Progress Begins With a Thought

The next time you buy a heavily discounted item online or in a store, you might pause to remember one of the pioneers that made it possible for you to save so much money. Eugene Ferkauf was one of America’s great entrepreneurs. He died earlier this month at the age of 91.

Ferkauf’s story helps to teach an essential truth: Progress begins with a thought. Nothing happens until someone has an idea.

Reflecting on his own experience, the famed entrepreneur and inventor Clarence Birdseye found that big ideas come from simple observations: “I do not consider myself to be a remarkable person. But I am intensely curious about the things that I see around me. And this curiosity, combined with a willingness to assume risks, has been responsible for such success and satisfaction as I have achieved in life.”

Ferkauf’s career, too, began with observing things he saw around him. Shortly after World War II, Ferkauf and a childhood friend opened their first E.J. Korvette’s store. Merchants at the time were still bound by state “fair-trade” laws.  Under a fair-trade law, once a single merchant in the state agreed to sell a manufacturer’s product at the list price, every other merchant in the state was legally bound to sell the same product at the same price.

E.J. Korvette stores didn’t begin because the partners had a lot of capital or because they had a lot of merchandise. The stores came into being because Ferkauf had a thought (radical at the time):  “What would be the result if I began to discount the goods I am selling?” Ferkauf had both the courage and persistence (in the face of legal obstacles) to act on his thinking.

Ferkauf’s entrepreneurial genius was to find a way around such laws that were coercively prohibiting commerce and stifling retail innovation. E.J. Korvette survived not only hundreds of lawsuits filed under fair-trade laws but also attempts by manufacturers to cut off the supply of goods to the chain. What emerged was America’s first chain of discount superstores.

In a 1962 Time Magazine story, “Malcolm McNair described Ferkauf as one of the six greatest merchants in U.S. history, a group that included Frank Woolworth and J.C. Penney.”

Ferkauf on the cover of Time in 1962.

Of course, the same entrepreneurial genius that lived in Ferkauf was alive in others; and by the 1980s,  E.J. Korvette gave way to other retailing chains which found still superior ways to serve the consumer. Indeed, entrepreneurs who in time surpassed Ferkauf first learned from Ferkauf. Ferkauf’s entrepreneurial model was studied by entrepreneurs, including Sam Walton the founder of Walmart and Harry Cunningham the founder of Kmart.

Retailing has changed since Ferkauf’s era, but what hasn’t changed is the misuse of government to resist retail competition. Incumbent merchants in many towns fight against the opening of Walmart in their community, and many demand that Amazon collect sales taxes in order to “level the playing field.” Of course “leveling the playing field” is code for having government intervene to favor one group of merchants over another.

Entrepreneurs, too, work to tilt the playing field. But as the Ferkauf story shows, an entrepreneur’s success is dependent on tilting the playing field in favor of the consumer and away from incumbents.

In her essay “Entrepreneur as Hero,” Candace Allen helps us to understand the growing hostility to successful entrepreneurs:

There are several reasons why entrepreneurs are more likely to be castigated than celebrated. One major reason for the castigation of successful entrepreneurs lies in the political bias against them. As government control over the economy has grown, so has the incentive for politically influential interests to disparage entrepreneurs. Few, if any, economic forces are more disruptive than entrepreneurship. Successful entrepreneurs make bold leaps that break contact with the familiar and leave behind a clutter of obsolete products and processes…

Ferkauf did indeed leave behind obsolete ways of merchandising. I grew up in the Bronx, and my wife grew up in Minnesota just over the North Dakota line. Yet we both remember a very similar experience: At the end of summer, as we headed back to elementary school, our parents took us to the local clothing store to buy us a few items of clothing and a pair of shoes that would last us for the whole school year. There was no shopping as we know it today. Today, even a family of modest means can outfit their children in new clothes from Walmart several times a year.

In his book Recapturing the Spirit of Enterprise, George Gilder wrote:

The belief that wealth consists not in ideas, attitudes, moral codes, and mental disciplines but in definable and static things that can be seized and redistributed is the materialist superstition…It baffles nearly all conglomerateurs, who believe they can safely enter new industries by buying rather than by learning them. Capitalist means of production are not land, labor, or capital but minds and hearts.

Gilder is correct, “minds and hearts” are the critical ingredient. Progress always begins with a thought and the courage to act on our ideas.

Leave a Reply