The Rich Really Are Different
12:00 AM, Jan 24, 2012 • By JONATHAN V. LAST
Kahn came into the supermarket business the old-fashioned way: His parents—a pair of up-by-their-bootstraps Lithuanian immigrants—owned a wholesale grocery operation. After graduating from Harvard in 1937, Kahn took over the family business and turned it into Purity Supreme, a chain of supermarkets which included Heartland Food Warehouse, the first deep-discount supermarket in the country, as well as a successful chain of convenience stores called L'il Peach.
Star Markets and Purity Supreme were competitors, so Kahn and Stemberg knew of each other, but did not meet until 1977, when the two were guests on a local radio show. They became fast friends. Over the years they thought about going into business together and kicked around lots of concepts until, in the mid-1980s, a mutual friend, the Harvard Business School professor Walter Salmon, suggested that they try bringing the supermarket approach to non-food items. Stemberg and Kahn hit on the idea of office supplies.
And that’s just what they did. “The structural inefficiency is that the littler customers are serviced by the mom and pops, who buy in small quantities and sell in small quantities,” Stemberg explained to the Boston Business Journal before Staples opened its first store. “We’re going to buy the way the big guys buy and sell to the little guys. What you do is structure a more efficient system to distribute the goods—as opposed to a little van, you build a supermarket.”
When Stemberg and Kahn finally reached the venture capital stage, they toured around the Boston financial world and, by the historical accounts, greatly impressed the money men. In short order they raised $4 million and opened their first store in May 1986. Romney’s Bain Capital was one of the early investors. As it happens, Romney did not discover Stemberg and Kahn—a friend at another investment firm introduced him to the duo. And Bain was neither the first investor in Staples, nor the largest—its initial investment was $650,000. (The other initial investors were Fred Adler of Adler & Co., Bessemer Venture Partners, and Hambro Ventures.)
Staples was a brilliant success because of the passion of Stemberg and Kahn. The two men were obsessed with refining their business in the face of competition, and the stories of this obsession are wonderfully wacky. In his book on the history of Staples, Stemberg describes having his mother-in-law order products from Office Depot, and then take them back so he could study their returns process. He had his wife apply for a job at Office Depot’s delivery-office center so he could get a peek inside that operation, too. In fact, the entire Stemberg family was enlisted in his spy ring: He would often send his kids into local Office Depots with notepads to tally his competitor’s pricing so that he could avoid being undersold.
So how much credit should Mitt Romney get for creating the 89,000 jobs at Staples today? It wouldn’t be fair to call Romney and Bain just “dumb money.” Romney was in on the ground floor and he sat on the company’s board of directors (as did a representative from each of the other investors). And Stemberg has great fondness for Romney, graciously saying he should share credit for Staples’ success. In an interview with Parade, Stemberg even told a story about Romney being a source of inspiration for the company:
Yet ultimately, it seems a little strange to credit Romney with being much more than a smart early investor. That’s not nothing. Investment and capital are a very large part of entrepreneurial success—which is why investors reap large rewards when a business pans out. But still. A group of investors ponied up the $2.7 million needed to buy a group of restaurants from Richard and Maurice McDonald. Banker Ken Langone led a group of 40 investors to raise $2 million to start the Home Depot. And Mike Markkula gave Apple Computers the $250,000 it needed when it incorporated in 1977.
We don’t credit the jobs created by McDonald’s, Home Depot, and Apple to the money men. We credit them to Ray Kroc, Bernard Marcus, Arthur Blank, Steve Jobs, and Steve Wozniak. Because those men had the ideas, ran the operations, and assumed most of the risk. It’s unclear why we should regard Romney’s role with Staples any differently.
This doesn’t make Romney a bad guy. It makes him a wise investor—and investors are incredibly important. But the skills of an investor aren’t those we think of first when contemplating the presidency. If they were, Warren Buffett would be squaring off against George Soros every four years.
More importantly, Romney’s real skills differ in important ways from the ones he’s been advertising. Voters may sense this. And it’s one more reason why Romney hasn’t been able to close the deal with skeptical Republicans.
Jonathan V. Last is a senior writer at THE WEEKLY STANDARD.
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