Even great companies can lose their way when unexpected challenges arise, whether from external forces or internal missteps by management. A prime example of this is Tractor Supply Co (NASDAQ:TSCO), which faced a turning point when the business environment changed, and its focus began to waver. Once a thriving enterprise, it encountered setbacks that almost led to its downfall.
Charles Schmidt, the visionary behind Tractor Supply, had initially aspired to a successful athletic career but had to change his path after a severe injury. Undeterred, he turned his determination toward a business diploma but encountered failure in his first venture.
Nevertheless, fate smiled upon him when he entered the world of stock brokerage, catching the attention of two customers who saw his potential and offered him a chance in the wholesale automotive car parts business, including tractor replacement parts. It was within this venture that the idea for Tractor Supply Company took root.
In 1938, at the age of 26, Schmidt astutely recognized a gap in the market and envisioned a business that catered to frugal farmers seeking affordable tractor replacement parts. Inspired by the success of renowned catalog sellers like Sears, he set out to create a reliable and cost-effective alternative to the options provided by dealers and manufacturers. Schmidt’s vision materialized into a mail-order catalog business, employing a well-executed and highly targeted marketing approach. Surpassing all expectations, Tractor Supply achieved remarkable success in its very first year.
“Tractor Supply grew earnings at a rate of 23 percent per year and became a 100-bagger after just over 12 years.” Chris Mayer, One-Hundred Baggers
Driven by an unyielding pursuit of excellence, Schmidt made a pivotal decision—to expand beyond the confines of the catalog and establish physical stores. This expansion not only allowed Tractor Supply to capture a wider customer base but also provided a convenient shopping experience for those who may not have been reached solely through the mail-order catalog.
Schmidt had successfully tapped into a niche market. As Tractor Supply expanded its store footprint, diversified its catalog of parts, and welcomed staff members with firsthand experience in farming, the business thrived for three decades. However, this success faced a challenge when the consolidation of family farms resulted in a shrinking customer base for Tractor Supply’s traditional offerings.
To counter this trend, Tractor Supply underwent a significant transformation. It decided to rebrand itself as TSC, which now stood for ‘Town, Suburb, and Country.’ This repositioning involved broadening the range of products to include home appliances and women’s clothing. Additionally, TSC acquired a chain of sporting goods stores and Chicago discount stores. Unfortunately, with this expansion and loss of focus, the business began to lose its way.
In the midst of the conglomerate craze that swept the 1970s, Schmidt was made an offer from National Industries he couldn’t refuse. National Industries was later acquired by Fuqua Industries. This transition introduced conflicting corporate objectives and starkly contrasting cultures into TSC’s operations.
The once-thriving employee bonus plan was discontinued, decision-making became centralized, and short-term profits took precedence over long-term stability. The relentless drive to expand the number of stores to please Wall Street exceeded the company’s financial resources and infrastructure.
As a result, key members of senior management and dedicated employees began leaving the company, resulting in a detrimental loss of valuable expertise. TSC faced significant financial challenges, hemorrhaging cash and struggling to maintain its operations.
Ultimately, Fuqua decided to dismantle TSC, selling off retail chains, downsizing staff, and relocating the headquarters closer to the heartland of rural America. A risky expansion into building materials nearly pushed the company to the brink of bankruptcy, leading to the intervention of Tom Hennesy, Fuqua’s liquidator.
Instead of giving up on the business, Tom astutely recognized its potential and took decisive action. Teaming up with a group of colleagues, he made the bold move to acquire Tractor Supply from Fuqua via a leveraged buyout. Together, they embarked on a mission to rediscover the very foundations that had fueled the company’s initial success, rekindling its core strengths and values.
The remarkable story of Tractor Supply Company is skillfully recounted in Nelson Eddy’s book ‘Work Hard, Have Fun, Make Money.’ Within its pages lie a collection of inspiring quotes that resonate deeply with many of the other great companies featured in previous posts. Here are some of my personal favourites:
Business is People
“Don’t be misled, the Tractor Supply story isn’t really about catalogs or stores. It’s a people story. It’s a story about the power of vision and enthusiasm and hard work and people.”
“It all begins with people – Culture, mission, values, and passion.”
“Simply stated, the character of Tractor Supply at its best and its very worst is and has been determined by the character of its people.”
Simplicity and Common Sense
“What makes Tractor Supply so successful, now and when it first started. Simple, common sense stuff. But there’s nothing so uncommon as common sense and nothing so complex as sticking to the simple stuff.”
“Tractor Supply has been successful because it kept things exceedingly simple. From the simple name Charles Schmidt gave the company to its straightforward customer service policy – ‘do whatever it takes’ – everything is plainly stated. Sure, it’s employed a lot of complex technology and research, analysis, and brainpower along the way, but it’s all been in an effort to keep things as simple as sunshine.”
“Often it’s the simplest of things that are the most difficult to do…and the most worthwhile in the end.”
Fill a Need
“Tractor Supply has been successful – at its onset and today – because it understood its mission, the place of importance it held in the lives of its customers. It has been an enabler of a self-reliant lifestyle. Whether it was the farmer with a broken-down tractor in the field and in need of a part before the harvest was lost or today’s hobby farmer in need of a little advice from a friend who’s a bit more seasoned when it comes to stretching a fence tight.”
Incentives and Sharing the Wealth
“Charles Schmidt used money to motivate. But he never viewed money as the goal of business, it was the tool to reaching the goal. He used the money as a tool to motivate and reward the hard-working people who were so critical to making his kitchen table reverie a reality. Bonuses, profit sharing, setting aside pension funds were all important elements in keeping the company’s drive going, its employees motivated.”
“When it was founded, Tractor Supply was a business with a family feel. It still is today.”
“In every sense of the word, it was a family company.”
“But as important as spreading the wealth was, we cannot overlook the significance of the personal gestures, letters, and notes that accompanied the checks. There was a bond here beyond money – a family tie.”
Mission and Values
“We’re now a Fortune 1000 company. But history is littered with the names of companies who reached the Fortune 1000 only to fail miserably. In most cases, they failed because they lost sight of what got them there in the first place. They lost sight of their mission and values. They lost sight of the culture that made them successful.”
“Charles Schmidt’s management style was one of the things that really separated him from the rest. He didn’t just make a decision and say we’re going to do A versus B. He would think in terms of what decision A would mean to the next series of decisions. Sometimes you end up getting surprised.
When you’re making a decision and don’t think all the way through the problem to determine the effect, how one decision changes the whole environment you’re working in, and how that affects the next decision you have to make.”
“Schmidt kept thinking you can always make it better.”
“Charles Schmidt mixed his ability to see and seize an opportunity with his natural ingenuity and desire to constantly tinker with things. Good was never good enough. Though he never set foot on a farm, Schmidt did share the farmers’ tinkering spirit and ingenuity.”
Autonomy and Trust
“Trickle Down Trust – Schmidt’s management style would create amazing loyalty. Along with sharing the company’s successes, Schmidt encouraged individual initiative. Once he had good people in place, he let them work and make their own decisions without second-guessing them. He trusted them. Trust is not just a founding principle at Tractor Supply, it’s a foundation principle – a principle that’s trickled beginning with the man who began the company.”
“If Schmidt hired someone and they made a decision, he would stand behind it and back them up”
“Charles Schmidt was fiercely loyal to his people. He always felt that if there was a problem with the actual decision someone else made, he would deal with that person one-on-one later. In public, he would stand behind the person.
This gave the people who worked with him tremendous courage to make bold decisions when they needed to, because they knew they weren’t gonna be Monday morning quarterbacked or criticized for the decisions after-the-fact by their boss. It was the perfect management style to lure the independent-minded people who’d left the farm to go to war and would soon return home at the close of the conflict.”
“The future success of Tractor Supply might best be summed up in that single phrase – getting out the way. Tractor Supply’s success in the future will be based on the speed with which its leadership can get out of the way to let the team serve a growing number of customers who, themselves, long to return to out-of-the-way places. Everything is just a matter of ‘getting out of the way,’ ‘doing the right thing,’ and ‘working hard, having fun, and making money.’”
“Local Company personnel in the branch stores are authorized to make adjustments and exchanges where called for rather than to refer complaints to the Company’s manufacturing source.
Don’t let that last sentence just slide by. Local stores were authorized to act on their own when it came to making sure the customer was treated right. It’s an early echo of the sign that hangs in every Tractor Supply store today, reminding team members and their customers that ‘every team member has the authority to do whatever it takes.’”
“There are a lot of guys out there who are smarter than I am, but they’re only giving it 70 percent and I’m giving it 100 percent. There’s nobody whose 70 percent is as good as my 100 percent. You can come out on top of people who are a lot shrewder and smarter than you as long as you’re giving it everything you’ve got.” Charles Schmidt
Exceed Customer Expectations
“Speedy service and a ready inventory during times of crisis helped build Tractor Supply’s reputation among its many loyal customers.
“Satisfaction Guaranteed – Two promises have always been a part of Tractor Supply – value and satisfaction. The 1940 catalog is a perfect illustration of this. The cover proclaims – You Save When You Buy from Tractor Supply while on the very first page, it plainly states ‘Any unsatisfactory item will be exchanged promptly.’”
“Tom Hennessey believed in doing whatever it takes to make the customer happy.”
Value & Reward Employees
“‘Our focus is people,’ said today’s Chairman Joe Scarlett. ‘Our people first, the customer second, vendors third, and our communities fourth. We don’t focus on the investor because if we center our energy and attention on our team members, customers, vendors and the communities where we do business, then we’re going to have good results. Wall Street will take care of itself,’ Joe explained. ‘Their primary interest is results. And we’ll get the results they’re interested in only if we focus our attention on the key elements of the business.’”
“‘The more bonuses people make, the better the company is doing.’ said Joe. ‘We love that. The more money we pay out in bonuses, the better everyone is doing.’”
“The importance of the store team is highlighted in the company’s culture in numerous ways, like the company’s language. Tractor Supply began calling them associates and that has since evolved into the designation of ‘team member.’ It’s more than words: Tractor Supply puts its money where its mouth is.
When the company was privately held by the Gang of Five (after LBO from Fuqua), they offered an employee stock ownership plan to team members. Since 1981, Tractor Supply has had bonus plans in place for everyone in the company. At the store, if you make your store’ sales plan, you get a check. It could amount to an extra day or two of pay every month.”
“‘I have a philosophy that companies – good companies – are filling a bank account with good will with their employees all the time.’ said Jim Wright (CEO 2004-2012). ‘What happened with the Quality acquisition is that for many years Joe and his team had done that, kept continually filling the accounts with good will so that we could make a huge withdrawal when we needed to…
Most companies fail to build that foundation of good will to create reserves of energy and intellect that can be tapped. Too many companies whip their people all of the time only to whip them harder when they have a challenge.’”
“We want to make Tractor Supply a great place to work and a great place to shop. Note the order – a great place to work first. If it’s a great place to work, then our team members will create the environment, uncover the products, and provide the legendary service that will ultimately make it a great place to shop.”
“Tractor Supply has shared its success with the folks who make the register ring on the store floor, whether with stock or bonuses made available to everyone in the company.”
“Any complaint [is] an opportunity to demonstrate the lengths to which Tractor Supply will go to satisfy its customers and personify the ‘Legendary’ in legendary service.” We don’t want to hear about a complaint in [Headquarters],” said Joe. “If we hear about a complaint in Nashville, it means the store lost an opportunity.
There’s a statistic in the hotel business that says that if a guest complains because something isn’t right and you fix it quickly, you get higher satisfaction ratings than if everything was fine to begin with. A person with a complaint tells ten friends while a person with a good experience only tells one.”
“[Early advertising stated,] ‘Check among your neighbors – You will undoubtedly find many who deal with us. They’ll gladly tell you how reliable they have found us.’ To prove the point, this third edition of the Tractor Supply catalog was laced with customer photographs and testimonials. The salt-of-the-earth accolades run the gamut from ‘well satisfied’ to ‘very satisfactory’ and came from impressive agricultural hot spots such as Gordon, Nebraska, and Velva, North Dakota.”
“[Early advertising proclaimed,] ‘Our Famous Service’ and ‘Our Reputation For Fair Dealing’ and proclaimed ‘Over 100,000 Repeat Customers.’”
Inverted Management Structure
“People are the driving force behind Tractor Supply and the people in the stores are the backbone of the company. Over the last twenty-plus years, Tom Hennesy and then Joe Scarlett worked hard to flip the company’s organizational chart. To put at the very top, in the chief role, the people closest to the customer – the team members in the stores.”
“At Tractor Supply, we turn the organizational chart upside down,” says Wright. ‘I work for all the people in the stores and distribution centers. They pay my salary; in fact, if those in the aggregate do not earn a bonus, neither do I.’”
“The most important thing the people in the Tractor Supply Store Support Center give their team members is…their ear.”
“We strive to be the world’s best listeners. We try to create an environment where everybody can speak up.”
“Tom Hennesy believed in listening, listening to the customer and the people closest to where the action is: the people at the store level.”
“The most important ears in our company are the store managers and their crews.”
“Tractor Supply values people. Customers and team members. It listens to its customers and, because customers just have a way of knowing they’re being listened to, those customers keep calling, writing, e-mailing, and coming back. It empowers its team members to listen to the customers as well and to ‘do whatever it takes” to make things right.’”
“We encourage our people to be entrepreneurs, from the management to team members in the store.”
Ideas at the Edge / Walking the Floors
“‘Those closest to the work are the people who know the most about it,’ explained Joe. ‘Therefore, we’re in the field a lot. We can’t manage from the Store Support Center. I’ll visit 150 stores every year.’”
“Tractor Supply has thrived because of its open door policy when it came to ideas and the exchange of ideas. Charlie Schmidt had his morning coffee with his brain trust and Joe Scarlett has his coffee on the road with management team in tow as they pick the brains of everyone from team members and customers to competitors as they drive across the country.”
“The best retail ideas are never born behind a desk. They’re born on the road, on the store floor, where the customers are and the real action is in retailing.”
“‘Tom Hennesy came in and, instead of talking to people like me, he talked to the store managers and the district managers,’ said Joe Scarlett. Even more than twenty years after the fact, Joe’s voice is still touched with a bit of wonder at the sheer simplicity of what Hennesy did – simple, yet powerful. ‘He talked to people in the field and he said, What’s wrong?‘ And he listened to what they had to say, listened for a month or two and then said to all of us, ‘We have two problems.
We’re confused, and we don’t have any inventory to sell?’ “So first of all, he said, ‘Buyers start buying the goods, putting the inventory back in the stores and start taking care of the customers. And, second, he said to everyone in the company, we’re going to be a farm store chain,’ remembered Joe Scarlett. We’re farm stores. Here’s the merchandise. Get out there and sell it.”
“Because of its simplicity on the surface, it’s easy to overlook the significance of what Tom Hennesy did in those first few months at Tractor Supply. He didn’t suppose that he had the answers. Even though he had a wealth of experience at a host of different companies while working all those years with Fuqua, he didn’t assume that he knew more than the people closest to where the business of retailing really takes place – in the stores.
He began leading by listening. ‘I knew nothing about the retail business or about farming,’ Hennesy said. ‘I interviewed every manager and asked them the same question – ‘What’s wrong?’ Hennesy’s approach sent a powerful message. Not only to the people in the field but also to the people at the home office.
Hennesy – through actions rather than edicts – sowed the first seeds from which would blossom the company’s new culture, a culture that fostered open dialog and thought, a culture where ideas could be shared and everyone is empowered to have ideas and work to make the company better, a culture in which the customer was truly the organization’s reason for being and disappointing the customer by being out of stock or not providing exceptional customer service was considered a cardinal sin. Doing the right thing – for customers and for fellow team members – was a Hennesy mantra at the heart of the company’s reemerging culture.”
“Joe Scarlett, himself, is in constant motion. He’s everywhere – visiting approximately 150 stores every year. He just never stops. He’s always taking aside anyone he can find, wherever he can find them, to share the company’s mission and vision.”
Innovation, Change and the Palchinsky Principle
“At Tractor Supply, we embrace the Intel practice stated by Andy Grove – ‘Fail often, early, and cheaply.’”
“To that end, we constantly test new items or lines. Hundreds of products are in perpetual testing. Some tests may be in five, ten, or fifty stores. The success of those products will be determined by our customers.”
“Yes, there are certain risks associated with getting bigger. But the risks are even greater if we were simply trying to maintain the status quo. Or as Joe would say, ‘If it ain’t broke, break it. Break it and make it better.’”
“Today’s Tractor Supply relies on new technology, new retail philosophies, new distribution systems and merchandising techniques, and a new breed of executive. It’s interesting to note that many of these elements were missing when the company floundered during the ’70s. They’re the basic elements. If they’re missing, it doesn’t matter how good your product or your pricing your business just won’t work.”
Promote from Within
“Fueling the fire within – Hennesy first surprised Tractor Supply employees when he determined to save rather than sell the company. Then he surprised them again with something that proved to be a powerful move in terms of building loyalty within the beleaguered company. He promoted from within.
Unlike his immediate predecessor, Hennesy didn’t bring along with him people he’d worked with other places or from elsewhere in the Fuqua organization. Given the performance of Tractor Supply at this point, he would have been more than justified in cleaning house. But he didn’t.”
Do the Right Thing
“We talk the talk and we walk the walk. Our number one value is Ethics – Do the right thing and always encourage others to do the right, honest, and ethical things. It is our pledge to you that Tractor Supply will always ‘Walk the high road’ – always strive to make the most ethical business decisions.”
“Ethics beyond reproach and doing the right thing have not always been the given at Tractor Supply. But the company has done its best when its character was the very best.”
“Tractor Supply has a history of hiring its customers.”
“Doing whatever it takes at Tractor Supply also means hiring the kind of store people who know what it takes, which in many cases has meant hiring the company’s customers. ‘One of the greatest compliments we receive from our customers is they want to work here,’ said Joe with obvious pride.
Customers make the very best team members and every one of our stores has farmers, ranchers, welders, and horse owners on staff. In fact, more than half of our team members throughout the company are farmers, ranchers, welders, and horse owners.”
“The company sees bringing aboard good people as the heart of what will ensure its success for the future. Tractor Supply was and is successful because it hires its customers. Early on, Charles Schmidt appreciated the wisdom of hiring all of the farm boys when they came hack from the war.”
“There’s plenty of opportunity for the future. Opportunity is not the challenge. Ensuring that all of the new team members we will hire stay true to our mission and values as we go about seizing that opportunity is the challenge.”
“We must recruit and reward team members at all levels. Good and passionate people who embrace the culture and our core values. Once again, company culture is the standard against which Tractor Supply will grow its people.”
“There’s a 20/60/20 rule at work here,” says Wright. ‘Twenty percent will readily get it and adopt the culture. Sixty percent will eventually get it. And twenty percent will resist it and may, in fact, sabotage it.’ Many companies make the mistake of trying to win over resistors. But the resistors need to be ferreted out and sent packing. The time that would have been devoted to them is far better spent praising the early adopters.
“If a manager doesn’t fit our culture, we talk, coach, and provide a chance for change. If there’s no change, then we release the individual to be successful somewhere else. We do this regardless of how strong the individual’s performance.”
“Hiring to culture also puts team members in a better position to live up to their shared mission of working hard, having fun, and making money.”
Culture & Stories
“The Tractor Supply story is such a remarkable and compelling one because it is the story of a brand and a culture and a business that has proven itself by being successful…twice.”
“Beyond the obvious differences of size and scope and sophistication between the store as it began back in 1938 and as it is today, there are some powerful similarities in the principles at work, then and now. Principles and a culture that appear to have been abandoned when the company collapsed as a part of the conglomerate culture of the 1970s.”
“At Tractor Supply, we know where we came from. We will remain humble, frugal, and passionate. We’ll stay true to who we are and tightly focused on what we do.”
“While the company’s mission, values and core business will remain consistent, other things will continue to change at an increasingly accelerated rate.”
“What got us to $1 billion is the same thing that will get us to $2 billion and beyond – our values, our culture and our passion. That’s our foundation, and it’s strong enough to support a far bigger company than we are today.”
“‘At sixty-five years, we’re really just an adolescent in terms of our development,’ Wright explains. ‘We were a very small, conservative company for a long, long time. It gave us time to build a company and forge a culture.’ In fact, it gave the company time to forge that culture not once, but twice. Only in losing hold of it once was its value realized.
Sustaining that culture, holding onto that one precious link to the past, is the critical first step in the future of Tractor Supply. ‘I don’t think people realize how fragile a culture is and how important it is to sustain a successful culture once it is in place.’ Wright says. Ours has been a springboard to our recent success and will only grow more important as the number of stores and team members, increases and our speed to market accelerates.’”
“The folks at Tractor Supply love to share stories. The company’s oral tradition is a natural given the fact that folks who live on the land welcome stories. And at Tractor Supply, sharing stories has become an important part of the company’s culture – through e-mail, voice mail, speeches, annual reports, the company’s intranet and Internet sites, the pages of the internal news-paper.”
Tone from the Top
“Culture is fragile and the team is always looking to its leaders to see if they blink.”
“Joe is a very inspirational leader. You know, a lot of CEOs of billion-dollar companies fly in private airplanes, go into a store in a suit and tie, and give the store a white glove finger test and intimidate people who work in the store. Not Joe. I mean, Joe comes in a Ford rental car, and he wants to speak with every team member who’s in the store. He asks them their background, he talks to them, he takes notes, and he remembers people. And it’s all genuine.”
“Wal-Mart and Southwest Airlines are the two companies that Joe most admires. Their cultures and business approaches struck a chord with him early on. ‘We’re real students of Wal-Mart,’ Joe said.”
“Tractor Supply is deeply tied to American culture. Its recent growth has mirrored a cultural phenomenon in the country – the return to traditional values and the land and a renewed interest in the things that live on the land. For farmers, ranchers, hobby farmers, rural folks, and horse people, Tractor Supply seems to have become the unofficial home office for the self-reliant lifestyle.”
“Tractor Supply has never taken itself too seriously and has always known how to have fun. Fun filters its way throughout the company.”
“Having fun was part of Tractor Supply’s early company culture. It still is.”
Under the Radar
“Tractor Supply, at its best both in the beginning and today, has been successful because it’s hitched its star to a niche. It did what it did better than anyone else. It’s stayed ‘out of the headlights of the big box retailers,’ as Joe likes to say. Tractor Supply was making money in its first months of operation because Charles Schmidt had discovered a niche.”
“[Tractor Supply] continues to be successful today because Joe and the team continue to develop, explore, re-invent, tinker, test, but always within an understood and defined niche. In fact, the company lost its way when it tried to be everything to all people instead of being more and more what people had come to rely on from its farm and ranch store friend.”
Tractor Supply’s story underscores essential principles: maintain focus on a defined niche, empower employees, listen to customers, and embrace continuous innovation. Its success as the largest rural lifestyle retailer in the U.S. is a testament to the power of culture and values in driving long-term growth and customer loyalty.
Businesses and investors alike can draw inspiration from Tractor Supply’s journey and learn that staying true to their core strengths and values is the key to overcoming challenges and achieving long term success.
Source: ‘Work Hard, Have Fun, Make Money.’ Nelson Eddy. 2004.
Further Reading: ‘Tractor Supply: A Portrait of a Compounder as a Young Company,’ Eagle Point Capital, 2020.
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