The Costco Factor: To Win The Business Game, You Need To Change How You Think

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The entrepreneur sees opportunities because he sees the big picture, the chance to try something new, the market that no one else has seen.  If you are an established business, or plan to start a new business in a crowded space, you've got to learn to think that way too.  Costco Wholesale's entrepreneurial ability to continuously reinvent itself has given it a powerful world-wide competitive advantage.

Many do not know the serendipitous beginnings of this warehouse industry king. Costco was officially founded in 1983 by two veterans of retail, Jeffrey Brotman and James Sinegal, but the first seed of Costco was sown three decades earlier by a man named Sol Price. In 1954, Price and a group of clients created FedMart, the nation's first membership discount store, selling memberships for two dollars to government employees. Many of the basics of the now common warehouse model were determined with this early venture. Sol Price offered deep discounts on products in stores stripped of most fancy accoutrements. By 1975, when Price sold the chain to German entrepreneur Hugo Mann, the FedMart seed had grown to forty-five stores.

Mann and his executives quickly ousted Price from involvement with FedMart, and the wise Mr. Price responded by sowing again, making the same warehouse benefits available to the general public. Only a year later, in an airplane hangar in San Diego, California. Price Club was born as the world's first wholesale warehouse club. With Price Club, Sol Price single-handedly grew a new industry and with it, a perpetual harvest of good fortune.

While it is true that Sol Price was the original entrepreneur, his protégé, James Sinegal, is the one responsible for experimenting with the original idea and making it really bloom.

While Price Club originally opened its doors only to business owners, memberships were soon offered to the general public to meet its great demand. Still, Sinegal remained keen on the notion that small businesses would play an important role in Costco's perpetual harvest. He thus focused Costco on meeting their needs.

And so one of my first entrepreneurial endeavors found me linked to Costco. When I launched the Luna Rossa line of gourmet products as a young thirtysomething, I desired one of our first clients to be Costco Wholesale. I sought hard to make this happen because I knew that if I could do business with Costco, I could meet the standards of almost any retail outlet in America.

I learned much of my own entrepreneurial attitude from the warehouse king. Costco demands the best from its suppliers and in this way is a strong model for sowing great entrepreneurial seeds. It insists that each of its vendors push the innovation envelope and become as efficient as possible. From packaging, sales, and marketing to shipping and inventory management, sowing entrepreneurial seeds in Costco soil yields a high level of productivity and effectiveness.  That's how a perpetual harvest is ensured.

That's also how Costco gave my company instant credibility. Through its unyielding insistence on the highest quality to yield the best value for its members, Costco has indeed earned the trust of its members.  That my products were sold in Costco thus ensured customers and other potential partners that the products were of the highest standard. This same trusted reputation has also allowed Costco to expand. While its core offerings of bulk consumer goods are still central to the company's success, Costco has, over the years, added consumer and business services aimed at reducing costs while improving member care.

With offerings as diverse as merchant accounts, banking, and financial planning to Web development and group health plans, there is often little need today for members to venture anywhere else.  Today, Costco holds the position of fourth-largest retailer in the United States overall, after Wal-Mart, The Home Depot, and Kroger. Costco is firmly entrenched as the number one warehouse club chain in terms of sales volume even though it has approximately two hundred fewer stores than its next closest competitor, Sam's Club.

Wal-Mart maintains what is arguably the mightiest supply chain and distribution network on the planet; yet, against this muscle, Costco's momentum of good fortune allows it to outperform Wal-Mart–owned Sam's Club in per-store sales and overall sales. In addition, Costco remains number one among all U.S. retailers in customer satisfaction, according to the University of Michigan's American Consumer Satisfaction Index (ACSI).

It is a safe bet that Costco's good fortune will continue as it keeps innovating – like an entrepreneur. The result is a perpetual harvest that continues to benefit the company, its vendors, and its members.

Costco clearly sets the standard for not only living its entrepreneurial spirit, but also through its passionate pursuit to reinvent an industry.  And it has created new opportunities for others every step of the way. 

Costco's sustainable business model is embedded in how they have embraced the 6 characteristics of the Immigrant Perspective on Business Leadership.   They act upon them on many levels and here are just a few.

1.   Keeping their Immigrant Perspective:  they stay true to their cultural perspective by continuously seeing and seizing opportunities that others don't see and are fearless to take action even when the market disagrees (ie. launching the "Kirkland Brand" across multiple categories).

2.   Employing a Circular Vision: Costco anticipated crisis and change in the retail industry as Wal-Mart's low price strategy forced consolidation amongst the many retail outlets.   As such, Costco's circular vision help them reinvent a new retail distribution channel that focused on delivering value to its members through continuous innovation.

3.  Unleashing their Passion:  Costco pioneered the warehouse industry.  Its passionate pursuit to create a community-minded and collaboration-driven approach focused on innovation delivers a new kind of value model.

4.  Living Your Entrepreneurial Spirit:  Costco's leadership is all about the entrepreneurial spirit.  They have worked the warehouse floors themselves and understand the specific needs of their members to keep the buying experience fresh, dynamic and new.   Every visit to Costco is an entrepreneurial experience and their treasure hunt merchandising approach proves this to be true.

5.  Working with a Generous Purpose:  Costco is all about servicing the needs of others just as much as their own.   They are meticulous about listening, learning, and implementing the ideas of their members and vendors voices.    They share ideas to their partners to deliver momentous outcomes.

6.  Embracing a Cultural Promise:  From the time you walk into the warehouse location, you feel the promise that Costco is delivering to its culture.   You always sense that it is delivering value in every aisle and with a promise that is consistent, honest and true.

Do you want to win – and keep winning – like Costco?  There are many things you must get right, but they all begin with thinking like an entrepreneur.

Thanks to Glenn Llopis / Blogs Forbes
http://blogs.forbes.com/glennllopis/2011/01/31/the-costco-factor-to-win-the-business-game-you-need-to-change-how-you-think/