THE CONTAINER STORE AT A GLANCE
Location: Headquarters in Coppell, Texas; 72 store locations nationwide
Sales: $782 million in 2014
Awards: 16 years in a row on Fortune’s “100 Best Companies to Work For” list
Fun Fact: The company boasts an annual employee turnover rate of around 10%, compared to an industry average of 100%
In short: Retailer of storage and organizational products with a renowned employee-first culture.
When speaking with Kip Tindell, it feels as if you should be sitting on a back porch swaying in a rocking chair, sipping some sweet tea while watching the sun set below a Texas sky, pondering the nature and purpose of life, until you remember that you’re speaking to the Chairman and CEO of a multi-million-dollar public company. But perhaps that’s what has brought Kip Tindell so much success. He brings his heart and his love for people to work with him every day and has created the hugely successful Container Store in the process. As a founding company of Conscious Capitalism, The Container Store is often looked to as a leader and example when it comes to stakeholder engagement and employee happiness. Kip spoke to us about the company’s legendary culture, his views on women in the workplace, and how paying employees better wages directly benefits his bottom line.
ON THE LEGENDARY CULTURE AT THE CONTAINER STORE
I’m very proud to be running a business where all of our decisions are made in accordance with our seven Foundation Principles, which really are the principles that are the underpinning of the quirky, yummy culture that is The Container Store. Our Foundation Principles are not just compatible with but are absolutely synonymous with Conscious Capitalism.
We’re very proud of the fact that we operate our business this way. It makes our employees incredibly proud. It makes our vendors incredibly proud. It makes, ultimately, our shareholders proud. I think the cool thing about Conscious Capitalism is that the universe conspires to assist you when you behave this way. If you’re an individual and you behave this way, you will have greater respect and love and admiration from other individuals. If you’re a company that behaves this way, your employees are fiercely proud of it and therefore their productivity is higher. You become your vendors’ best and, oftentimes, favorite customer.
If you look at the companies that best represent Conscious Capitalism, they have outperformed the S&P 500 Index by 14 to 1 over the last 15 years. That’s not 40 percent better. That’s 1,400 percent better! I think the reason is because the universe conspires to assist you when you are a Conscious Capitalist company and it’s a heck of a lot easier to succeed in business when everybody’s trying to help you than when everybody is against you, trying to hurt you.
ON THE EVOLUTION OF A CONSCIOUS CAPITALIST
We have always operated this way. The wonderful thing about starting a business is that you get to create the company’s culture around your own life view. I was always very taken with the notion that you can’t have one code of conduct for your personal life and then somehow have a looser code of conduct for your business life. When you hear people say, “You have to understand, it’s just business,” I’m like, “Oh no, I don’t understand at all. Are you going to treat the people you do business with worse than you treat the people in your personal life?”
The Foundation Principles come from this little file I’ve kept dating all the way back to high school of the greatest thoughts that I’ve ever been taught or read or even thought of myself. We’ve always been very aware of how we treat each other, how we treat a customer, and how to take care of our employees. If you’re lucky enough to be an employer, you have a great obligation to make sure your employees look forward to getting out of bed and coming to work in the morning.
After about ten years in the business, we opened a Houston store that was doing about triple or quadruple what we expected it to do and it was just mayhem. We couldn’t keep up with everything. We were hiring people who weren’t right. So, we had to formalize the Foundation Principles and begin to communicate them formally to this whole new staff. I thought they would all think it was overwrought or silly or something. Instead, they went crazy for them. They loved them and everybody in the company encouraged me to formally go through them with everybody on a consistent basis.
Thirty-five years ago, Herb Kelleher [co-founder of Southwest Airlines] told me, “Kip, you can build a much better organization based on love than you can with fear.” I was like, “Whoa. Who is this guy talking about love in the workplace?” These days, John Mackey and I are always talking about love in all of our speeches on Conscious Capitalism and finally people aren’t shocked anymore. The great thing is that eventually a good capitalist is going to adopt the methodology that is most successful. The skepticism is vanishing. Raj Sisodia and I gave a speech not long ago to all the business school deans in America. There wasn’t any skepticism at all on everything we had to say about Conscious Capitalism. These MBA program deans knew that this stuff is right and true. It’s not kumbaya. It’s not altruism. It actually does work better than any other form of capitalism. Business school deans understand that. The rather unsophisticated business people still have skepticism with Conscious Capitalism, but the more sophisticated ones do not. You still get old, crusty, Texas oil guys who are 80 years old who you can’t break through with, but what I’ve been delighted in finding is that people are beginning to believe it.
The Container Store only went public a little less than a year and a half ago. When we did our IPO road show, I was so thrilled to discover that what the giant investors of Wall Street wanted to hear from me most was about Conscious Capitalism and about the employee-first culture of The Container Store. I was afraid they would do the opposite. The good news for us and for anybody who loves and is determined to spread the word about Conscious Capitalism is that we’re making progress. I can’t tell you how different it is now than, say, five or six years ago when talking to people about this.
“It’s not kumbaya. It’s not altruism. It actually does work better than any other form of capitalism.”
ON WOMEN IN LEADERSHIP ROLES AND THE FEMINIZATION OF THE BUSINESS WORLD
I think it’s 23 of the Fortune 500 CEOs are women – 23 out of 500! There are only 20 US Senators who are women, out of 100. I think that women tend to make better business executives than men. I fervently believe that. I think it’s OK to say that because we’re nowhere near parity.
Men went off to World War II. They came back after the war, started businesses, and applied the leadership principles that they learned in the military to running those businesses. Now a couple of generations later, we’re finally to the point where we understand that that’s a terrible way to run a business. The top-down command structure is a horrible way to run a business.
In fact, “communication is leadership” is one of our foundation principles. You can’t discuss the feminization of American or global business without making some generalizations. So, forgive me as I make some generalizations, but women just tend to communicate better than men. Most people would agree with that. A lot of people might think that men are better on teams than women simply because we used to have more male sports teams, but women are a lot better on teams than men. Teams, particularly in business situations, are more mutually supportive with women than with men. Even on our board, the women are more nurturing than men.
Sixteen or so of our top 22 leaders [at The Container Store] are women. They keep me around because I helped start it [laughter]. Twenty years ago, I used to think that the next CEO needed to be the person with the highest IQ in the company. I no longer believe that. The social or emotional IQ is actually more important than the intellectual IQ, but the two are not mutually exclusive. We have a lot of key women in this company that I think are both quite a bit smarter than me and are vastly better at communication and social skills than I am.
I see the feminization of business taking place. Everybody assumes it’s going really well, but we’re actually going pretty slowly and it’s such a wasted resource.
Then I have my own views about the balance between family and work. You’re a better family member – whether you’re a mom or a dad – if you’re fulfilled in your life. In this culture, we put too much of our self-worth into what we do for a living and how we do at it – more than we should. If you have a person who works at a company that nurtures them and develops them and makes them feel great about themselves and evolves them upward on Maslow’s hierarchy of needs, they take better care of their children. They treat their spouses better. They treat the Golden Retriever better [laughter]. We think a lot about that at The Container Store. Every employee is somebody’s precious child, right?
I hear spouses saying, “The Foundation Principles have made her a better mother. It’s made her a better wife.” I used to be so embarrassed when they said that. I could hardly listen to it – it was too flattering of the company. I was embarrassed by it, but now I understand. One of the great things about Conscious Capitalism is that you have people out there treating all their stakeholders, which very much includes their employees, in a way that nurtures and develops them and advances them on Maslow’s hierarchy of needs and become better, more secure people. Then they treat everyone around them better.
If you can do that one company at a time – Whole Foods has about 40,000 employees and we have around 6,000 – if those people feel better about themselves and take better care of everybody around them because of it – that’s what we’re trying to do. We’re trying to build a business where everybody thrives and there’s nothing more important than that.
I’m very passionate about that. Good ole’ Milton Friedman so famously said, “Corporations exist to maximize returns for shareholders.” We’re like, “I know you won the Nobel Prize, Milton, but at The Container Store, we put the employee first and if we take care of her first before anybody else, she will take better care of the customer than anybody else. If those two people are really ecstatic, the shareholders are going to be ecstatic, too.” We’re very passionate about it. It’s not just me saying it. The employees will say it too. People join the company and they never leave. We do 263 hours of training in the first year; the average in the retail industry is eight hours of training a year. When you walk into the store and a person who has been there for six or 12 years is helping you solve your toy storage issues, they actually know what they’re doing and ultimately they take care of your toy storage problem.
“If you’re lucky enough to be an employer, you have a great obligation to make sure your employees look forward to getting out of bed and coming to work in the morning.”
ON HOW YOUR BOTTOM LINE BENEFITS FROM PAYING YOUR EMPLOYEES WELL
One of our Foundation Principles is, “One great employee could easily have the productivity of three good employees.” If you really believe that, why would you ever hire anybody who’s not great? It’s very much a meritocracy. We’re trying to find the greatest people we possibly can. Nobody’s overqualified – you wouldn’t believe the backgrounds of a lot of people that we have working. We try to pay 50 to 100 percent higher than the industry average. We’re paying great people that – I’m not in the habit of paying mediocre people well. You pay great people well.
The “one equals three” thing is pretty interesting. It allows you to pay somebody double, but you’re getting three times the productivity, so the company wins. The employee wins because she’s getting paid twice what somebody else might pay her. The customer wins because they’re getting this one-equals-three great employee giving them this Container Store legendary service, and the other employees win the most because it’s so much fun to get to work with people who you think are great. Perhaps the number one component of being a great place to work is that you feel like you work with other great people. It’s terrible to work with mediocre or lousy people. The image there is that we want to get out of bed, come to work in the morning, and do great things with really great people and then go home at night feeling wonderful about what we accomplished.
A bad boss doesn’t recognize what the human spirit is about because he or she assumes that all of the employees want to come to work, lay around, and do as little as possible. That’s not the human spirit. People want to do great things with other great people and feel really wonderful about it and do it again the next day.
We also inverted the pyramid. I make far from the industry average. Our other top people make below industry average. It’s an inverted pyramid in that the people closest to the customer make 50 to 100 percent above industry average. It’s hard to do that if you overpay the people at the top. I’ve actually averaged maybe 16 times the average worker’s pay over the last decade or so. Depending on which survey you’re looking at, the average [CEO pay] is 250 or 350 times the average worker’s salary, depending on how big of a company it is. Whole Foods has it capped at 19 times. John Mackey only takes $1 per year.
Our payroll philosophy is to really make sure that our average full-time salesperson in the store makes around $50,000 a year. That is not an enormous amount of money in this day and age, but it’s an enormous amount of money for a retail salesperson. It’s actually very close to double the industry average. I’m passionate about paying great people well and we believe that that is a profit strategy.
The first 25 percent of any employee’s productivity is mandatory – they have to do that much or they will get fired in any company. The next 75 percent of their productivity is voluntary. They only give that in accordance with how they feel about their boss, their products, their culture, and yes, their pay. We know from the Great Place to Work Institute that compensation is not the number one thing on the list when you survey employees about what’s important to them. Culture and other things come before that, but pay is important. It’s very important. Great people need to be compensated well and you’ll be more profitable if you do. I’m proud to be a big proponent of that.
ON MAINTAINING THE COMPANY’S MISSION THROUGHOUT THE IPO PROCESS
We fervently believe that the best way to take care of your shareholders is to take care of and to optimize all of your stakeholders. Ed Freeman is the father of the stakeholder model and he uses the term, “Harmonize the needs of all the stakeholders,” including the community, the customer, the employees, and the vendors. At The Container Store, you can’t tell the difference between a vendor and an employee. We’re famous for putting the employee first and taking such great care of the employee, but we do the same with the vendor and that’s what leads to the highest gross margins and the most innovative products.
If all you want to do is make as much money as humanly possible as quickly as possible, I would submit to you that Conscious Capitalism is the way to do it. What’s great is that more and more people are believing that and understanding that – more CEOs, more people on Wall Street – in fact, I think most people are beginning to believe that. It is certainly far from universal yet, but we’re all starting to talk about it.
I learned a lot about how to be a Conscious Capitalist public company by sitting on the Whole Foods board for the past eight or nine years. I talked to all of the public companies’ CEOs that I most admire in the country, and had fabulous conversations for several years before making this decision. I think our private equity firm was a little surprised that we wanted to go public. I think they were delighted that we did.
I think there are people like Jim Sinegal at Costco who have pioneered a lot of this. Sinegal has had these famous conversations with an investor who will say, “I think you’re overpaying your people,” and he explains why they’re not and that it is actually just the way that they do things. They pay their employees just under double what their closest competitor does and their financial performance is better.
The other thing that’s been so remarkable about our IPO is that it’s very hard to get stock in the hands of employees when you’re private. The only way to get stock in the hands of your employees when you’re private is for the owners to dilute themselves. Very few people understand that it’s better to own 50 percent of a dollar than 100 percent of a nickel. It’s just a concept that most people can’t grasp. Everybody claims to want to get more stock into the hands of employees, but when it comes time for them to get diluted, they’re hard to find. They usually have a spouse or a lawyer or an accountant who just refuses to let them get diluted.
The great thing about being public is that stock options and whatnot are kind of standard operating procedure. Right before the IPO, we were able to do some stock options that were very significant for our employees. Up to that time, we had been very deficient in that area. I’m very passionate about that and we were able to make up a lot of ground. The Directed Share Program, which is sometimes referred to as the “friends and families” of the IPO, had 14 percent of our IPO go to it, which was overwhelmingly employees and very beloved, long-term vendors. That was a very happy day for us. Take the most devoted employee in any company in America, you give them a little piece of the action, and they’re going to be even better. It makes the employee even more united with the shareholders.
What I’ve learned is that it’s not quarterly capitalism – it’s Conscious Capitalism. We always love to say that because we’ve managed to miss a quarter or two, and when you do that, you’ll see some impatience for sure. But we know that the best way to serve our beloved shareholders is by maintaining our culture that has driven the value of this company all along. We’re not going to change what has made us successful simply because we’re public. It would serve the shareholders poorly if we did.
“The wonderful thing about starting a business is that you get to create the company’s culture around your own life view.”
ON ADVICE FOR ENTREPRENEURS
My advice to young, budding entrepreneurs is do it now. If you’re just getting out of school, if you just got an MBA, or whatever, go start something. It’s the greatest thing in the world, but do it now while you’re young and poor because the minute you have a spouse and a kid or two and a six-figure income, you will never do it. You won’t leave all of that responsibility to start something. You’ve got to do it now.
Also, the true artist of life blurs the distinction between work and play. I don’t think I’m very balanced. I’m still working 70 hours a week after 37 years, but I love what I do. While Monet was painting “The Water Lilies,” was he working or playing? He was doing what he wanted to do. That’s what’s cool. That’s how you start a great business. That’s how you love it. Blur the distinction between life and play because building a business takes a lot of time and effort.
ON WHAT GETS HIM EXCITED TO WORK EVERY DAY
I think it’s about minding your wake. You make sure that you’re aware of the impact you have on the world and other people. You have more impact on your business and the people around you than you think you do. Everybody’s wake is much bigger and more powerful than they think.
Even though it’s kind of corny, “It’s A Wonderful Life” is my favorite movie. The whole movie is showing the incredible power of one guy’s wake. I think that’s a pretty good summation of Conscious Capitalism. You get individuals and whole companies to be aware of their wakes. A conscious company behaves differently from companies that are not aware of their wakes. Sometimes society pays for the cost of a good sold from an unconscious company. That’s wrong. If a company is mindful of its wake, it ends up being an unassailable business and has a competitive advantage over other companies.
If all you want to do is make as much money as possible as quickly as possible, this is the way to do it. Either way, it makes your life so much richer and better and your relationships with people so much more beautiful. I just feel like I’m one of the luckiest people in the world to understand this, to be operating a business that’s renowned for doing things this way, and I think its results are because of that culture. We started the business with $35,000 in 1978 and now it’s worth more than $35,000. I think it’s this yummy, quirky, wonderful culture that has created that value creation.
7 Foundation Principles
1 Great Person = 3 Good People
Communication IS Leadership
Fill the other guy’s basket to the brim. Making money then becomes an easy proposition.
The Best Selection, Service, and Price
Intuition does not come to an unprepared mind. You need to train before it happens.
Man in the Desert Selling
Air of Excitement!