Selva Book Club: Becoming Trader Joe by Joe Coulombe
The below is taken from Selva Ventures’ Q2 2022 Quarterly Investor Letter
This section of our letters will take passages from a relevant investment or business book and share learnings and reflections directly related to Selva.
The fifth installment was inspired by the industry that we invest in. We have long admired the role of the retailers in our ecosystem. Reading Joe Coulombe’s story was a great exploration of how Trader Joe’s came to be, with some great entrepreneurial lessons along the way.
Passage: Time and again I am asked why no one has successfully replicated Trader Joe’s. The answer is that no one has been willing to pay the wages and benefits, and thereby attract — and keep — the quality of people who work at Trader Joe’s. My standard was simple: the average full-time employee in the stores would make the median family income for California.
The decision of Trader Joe’s to pay their employees a fair and livable wage was honorable, the insight that it could improve guest experience and therefore performance was powerful, but its the conviction to make such a contrarian and expensive investment that impressed me so much. Grocery retail has notoriously thin net margins — the thought of flexing up a key fixed cost would turn the stomachs of many operators. The lesson that a talented team and motivated culture can be the difference even in industries that you wouldn’t expect helps teach my favorite lesson of the book: people and culture really can be your moat.
Passage: My point is that a businessperson who complains about problems doesn’t understand where his bread is coming from. So by hairballs I don’t mean those fundamental issues such as demand, supply, competition, labor, capital, etc., which create the matrix of a business. By hairballs, I mean those wholly unnecessary thorns that come unexpectedly.
I really can’t stand when people say: “that category is tough”. I’m tempted to use it at times and need to catch myself, because it flies in the face of my belief that solving hard problems is what creates value. Joe lays this out well here, articulating that your “hairballs” — specifically your ability to deal with hard problems that arise in service of your customer — are the reason for your margin. If your business were easier then your advantage would be competed away. I remind myself now, before dismissing a category as too hard, that if I had more conviction in the product, brand and entrepreneur then the difficulty of the category would be an asset.
Passage: If you adopt a reasonable strategy, as opposed to waiting for an optimum strategy, and stick with it, you’ll probably succeed. Tenacity is as important as brilliance.
Entrepreneurs face constant ambiguity, which can be paralyzing. It can be tempting to spend so much time strategizing and planning within the comfort of the ivory tower, but often the best thing to do is lay out the core issues that matter and chart a path that makes sense. It surely will need adjustment but giving it enough time to play out and learn from pays off. One of the things we constantly remind ourselves of at Selva is “don’t get stuck”.
Passage: The fundamental job of a retailer is to buy goods whole, cut them into pieces, and sell the pieces to the ultimate consumers. This is the most important mental construct I can impart to those of you who want to enter retailing. Most “retailers” have no idea of the formal meaning of the word.
I liked this passage not only because it’s an elegant definition of a retailer, but also because it’s a good reminder to ask yourself what business you really are in. We often default to what competitors are doing to take shortcuts on ambiguous decisions (this is with good intention, to avoid getting stuck). Still, Joe’s first principles thinking built TJ’s into such a unique retailer, which was much more aligned with the word than his competition.
Please drop a comment on what you think of the format and what suggestions you have for future books. Next quarter’s book will be Little Black Stretchy Pants: Story of lululemon by the Founder, Chip Wilson.
