#358 I had dinner with John Mackey, Founder of Whole Foods

John Mackey, co-founder of Whole Foods, reflects on his entrepreneurial journey, emphasizing the importance of controlling expenses, a lesson he gleaned from history's greatest entrepreneurs. He shares insights from his extensive time with and admiration for other entrepreneurs, including Andrew Carnegie and Sam Walton, and discusses how their principles of cost control and efficient operations influenced his approach. Mackey also delves into his personal experiences, including conflicts with co-founders, the impact of his parents, and the eventual sale of Whole Foods to Amazon. He highlights the continuous learning, passion, and resilience required to build and sustain a successful business.

• John Mackey emphasized that listening to over 100 episodes of the podcast influenced his perspective on controlling expenses.
• He noted that controlling expenses is crucial, especially during boom times when it's natural to overlook costs.
• Andrew Carnegie's philosophy on cost control is highlighted, emphasizing that savings in costs are permanent and can provide a competitive advantage.
• Sam Walton's approach at Walmart also underscored the importance of efficient operations and cost control.

"If founders existed when he was younger, Whole Foods would still be an independent company."

• John Mackey believes the podcast's lessons on expense control could have kept Whole Foods independent.

"Profits and prices were cyclical, subject to any number of transient forces of the marketplace. Costs, however, could be strictly controlled."

• Andrew Carnegie's view on the importance of controlling costs as a permanent saving.

"Our money was made by controlling expenses. You can make a lot of different mistakes and still recover if you run an efficient operation, or you can be brilliant and still go out of business if you're too inefficient."

• Sam Walton's principle on the critical role of efficiency and cost control in business success.

• Whole Foods Market was valued at $100 million by the end of the first trading afternoon.
• John Mackey's net worth increased to over $7 million, which was a significant change from having no money.
• Reflections on the journey from the modest beginnings of Safer Way to the success of Whole Foods.
• Personal moments of gratitude and reflection on the company's growth and the people involved.

"By the end of the first trading afternoon, Whole Foods Market was valued at $100 million. Even though my shares had been diluted over the years, my own net worth was now over $7 million."

• Reflects the financial success and personal wealth gained from the IPO.

"I thought back to that little victorian house where Safer Way had begun and the modest dreams of success that Renee and I had shared."

• Reminiscing about the humble beginnings and initial dreams of success.

"I called my father just to hear the pride in his voice and to share our mutual excitement at the success of the company he'd so wisely helped me build."

• A personal moment of sharing success with his father, who played a significant role in the business.

• John Mackey has a deep affinity for fellow entrepreneurs, feeling an instant connection with them.
• He believes entrepreneurial autobiographies serve as an act of service for future generations by sharing experiences and lessons.
• Mackey's diverse and hard-to-classify nature, balancing various ideologies and practices.

"When I meet other entrepreneurs, there's always a spark, an instantaneous recognition that we're wired the same way."

• Describes the inherent connection and understanding among entrepreneurs.

"I really do feel it's an act of service to the next generation of entrepreneurs, especially how open they are with their warnings or their explanations, or even just sharing the dark side and the downsides of entrepreneurship."

• The importance of sharing entrepreneurial experiences for the benefit of future entrepreneurs.

"It's hard for people to fit me into their narrow political and ideological boxes. I sold natural foods. I practiced meditation. I espoused veganism, and I wore hiking shorts to work."

• Illustrates Mackey's diverse and unconventional approach to business and life.

• John Mackey dropped out of college multiple times and had a period of existential angst about his life's direction.
• He lived in a co-op called Prana House, where he met his girlfriend and future co-founder, Renee.
• The idea to start a natural food store came from his experience as a food buyer and worker at the Good Food Company.
• Renee's support was crucial in pursuing the entrepreneurial venture.

"I had recently dropped out of school again. My college years had been characterized by a series of starts and stops, multiple transfers between universities, and impromptu breaks to hitchhike around the country."

• Mackey's non-traditional educational journey and search for purpose.

"Renee believed in his idea. So he goes and tells her, he's like, hey, why don't we start our own natural food store? And she didn't laugh. She didn't think it was ridiculous. She didn't tell him, stop doing that. She says, that sounds fantastic. Let's do it."

• Renee's pivotal support in starting the business.

• John's relationship with his father was transformed by the entrepreneurial journey.
• His father, a successful businessman, provided guidance and support, helping John build the business.
• His mother, however, remained disappointed with his choices, wanting him to pursue a more conventional career.

"In my father's eyes, however, I'd shifted from being an aimless hippie dropout to a youthful entrepreneur with conviction and energy."

• The shift in his father's perception of him as he pursued his entrepreneurial dream.

"He was an astute businessman. He taught accounting at Rice University and then became the very successful CEO of a healthcare company."

• Background on his father's business acumen and success.

• John Mackey faced significant bureaucratic challenges in opening the first store.
• He circumvented these challenges by working at night to complete the store's build-out.
• This resourcefulness was critical in ensuring the store could open despite regulatory hurdles.

"They would essentially say, shut this down. You know, you're gonna have to wait months and months until we go through everything and improve everything."

• The bureaucratic obstacles that threatened the store's opening.

"Then that means you build the store at night."

• The advice from an older entrepreneur that helped Mackey overcome the bureaucratic delays.

• John Mackey and Renee built the business with passion, hard work, and support from friends.
• They lived in the store, taking showers using the dishwasher, to save money.
• His father helped him develop a personal curriculum for self-education, including reading business classics.

"We had built our business on a dream fueled by ambition, desire, enthusiasm, a sense of adventure, hard work, and a lot of help from our friends."

• The foundational elements that drove the early success of their business.

"My dad also gave me Alfred Sloan's memoir about his years with General Motors."

• The influence of classic business literature on Mackey's entrepreneurial education.

"If it had anything to say about business, economics, or leadership, I wanted to read it."

• Mackey's voracious appetite for learning and self-improvement through reading.

• Importance of continuous learning and applying knowledge in business.
• Building a holistic understanding of business challenges through reading and practical experience.
• Identifying competitive disadvantages and strategizing solutions.

"By night, I read about business. By day, I worked in the store."

• Emphasizes the dual approach of theoretical learning and practical application.

"Every few days I'd call my father and talk to him about what I was reading."

• Highlights the importance of discussing and reflecting on new knowledge to deepen understanding.

• Pooling resources with competitors to gain better negotiation power.
• Forming strategic alliances to overcome market disadvantages.
• Learning from historical figures like Rockefeller to apply in modern business contexts.

"What if we teamed up with other small stores and pooled our buying?"

• Suggests innovative solutions to competitive pricing challenges.

"Technically they were competitors, but once we created the distribution company, we became allies."

• Demonstrates the transformation of competitors into strategic partners.

• Drawing inspiration from successful businesses and adapting their strategies.
• The importance of expanding product offerings to meet customer needs.
• Recognizing opportunities for growth by studying industry examples.

"Misses Gooch's was doing a staggering $100,000 a week in sales, in contrast to our eight to $10,000 a week."

• Illustrates the potential for growth by adapting successful business models.

"Size mattered in the retail business."

• Emphasizes the importance of scale in achieving competitive advantage.

• The necessity of market research and site visits to gather new ideas.
• Importance of taking risks and expanding to larger locations.
• Overcoming initial resistance and skepticism from potential partners.

"I wanted to see for myself some of the new natural food stores I've been reading about."

• Shows proactive learning through direct observation and interaction.

"Son, you're going to build some kind of hippie food store."

• Reflects the initial skepticism faced when introducing new business concepts.

• Resilience in the face of natural disasters and business setbacks.
• Community support as a crucial factor in recovery and rebuilding.
• The importance of financial support and creative problem-solving in crisis management.

"The store had been 8ft underwater. All of our equipment and inventory would need to be replaced."

• Highlights the severity of the challenges faced during the flood.

"More and more volunteers showed up. They came uninvited and unpaid for no reason other than they loved the store."

• Demonstrates the power of community support in business recovery.

• Merging businesses and forming a cohesive brand identity.
• Creative solutions to inventory and financial constraints during the early stages.
• Immediate success upon opening and the importance of timing and market readiness.

"We simply weren't going to be able to meet payroll unless we opened right away."

• Shows the urgency and necessity of launching despite not being fully prepared.

"On September 20, 1980, at 09:00 a.m. we opened. Our sales far exceeded expectations and they never slowed down."

• Reflects the initial success and market acceptance of Whole Foods.

• The importance of a shared vision and commitment among co-founders.
• Challenges of balancing personal relationships with business dynamics.
• The necessity of long-term planning and patience in business growth.

"I was never going to be satisfied to stay small."

• Emphasizes the drive and ambition required for business expansion.

"I wondered if he was truly committed to the natural foods mission."

• Highlights the importance of alignment in business goals and values among co-founders.

• Forming a network of like-minded entrepreneurs for mutual learning and support.
• Strategic acquisitions to expand market presence and achieve national brand status.
• The role of continuous learning and adaptation in maintaining a competitive edge.

"The network quickly felt like more than a business association. These were friends, fellow travelers, who are walking the same road that I was on."

• Reflects the camaraderie and mutual support within the business network.

"Whole Foods Market, the lean, hungry upstart of the bunch, would not only surpass each of those other businesses, but would end up buying pretty much all of them, one by one."

• Demonstrates the strategic growth and consolidation approach that led to Whole Foods' national success.

• John emphasizes the importance of inner work to manage stress, guilt, anger, and other negative emotions.
• Techniques like MDMA, psilocybin, and breath work were instrumental in his personal development.
• Breath work is defined as a guided breathing session that induces an altered state of consciousness for deeper spiritual insight.

"One of the things he's most proud of is all the, he calls it inner work. All the inner work that he did to deal with, you know, all like, the stress that you have, the guilt, the anger, all these negative and somewhat, you know, can be debilitating emotions and, like, trauma that you're gonna have as you build your company."

• John values personal growth to handle the complexities of human emotions and trauma while building a company.

"Breath work, in broad terms, is a technique involving a facilitated session of guided breathing that puts one in an altered state of consciousness, allowing deeper spiritual insight and opening up a pathway toward clearing mental and emotional baggage."

• Breath work is a key technique for achieving deeper spiritual insight and emotional clarity.

• John integrates love and discipline as core traits in his business philosophy.
• He aims to build the happiest workplace in America, based on love, which causes friction with his co-founder, Mark.

"Love was an enormous part of what got us started on the journey together. Love fueled our creation of the store and turned it into something we could never have imagined. And love had kept it alive even through the most difficult moments."

• Love is a fundamental element that fueled the creation and sustenance of Whole Foods.

"Hey, I want to aim to build the happiest workplace in America, a workplace based on love."

• John's vision for a workplace based on love was initially met with skepticism and resistance from his co-founder.

• John faced significant conflicts with his co-founder, Mark, over the direction and expansion of the company.
• Mark's frustration led to an all-out war for control, resulting in Mark's departure from the company.

"Mark's growing frustration became an all-out war for control over the direction of the company. The first real challenge to my leadership, the first and not last."

• Leadership challenges and conflicts with co-founders are common in business ventures.

"John, look at what you've done. We've built this beautiful store into incredible success, and then you had to go and completely screw it up."

• Disagreements over business strategies, such as expansion, can lead to significant conflicts among co-founders.

• John's competitive nature and desire to excel were critical to the success of Whole Foods.
• He was motivated by the challenge of expanding Whole Foods from a regional to a national company.

"I thrive on competition, and I love to excel in both sports and in business. I was driven to outdo our competitors, to win in the marketplace. This competitive drive was critical to our success."

• A strong competitive drive can be a significant factor in achieving business success.

"I was amazed at how a good idea could become a store, and a successful store could become several, turning into a real business and a real business could grow to become a large company, and that chain of success could potentially change an entire industry."

• The potential for growth and industry transformation can be a powerful motivator for entrepreneurs.

• John's mother never fully understood or supported his career choice, leading to a strained relationship.
• His father's Alzheimer's disease added emotional and personal challenges during critical business periods.

"John, she said, I want you to make me a promise. I want you to promise me that you'll go back to school and finally get your degree. You could be so much more in life if you would just apply yourself to it. I hate to see you wasting your life."

• Family expectations and misunderstandings can create emotional burdens for entrepreneurs.

"John, please don't do this. My father looks suddenly frail. His air of authority and confidence had drained from his face as I'd uttered the words, dad, I'd like you to resign from the board."

• Difficult decisions, such as asking a parent to step down from a business role, can be emotionally challenging and impactful.

• John had a distaste for venture capitalists but acknowledged their necessity for growth.
• The IPO process was seen as a relief to gain more control over the company.

"Make no mistake, John, you cannot trust VC's. You may need them, but you can't trust them. They're going to need their money back."

• Trust issues with venture capitalists can create tension and challenges in business growth.

"I began to think of our VC partners as hitchhikers with credit cards. They were along for the ride and benefiting from our forward progress. And as long as they felt we were going where they wanted to go, they'd help pay for gas."

• Venture capitalists are seen as temporary partners who may not share the same long-term commitment as the founders.

• Whole Foods grew aggressively through acquisitions, buying up regional natural food stores.
• Strategic thinking and ambition were key factors in their success.

"I think that's why Whole Foods Market emerged out of that first generation as the only dominant national company, buying up all those other brands it wasn't because we had the best stores. It was because we were more ambitious and thought strategically about the long term."

• Ambition and strategic thinking are crucial for long-term business success, even more than having the best product.

"There are times when certain cards sit unclaimed in the common pile, when certain properties become available that will never be available again. A good businessman feels these moments like a fall in the barometric pressure. A great businessman is dumb enough to act on them even when he cannot afford to."

• Recognizing and seizing unique opportunities, even when not fully prepared, can be pivotal in business growth.

• John's experiences led him to deeper reflections on his life, purpose, and legacy.
• He advises honoring and forgiving parents for their mistakes, recognizing their sacrifices.

"Honor and appreciate your parents. No one will ever love you quite like your parents do. And although they have no doubt made plenty of mistakes in helping you grow up, they've also done their very best job that they knew how to do."

• Recognizing and appreciating parental sacrifices can bring peace and closure in personal relationships.

"Please forgive them for their mistakes and imperfections, and fully love them and honor them while you can. Because the simple truth is that you won't always have them with you as you move further along on your life journey."

• Forgiveness and appreciation for parents are essential for personal growth and emotional well-being.

• Whole Foods succeeded not because of having the best stores but due to ambition, strategic thinking, frugality, and focus on profit.
• Walmart's entry into the grocery market indirectly benefited Whole Foods by pushing other grocery stores downmarket.

"We didn't win because we had the best stores. The best stores are the best products if you think about the store as an actual product. Right. What's crazy about this industry is the best products were actually losing money."

• Success can come from strategic business practices rather than having the best product.

"Whole Foods, we went up market. We would sell higher quality at higher prices."

• Differentiation through higher quality and higher prices can be an effective strategy in a competitive market.

"If my podcast had existed when he was younger, Whole Foods would still be an independent company."

• Continuous learning from historical examples and industry experts can significantly impact business decisions and outcomes.

• The financial crisis of 2007-2008 significantly impacted Whole Foods, leading to a 90% drop in stock value by late 2008.
• This decline made Whole Foods vulnerable to activist investors who could buy large shares and influence the company’s direction.
• John sought advice from a fellow entrepreneur, leading to a recommendation to partner with Leonard Green, a private equity firm.

"This left us deeply vulnerable to shareholder activists' opportunity. And he's going to find that opportunistic investors who might buy up a large swath of the company and then impose their own agenda on us."

• Whole Foods needed quick action to prevent hostile takeovers and stabilize the company.

• In November 2008, Leonard Green invested $425 million into Whole Foods for a 17% stake.
• Leonard Green agreed to vote with management for the first 18 months.
• This investment turned out to be highly profitable for Leonard Green, making about $4 billion by 2011.

"And so, in November 2008, Leonard Green, the private equity firm, invested $425 million into Whole Foods in return for a 17% stake in the company."

• The investment helped Whole Foods regain its stock value and stabilize financially.

• John Mackey had a talented COO and president, Walter Robb, whom he didn’t want to lose to other offers.
• To retain Robb, Mackey proposed a co-CEO arrangement.

"I don't want to lose Walter. And so the only way I can keep him was to promote him. But I wasn't yet ready to give up the CEO role. So he's like, hey, Walter, will you be co-CEO with me?"

• This arrangement was influenced by a similar situation Sam Walton faced at Walmart.

• Other supermarket chains began to focus on the higher quality market, encroaching on Whole Foods’ niche.
• Conventional grocery stores started competing directly with Whole Foods, increasing competition.

"Other supermarket chains had discovered that it was easier to focus on the higher quality end of the market than try and try to appeal to Whole Foods customers while undercutting our prices."

• This shift in the competitive landscape was detrimental to Whole Foods’ business.

• Howard Schultz, founder of Starbucks, sent a critical email about John Mackey, suggesting he step down in favor of Walter Robb.
• The email was also sent to a board member from Leonard Green, John Sokoloff.

"Absentee, petulant, disruptive, undermining, disconnected from reality, a problem for the company and the leadership team. That is Howard Schultz describing John Mackey."

• Schultz’s email and Sokoloff’s suggestion to take Whole Foods private created internal tension and conflict.

• Despite pressure, Mackey was not ready to step aside, viewing Whole Foods as his entrepreneurial child.
• He eventually asked Walter Robb to resign, following Robb’s previous offers to do so.

"I wasn't ready to step aside. Whole Foods was still very much my entrepreneurial child. And no co-founder wants to abandon their child amid stormy seas."

• This decision was inspired by Mackey’s reading of "Team of Rivals" by Doris Kearns Goodwin.

• In 2017, Jana Partners bought 8.8% of Whole Foods stock, aiming to take control of the board and sell the company.
• Mackey and his team created a plan to cut costs and improve operations, temporarily appeasing Jana Partners.

"Jana Partners had just announced its purchase of 8.8% of our stock. They had given us no warning."

• Despite efforts, Mackey realized he needed a white knight to avoid a hostile takeover.

• Mackey initially considered Warren Buffett but eventually thought of Amazon.
• A meeting with Jeff Bezos led to Amazon’s acquisition of Whole Foods in 2017.

"What about Amazon? And so they reach out. They set up a meeting with Jeff Bezos and his team at Amazon."

• The sale was finalized quickly, with Amazon buying Whole Foods, leading to Mackey’s eventual departure in 2022.

• Mackey struggled with feelings of anger and guilt after selling Whole Foods to Amazon.
• He underwent therapy to deal with these emotions and reflected on the pros and cons of the sale.

"I was getting ready to make the biggest transition of my life, leaving Whole Foods market after 44 years as its leader."

• Mackey acknowledged the benefits of the sale, such as lower prices for customers and better technology, but also noted the drawbacks like increased bureaucracy.

• After leaving Whole Foods, Mackey started a new company, Love Life, a holistic health and wellness club.
• He expressed excitement about being back in startup mode and emphasized the importance of loving one's work.

"I am a God of play. The primary field in which I love to play and to be creative is business."

• Mackey views business as an infinite game, always evolving and requiring continuous learning and creativity.

• Mackey is proud of Whole Foods and sees his higher purpose as continuing to contribute to business and society.
• He encourages others to love, create, and play in their work, viewing business as an ever-evolving, infinite game.

"Whole Foods was and is a magnificent expression of my own higher purpose. I'm endlessly proud of it."

• Mackey’s story serves as a lesson for future entrepreneurs about the challenges and rewards of building and eventually letting go of a company.