with their own personal agendas, and much more energy was focused on deciding which companies to boycott than on how to improve the quality of products and services for customers. I thought I could create a better store than any of the co-ops I had belonged to, and decided to become an entrepreneur to prove it.
Becoming an entrepreneur and starting a business completely changed my life. Almost everything I had believed about business was proven to be wrong. The most important thing I learned in my first year at Safer Way was that business isn’t based on exploitation or coercion at all. Instead, I discovered that business is based on cooperation and voluntary exchange. People trade voluntarily for mutual gain. No one is forced to trade with a business. Customers have competitive alternatives in the marketplace, team members have competitive alternatives for their labor, investors have numerous alternatives to invest their capital, and suppliers have plenty of alternative customers for their products and services. Investors, labor, management, suppliers—they all need to cooperate to create value for customers. If they do, the joint value created is divided fairly among the creators of the value through competitive market processes based approximately on the overall contribution each stakeholder makes. In other words, business is not a zero-sum game with a winner and loser. It is a win, win, win, win game—and I really like that.
I also discovered that despite my best intentions and desire to create a good business, there were many challenges. Our customers thought our prices were too high; our team members thought they were paid too little; our suppliers would not give us good prices, because we were too small; the local Austin nonprofit sector was continually asking us for donations; and various governments were slapping us with many fees, licenses, fines, and various business taxes.
Not knowing much about how to operate a business didn’t quite pay off for us in our first year, as we managed to lose more than 50 percent of the capital entrusted to us—$23,000. We discovered that creating a successful business isn’t easy. Despite the losses, we were still accused by antibusiness people of exploiting our customers with high prices and our team members with low wages. Despite my good intentions, I had somehow become a selfish and greedy businessman. To my co-op friends, I was now one of the bad guys. Yet, I knew in my heart that I wasn’t greedy or selfish or evil. I was still very much an idealist who wanted to make the world a better place, and I thought I could best do so by operating a store that sold healthy food to people and provided good jobs.
Once I realized this, I gradually started to abandon the social democratic philosophy of my youth, because it no longer adequately explained how the world really worked. I looked around for alternative narratives for making sense of the world.
As I steadily devoured dozens and dozens of business books trying to help Safer Way succeed, I stumbled into reading a number of free-enterprise economists and thinkers, including Friedrich Hayek, Ludwig von Mises, Milton Friedman, Jude Wanniski, Henry Hazlitt, Robert Heinlein, Murray Rothbard, Thomas Sowell, and many others. I thought to myself, “Wow, this all makes sense. This is how the world really works.” My worldview underwent a massive shift.
I learned that voluntary exchange for mutual benefit has led to unprecedented prosperity for humanity. As we will show in chapter 1, the progress that human beings have collectively made during the past two hundred years is simply incredible. I learned that free enterprise, when combined with property rights, innovation, the rule of law, and constitutionally limited democratic government, results in societies that maximize societal prosperity and establish conditions that promote human happiness and well-being—not just for the rich, but for the larger society, including the poor.
I had become a businessperson and a capitalist, and I had discovered that business and capitalism, while not perfect, were both fundamentally good and ethical.
Second Awakening: Stakeholders Really Matter, and the Power of Love
One of the pivotal events in Whole Foods Market’s history occurred over thirty years ago on Memorial Day in 1981, when we had only one store. We had been in business for only about eight months as Whole Foods, after we had relocated from Safer Way and changed our name. Our new store quickly became a big success. Customers loved shopping there, and our team members loved working there; they passionately believed in what we were doing, had a great deal of freedom to express their individuality, and enjoyed their fellow team members and serving our customers. But that day, Austin experienced its worst flood in seventy years. Thirteen people were killed, and the flooding caused over $35 million in damage to the city (equal to about $100 million today). Our store was eight feet underwater. All the equipment and inventory in the store were destroyed; our losses were approximately $400,000. The flood basically wiped us out. We had no savings, no insurance, and no warehoused inventory. There was no way for us to recover with our own resources; we were financially bankrupt.
When the founders and team members came to the store the day after the flood and saw the devastation, many of us had tears in our eyes. For our team members, it felt like the end of the best job they had ever had. For the founders, it seemed like the end of a beautiful but short-lived dream. As we despondently started trying to salvage what we could, a wonderful, completely unexpected thing happened: dozens of our customers and neighbors started showing up at the store. Since it was Memorial Day, many had the day off and had come in their working clothes, 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. We’re not going to let this store die. Stop moping and start mopping!”
You can imagine the galvanizing effect this had on us; suddenly, we found new energy and felt a flicker of hope that perhaps all was not yet lost. It didn’t stop there. Over the next few weeks, dozens and dozens of our customers kept coming in to help us clean and fix the store. We asked them, “Why are you doing this?” In response, they said things like, “Whole Foods is really important to me. I’m not sure I would even want to live in Austin if Whole Foods wasn’t here, if it ceased to exist. It has made a huge difference in my life.” It’s hard to overestimate the impact this had on us; we felt so loved by our customers that we were determined to open again. We thought, “These customers love us so much and they have given us so much that we owe it to them to do everything possible to reopen and to serve them as well as humanly possible.”
It wasn’t just our customers who helped us. There was an avalanche of support from our other stakeholders as well, all of whom pitched in to save us. We were bankrupt when that flood occurred and couldn’t make payroll, so many of our team members worked for free. Of course, we paid them back when we reopened for business, but there was no assurance that we were really going to be able to reopen. Dozens of our suppliers offered to resupply us on credit because they cared about our business and trusted us to reopen and repay them. That created a commitment of loyalty in our company toward those suppliers, and we are still doing business with many of them more than thirty years later. Our investors believed in Whole Foods Market and reached into their pockets to make additional investments. Our bank loaned us additional money to help us restock. In fact, all the major stakeholders—customers, team members, suppliers, and investors—pitched in after the flood to make sure that Whole Foods Market didn’t die and that we were able to reopen. And reopen we did, a mere twenty-eight days after the flood.
Our experience after the Memorial Day flood of 1981 drew our young company together. It demonstrated to us that all our stakeholders have the potential to form close relationships with us, to care and to commit intensely. Our team members grew closer, and our commitment to our customers was greatly deepened. We understood that we were actually making an important difference in people’s lives.
It is humbling now to think about what would have happened if all of our stakeholders hadn’t cared so much about our company then. Without a doubt, Whole Foods Market would have ceased to exist. A company that today has over $11 billion in sales annually would have died in its first year if our stakeholders hadn’t loved and cared about us—and they wouldn’t have loved and cared for us had
