Bernie Marcus is a do-it-yourself kind of guy. Sure, he knows his way around sheetrock and, yes, he can talk in great detail about remodeling a bathroom or putting in a backyard deck. But for Marcus, home improvement projects represent a part of something much more profound. Doing it yourself means being able to take control of your own life, shaping your own destiny, daring to accomplish more than you imagine possible. It’s an essential part of being an American. After all, it’s what inspired his signature project. He built a company from scratch, and turned his idea into a household name with a $60 billion market cap. Bernie Marcus built Home Depot.
“It happened because of us,” says Marcus. “I mean, we had no money. When we opened Home Depot in 1979, we were broke. I had just been fired. Some of us were on the verge of bankruptcy. But we had a great idea, and we had some people who were willing to support us. And we put in the work—we put in sweat and tears, our hearts and souls. But today Home Depot has more than 300,000 people working for it. We built it all.”
Built from Scratch
“My family was very, very poor,” says Marcus. He was born in 1929, the youngest of four children. “When my parents came from Russia,” he explains, “they had absolutely nothing. But they came to America looking for freedom. They wanted to be safe, they wanted to work hard, and they wanted to succeed.” Marcus grew up in a fourth-floor tenement apartment in Newark, New Jersey. It was a rough neighborhood. “It was so bad,” he likes to joke, “that they tore it down to build a slum.”
As a kid, young Bernie learned to take care of himself. He was one of the few white kids in a predominantly black community, making him a frequent target for fistfights. But he stood his ground, never shying from a fight, refusing to be a hostage to forces larger than himself. He impressed one gang leader by calmly taking whatever came his way. Marcus was invited to join. By the time he was 11 years old he was second in command—“I was in charge of strategy and expansion”—giving orders to 30 other kids. A year later, his family moved to a new neighborhood.
He took his first paying job at age 13, working as a soda jerk after school. The family needed all the help it could get. His father was a skilled cabinetmaker, but he struggled to make ends meet. “He was strong as an ox,” Marcus recalled in 1998, “a great craftsman but a terrible businessman. He worked day and night, 7 days a week, 15 hours a day, and still couldn’t make ends meet for his wife and four children.” Without the income from Bernie and his two older brothers, Irving and Seymour, the family might not have made it.
Through it all, Marcus hoped to attend medical school and become a psychiatrist. He enrolled in pre-med courses at Rutgers. At the end of his sophomore year, Marcus was told by one of his deans that he had earned a scholarship at Harvard Medical School. But, the dean said, there was one problem: Harvard (the dean claimed) had capped the number of Jewish students it would accept into any given class. The dean offered to get the cap waived, in exchange for $10,000. Nobody in the family had anything like that kind of money. Marcus stayed at Rutgers, earning a degree from the pharmacy school.
After graduation, Marcus worked for a while as a pharmacist. He was miserable. Eager to get out, he quickly landed a job at the East Coast discount giant Two Guys. He rose rapidly, moving from cosmetics to sporting goods to major appliances. By the time he was 28, he was overseeing about $1 billion worth of retail hard goods. In June 1968, he left Two Guys to become president and CEO of Odell, a cosmetics manufacturer; two years later, he took a vice president position at Daylin Corporation. In 1972, he was named president of one of Daylin’s divisions: Handy Dan Improvement Centers, a regional chain of hardware stores in Southern California.
Not long after he took over Handy Dan, Marcus brought on Arthur Blank as chief financial officer. The two men had complementary skills, and despite an age difference of 12 years, they soon became close personal friends. Under their leadership, Handy Dan became one of the nation’s most successful home improvement chains; their best store did $5 million in annual sales, nearly double the industry average. In 1976, Handy Dan earned $7.8 million before taxes. The rest of Daylin’s divisions combined earned $7 million.
There was one problem. The CEO of Daylin was Sanford Sigoloff, a merciless corporate in-fighter whose smooth talk and sharp suits barely concealed a venomous resentment of Marcus and Blank. Sigoloff desperately wanted credit for saving Daylin, but it was clear that the turnaround owed mostly to Handy Dan’s cash flow. When succession plans were discussed at a board meeting, Marcus was considered the obvious candidate. Sigoloff knew he had to act quickly. On April 14, 1978, he summarily fired Marcus and Blank, voiding their contracts and daring them to sue.
Do It Yourself
Bernie Marcus was 49 years old, unemployed, and low on savings. Most of all, he was tired of working for other people. “I never had any real money to speak of in those days, despite holding lofty titles in some of America’s best retail companies,” Marcus would later recall. “Real money is in equity, and that I never had.” He had spent decades honing his skills. It was time to set up his own shop.
Marcus and Blank decided to build a better hardware store. They would meet several times every week at a coffee shop halfway between their homes, filling one yellow legal pad after another with ideas for a business plan. Again and again, they would ask themselves: What kind of store would have wiped out Handy Dan? As the weeks passed, the concept took shape.
First, they agreed that their prices would have to be rock-bottom. By purchasing directly from manufacturers, Marcus and Blank thought it would be possible to operate at a gross profit margin of 29 to 31 percent—the industry standard at the time was 42 to 47 percent—and make up the difference on volume. Second, they wanted customers to feel the discount. The way to do it, Marcus reasoned, was to build a store that felt like a warehouse. It had to be immense, with soaring ceilings and staggering quantities of product. The largest Handy Dan was 35,000 square feet. They wanted to build stores with a footprint between 55,000 and 75,000 square feet.
Perhaps most importantly, they knew they had to create a new culture. Everything hinged on finding the right people. With the right people, they could fill their stores with highly trained and motivated associates who intuitively understood that their job was customer service, not sales. Even if a customer was eyeing $400 sinks, they expected their employees to recommend a $2 part—and then to patiently explain how to do the repair work. Once they had created the culture, they could step back and give their people the space they needed to do the right thing.
Marcus and Blank already had one such person on their side: a jackhammer of an investment banker named Ken Langone. Langone liked and trusted them. When they were running Handy Dan, Langone saw his stock go from $3 to $25.50 per share. Langone lined up a meeting with Ross Perot, who was receptive to the idea of fronting $2 million in the startup. The deal fell through, however, over the make of Marcus’ company car. It was a trivial detail, but the way Perot refused to budge told Marcus that this was a bad match. For his part, Perot missed out on a chance to own 70 percent of Home Depot.
Undeterred, Langone kept pounding away at other potential investors. He convinced some 40 individuals to buy enough $25,000 units of preferred stock to reach $2 million in seed money. It was much less than the $25 million Marcus had thought would be necessary. Frugality was built into the company’s foundation. Without enough cash to fully stock the warehouses, Marcus stacked empty crates to make it appear as though the stores were packed with product.
Even as financing fell in place, a number of issues still need to be resolved. Where would they launch? Although they had national ambitions, they knew they had to start somewhere. Eying the booming New South, they uprooted their families from Los Angeles and moved to Atlanta. Who would handle merchandising? They brought in Pat Farrah—the “Michelangelo of retail,” Marcus later called him—a brilliant merchant and fierce competitor in California. What would they be called? Taking their cues from the success of Crazy Eddie’s retail chain in New York, they seriously considered “Bad Bernie’s Buildall.” Their loan officer disapproved. The Home Depot it was.
On Friday, June 22, 1979, the first Home Depot opened. The Thursday edition of the Atlanta Journal-Constitution was supposed to have run a full-page ad announcing the opening. But the ad never ran. The store was virtually empty. To drum up interest, Marcus and his colleagues resorted to sending their wives and children into the streets, offering one-dollar bills to anybody who agreed to go into the store. “Things were so bad without the newspaper ad,” Marcus later wrote, “that we literally couldn’t give the dollar bills away.”
The first Home Depot opened in 1979.
By the end of 1979, Home Depot had three stores, 200 employees, and $7 million in sales. It also ended the year losing $1 million. “Everything was a struggle for us,” said Marcus. One-stop shopping for home improvement was a novelty in Atlanta, and do-it-yourselfers were used to going to the paint store, then the lumberyard, then the hardware store. Marcus remained convinced that, between aggressive pricing and attentive customer service, the Home Depot model was poised to take off. In the meanwhile, his wife wouldn’t let him shave: “She was afraid to let me put a razor in my hands.”
With backbreaking work, Marcus and his partners slowly but surely built up Home Depot. In its second year, sales tripled, putting the company into the black. Home Depot went public in September 1981, and was listed on the NYSE in 1984. As Home Depot celebrated its 10th birthday, it opened its 100th store. By 1996, stores were humming from coast to coast and the company’s revenues were just over $19 billion. Throughout that period of remarkable corporate growth, Marcus spent as much time as he could in the stores. He liked to walk around, talking to customers, wearing one of the company’s trademark orange aprons with a button that read, “Hi! I’m Bernie, a Home Depot stockholder. Let Me Help You.”
Wholesale Philanthropy
In April 1997, Marcus stepped down as CEO of Home Depot, and within five years, he had retired from the board of directors. As he drew down his business career, he turned his attention increasingly to philanthropy. Autistic children were among the beneficiaries of some of his first major gifts. In 1991, he and his wife, Billi, founded the Marcus Developmental Resource Center at Emory University, which has since evolved into the Marcus Autism Center, part of Children’s Healthcare of Atlanta. With more than $70 million from Marcus, the center has provided information, services, and programs to more than 40,000 children with autism and related disorders. It remains a cause near his heart. In 2005, the Marcuses helped launch Autism Speaks, providing more than $25 million since its inception.
Marcus’ philanthropic interests range widely. He gives generously to Israeli and Jewish causes, including over $35 million to the Israel Democracy Institute, a free-market and foreign policy think tank. He funds the Salvation Army, earning its highest honor, the Others Award, in May 2005. But perhaps his most visible gift has been the Georgia Aquarium. In November 2001, Bernie and Billi Marcus announced their intention to build a world-class aquarium and donate it to the city of Atlanta. Ground was broken in May 2003. Crews worked around the clock, putting together a 550,000-square-foot, 8-million-gallon facility. Late in November 2005, it opened its doors to the public.
Today it is the largest aquarium in the world, housing more than 100,000 fish and marine animals, employing more than 400 people (assisted by more than 2,000 volunteers), and hosting some 12 million visitors to date. Crucially, Marcus led the project with his own money, putting up $250 million of the $300 million price tag. He wanted to fulfill his vision on his terms. “We are in control, complete control, of the dynamics,” he told the local papers at the time of the announcement. “We didn’t want to have any involvement of the state, federal, or city governments. We just didn’t want to have any restrictions on it. This is private enterprise.”
The Georgia Aquarium
Private enterprise: it’s a theme that comes up over and over in Marcus’ philanthropy. “I believe in free enterprise,” says Marcus. “It may have its faults, but it is the best system in the world. Free enterprise is what made our success possible.” It is a point of pride with Marcus that some 2,000 Home Depot employees have become millionaires. “I know that there are hundreds of thousands of people whose lives are so much better off for having worked for Home Depot. They paid off their homes. They paid off the mortgages on their parents’ homes. We all benefited from Home Depot.”
A central focus of Marcus’ philanthropy involves protecting, preserving, and promoting free enterprise. Many of his initial efforts were directed at reigning in out-of-control litigation. As he wound down his tenure at Home Depot, he began reflecting on the circumstances that allowed him to succeed. “If we tried to start the Home Depot today,” he explains, “I don’t think we would be able to make it. There are so many issues: lawsuits, over-regulation, Sarbanes-Oxley. It makes it impossible for anybody to succeed in today’s environment.” He decided to expand his efforts beyond tort reform, and to approach the promotion of free enterprise in a more holistic way.
To that end, in 2004 Marcus provided seed money to found the Center for America (formerly the Foundation for Fair Civil Justice). The Center for America has a straightforward mission: to promote free enterprise. Marcus brought a number of priorities to the organization. Many of his priorities were familiar, like winding back a culture of litigation and a climate of regulatory overload. He wanted the Center for America to find the impediments to free enterprise, to identify their root causes, and to explain the issues—and their solutions—to opinion-makers, decision-makers, and, most importantly, the general public.
Marcus applied a crucial lesson that he had learned at Home Depot. Find the right people and give them space to do the right thing. Managers at individual stores have to earn the confidence of the central office. Once they do, they enjoy a great deal of freedom. On September 11, for example, store managers throughout the region—acting on their own initiative, without permission from the corporate offices—began loading their delivery trucks. The company takes pride in knowing that during those first, grim days, the only non-emergency vehicles permitted to enter the island of Manhattan were a stream of Home Depot trucks donating supplies and equipment to the rescue effort.
The Center for America enjoys a similar measure of independence. Attentive to Marcus’ vision, it identified another obstacle to free enterprise, one which has been hiding in plain sight for years: America is losing its skilled workers.
Trading Down
The Center for America was moved to action by a 2005 study on skilled workers. The results were shocking. The National Association of Manufacturers found that 81 percent of the manufacturing companies surveyed reported that they were facing a moderate to severe shortage of qualified workers; 53 percent of manufacturers reported that at least 10 percent of their total positions where unfilled simply because they were unable to find people with the skills to do the jobs. Part of the story was the general tightness in the labor market around 2005. Fully 39 percent of the companies were having trouble hiring enough unskilled workers. But the real problem was finding skilled tradesmen—electricians, glaziers, cement masons, sheet-metal workers, and the like. Of the manufacturers surveyed, 90 percent reported that they could not find enough skilled workers to fill their needs.
The trend is seen throughout the skilled trades. Case in point: welding. A study by the American Welding Society and the Edison Welding Institute reports that in 2000, there were 594,000 welders working in America. By 2005, that number had dropped to 576,000. By 2009, according to the Department of Labor, the number was 358,000. The average age of a welder today is in the mid-50s. In 2006, 50,000 welders retired, but fewer than 25,000 new welders entered the field. Those trends have continued diverging, resulting in a current shortage of almost 200,000 welders.
A big part of the problem—as the case of welders shows—is simple demographics. Baby Boomers are heading into retirement. By 2020, the number of people over 55 will increase by 73 percent, while the number of younger workers will increase by only 25 percent. This squeeze will leave America with a shortfall of 10 million skilled workers by 2012. And the squeeze only gets tighter. Some 70 million Baby Boomers will exit the labor force over the next 18 years, but only 40 million workers will enter it.
The skilled tradesman is the kindred spirit of every entrepreneur.
Another aspect of the problem is educational. Vocational education, once a staple of American secondary schools, seems to have undergone a general decline for decades. Take the state of California, for example. Prior to 1980, nearly every public high school in the state offered a comprehensive industrial arts program. By the late 1990s, according to the California Industrial and Technology Education Association, 75 percent of these programs were gone. What happened? As guidance counselors and administrators focused relentlessly on college admissions, the industrial arts became an afterthought. When shop class teachers retired, they were never replaced. Once the teachers were gone, the specialized classrooms were converted to weight training rooms, study halls, or computer labs.
(To be sure, cautions Chester E. Finn Jr., president of the Thomas B. Fordham Foundation, “it’s a very complex picture. A lot of old high school-based vocational education has now been blended into newfangled technology and STEM [science, technology, engineering, and mathematics] programs. There’s no simple way to track the numbers over time.” And there is evidence that vocational education is making a bit of a comeback in several states. In California, for example, the James Irvine Foundation is funding the Linked Learning Initiative, a career-oriented program that combines academic, technical, and workplace-based education in roughly 500 high schools across the state.)
The Center for America decided that supporting the skilled trades was a key strategy for supporting free enterprise. Unsure what form its support would take, one thing was nevertheless clear. It had to feel right. Marcus has always been acutely aware of the need to make projects feel right. The night before the opening of the first Home Depot, two store managers brought in a cleaning crew to scrub and wax the concrete floors. When senior managers showed up in the pre-dawn hours, they were horrified. The store was supposed to look like a warehouse, not a hospital. Marcus and his fellow executives jumped on forklifts and stomped on the gas, skidding around corners and slamming on brakes, trying to scuff the floor before customers started to arrive. The Home Depot had to feel right—otherwise it wouldn’t work.
Marcus likewise sensed that white papers and think-tank conferences wouldn’t have the right feel. The Center for America was charged with finding a way to make middle-class Americans feel the importance of free enterprise. With the looming shortage of skilled workers, that meant making the issue salient for the kind of people who might consider entering the trades. But to reach them, everyone agreed, the effort would have to feel right.
The Actor’s Craft
“These people get paid for this?” asked John Ratzenberger. The smell of sawdust lingered in the air. It was 1971, and Ratzenberger was living in England, working as a journeyman carpenter. He had taken a job building a phone kiosk in a theater. He watched as an avant garde socialist troupe rehearsed on stage.
“You’ve got to be kidding me. I could do better with a sock puppet.”
Three decades later, Ratzenberger is one of the world’s most successful actors. For 11 seasons, he was Cliff Clavin, the know-it-all mailman from Cheers; since then, he has had voice roles in every one of the Disney-Pixar animated films. With a combined box-office take of more than $3 billion, he is the sixth-highest-grossing actor of all time—not bad for a journeyman carpenter who decided he could do better with a sock puppet.
Ratzenberger filming 'Industrial Tsunami' (Photo courtesy of Center for America)
Throughout his decades in Hollywood, Ratzenberger watched, dismayed, as America’s supply of highly skilled workers dwindled. Growing up in the factory town of Bridgeport, Connecticut, the trades were part of the fabric of everyday life. “I was surrounded by people who knew function, people who knew how to build and make things, repair things, invent things,” Ratzenberger explains. “My uncles were tool and die makers, and they would talk about tolerances and one-ten-thousandths of an inch like the fate of Western civilization depended on it.”
In an effort to restore that spirit, Ratzenberger created Made in America, a TV show for the Travel Channel. Debuting in 2004, the show ran for five seasons, with a total of 97 episodes. “What I tried to do with my show,” says Ratzenberger, “was give dignity and respect to the people who actually make things.” He toured around the country, going inside manufacturing plants and factories, from Harley-Davidson to Stickley Furniture and from Brooks Brothers to U.S. Steel. His goal was to introduce audiences to the face of America’s skilled workforce.
Made in America fired Ratzenberger’s enthusiasm. He became a senior fellow at the newly created Center for America, and began speaking all over the country about the importance of the nation’s skilled workforce. Encouraged by feedback from people coast to coast, Ratzenberger and the Center for America began work on a documentary film about the vanishing skilled trades: Industrial Tsunami.
Currently in production, Industrial Tsunami is being directed by Craig Haffner, another senior fellow at the Center for America. Haffner was nominated for a Tony Award in 2010 for his revival of Ragtime, and won an Emmy in 1989 as the writer and producer of a World War II documentary. Under Haffner’s direction, and featuring Ratzenberger, Industrial Tsunami lays out in stark numbers the problems facing the United States as young people shun the manual professions.
“A fellow who’s a president of a pretty big construction outfit called me up,” Ratzenberger says. “He had seen me talking about Industrial Tsunami on TV. He said, ‘John, you’re absolutely right. Within six years, my company may not exist.’ He can’t find glaziers, stone masons, drywall installers, bulldozer drivers.” As the two men conversed, they realized that they share the same suspicion. Popular culture is a big part of the problem.
“In a movie,” Ratzenberger points out, “any time you see a tradesman, they’re made fun of. They’re not given dignity and respect. And why would any child growing up, seeing that picture, want to be that?” A major goal of Industrial Tsunami is overcoming precisely those stereotypes. “We want to get parents to understand that, if your son or daughter wants to be a welder, it’s not a bad thing. In fact, it’s a great thing.”
“There should be an audience outside factories everywhere, just applauding the people who do skilled labor,” he continues, his voice becoming animated. “It’s essential work—and those are essential people. People who work in factories, people who repair water mains, people who string high-tension wires, people who repair elevators. These are essential workers.”
Ratzenberger and the Center for America hope that Industrial Tsunami will be the first step in awakening young people to the possibility of a career in the skilled trades. The film will be completed this year and should debut in theaters in 2012. And after that? “In a perfect world,” muses Ratzenberger, “it makes enough noise that the powers that be—whether in the state capitals or Washington—step back, realize how important this is, and say, ‘We better do something now.’”
Labor of Love
“All the people I know in the business world are good, hard workers,” says Marcus. “They break their backs day and night, work seven days a week, and are always concerned with their businesses.” Hard work, self-reliance, personal responsibility: these are the virtues that Marcus praises again and again. The reason is simple. These are the virtues that allow free enterprise to prosper.
And they are virtues found in abundance among skilled tradesmen. Marcus would know. To staff Home Depots, he sought out legions of electricians, plumbers, and carpenters. He didn’t want them to focus on selling products. Instead, he wanted them to serve customers. Marcus wanted to help the people who came into his store. He wanted to educate them, to save them money and increase their sense of independence. Hiring skilled tradesmen was integral to that strategy.
But it goes deeper than that. The skilled tradesman brings his intelligence and his discipline to his work. His job is to take ownership of a project. He creates something that wasn’t there before—something new, something better, something more valuable. And in that, the skilled tradesman is the kindred spirit of every entrepreneur.
“We were entrepreneurs,” explains Marcus, warming to his theme. “We had a dream that we could build something wonderful in the United States—and that in building it, we could bring along a lot of people who would benefit from the hard work that we all knew we were going to put into it.” Home Depot is Marcus’ great labor of love, which is reflected in his work to revive the skilled trades. It makes sense. Bernie Marcus is a do-it-yourself kind of guy.
Jonathan V. Last is a senior writer at the Weekly Standard.