-profit corporation: his preferred method of executing his vision. He saw for-profit as a better way to create an organization that truly cares for everyone it deals with—customers, employees, suppliers, and investors—and fulfill his (and the co-ops’) counterculture mission of persuading people to adopt a healthier lifestyle by eating “whole foods.”

Underlying Mackey’s vision is the insight that all businesses—indeed, all organizations—depend upon relationships.

The nature of those relationships, both within the company and without, determines the nature and culture of the company, the employee and the customer experience, and ultimately the health of the business, profit being just one mea- sure of that health.

Whole Foods’ bankers and other suppliers, like its employees and customers, cared about the business because Mackey and his associates cared about them. They were partners in Whole Foods—not because of any equity or legal claim, but due to the nature of their relationship with the people at Whole Foods.

So when Whole Foods was eight feet underwater, its bankers and suppliers were ready to listen. What’s more, they wanted to be able to help—in the same way that you would wish to help a friend in trouble.

That doesn’t mean they opened their checkbooks the moment Mackey walked in the door. But they did want to hear what Mackey had to say and were willing, if not eager, to be persuaded. As Mackey could demonstrate that—despite the red ink—the flood was a onetime event unrelated to the underlying health of the company, they pitched in.

From this experience Mackey concluded, “What more proof did we need that stakeholders matter, that they embody the heart, soul, and lifeblood of an enterprise?”

I doubt any other company founder has had his or her vision fully verified in such a dramatic manner.

The core of Mackey’s vision for Whole Foods is his belief that stakeholders matter.

Copyright © 2017 by Mark Tier

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MARK TIER is an Australian writer and businessman who has lived and worked in Hong Kong since 1977. He adopted the wealth-building secrets in The Winning Investment Habits of Warren Buffett & George Soros, sold his business interests, and now lives solely from returns on his investments.