An Adlerian Way of Doing Business

The Sunday Novemeber 23rd issue of the San Francisco Chronicle, carried this news story:

Schwab says he doesn't coach his people to run the way they do. His company's strategy is simple but unparalleled in American big business: He gives half the profits-yes, half-of each store to the employees who work in it.

"On an effective level the company has no employees, only partners," says Robert Harris, a history professor who retired to Prineville and wrote a research paper on Schwab. "There is no room in this pattern for the idler because his indolence cuts the income of his fellow employees."

Harris' observation is borne out in the financial profile of the company, which has stores in Oregon, Washington, Idaho, Montana, California, Nevada and Alaska:

- Schwab's total value, according to an estimate to be published in Forbes magazine this fall, may be as high as $500 million.

- The company is debt-free, has no unions and no labor problems.

- Annual sales, which double every five years, will exceed $800 million this year and will almost certainly top $1 billion by 1999.

- Ten to 15 more Schwabs open annually, making the current total 280. There are about 5,300 fulltime employees in both company owned and dealer-owned stores.

Schwab voices disbelief that no other large company has "the guts" to share profits the way he does. "Why be greedy? If I can help make 20 young people become successful, doesn't that make me 20 times more successful?"

Executives of Michelin, Bridgestone and Goodyear have visited tiny Prineville to court Schwab, who is 80. But Schwab says that after he and wife Dorothy, 79, are gone, "It will go on, bigger and better than ever, and continue to provide opportunities for young people to be successful. All the stock will remain in our family."

He started in 1952, buying a down-on-its-luck O.K. Rubber Welders shop in Prineville that had one employee and a yearly gross of $32,000, which came from retreading tires, fixing flats and selling new tires on consignment.

During the next year, the little shop grossed $155,000. It was the start of what countless business schools and management consultants now hold up as the best example of creative innovation in retailing since the late J.C. Penney. Schwab concluded that among tire buyers, trust in the dealer was far more important than the brand of the tire, and that he could capture the local market through sheer honesty and superb customer service. But he couldn't make a decent profit with a franchise from the big tire companies, so he decided he had to buck them and go independent, buying tires from overseas if necessary.

From the start, the gutsy entrepreneur realized he couldn't achieve his vision without a lot of help. But how could he get hired hands to hustle and win over customers the way he could?

That was the genesis of his profit-sharing program. Along with it came his ground breaking openbook management program, giving employees access to financial statements and ledgers that most companies keep closely guarded. "How," Schwab says, "can you expect men who work for you to help build your business if they don't know how it's run?"

Schwab doesn't have recruiters scouring the country. He promotes from within. Every employee starts in the tire shop. The typical new hire is ambitious, without the means to go to college. Schwab says such a young person entering the company today, working his way up to store manager and staying through retirement, can expect to go out a millionaire.

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