In auditing the invoices, Romney discovered that the companies were spending about twice what they had estimated. "We thought the savings could mean a lot to them," he says, "but Staples would have to educate potential customers." It helped that Romney saw himself as a customer; he calculated that his firm would save $117,000 a year by purchasing supplies at the discount that Stemberg promised.
For venture capitalists dying from the tedium of disk-drive start-ups, Stemberg's idea was new and sexy. As the business plan circulated, dozens of offers poured in. Stemberg turned most of the suitors away, accepting $4 million in the first round and $31 million in three subsequent rounds. Money in hand, he opened the first Staples store on the outskirts of Boston in May 1986 and the second six months later.
With the promise of sufficient capital, Stemberg could begin the crucial task of assembling a management team capable of growing the company. Stemberg's own strength was in marketing, developed during a 12-year career in the supermarket industry. A Harvard Business School graduate, he had started in the management-trainee program at The Jewel Cos. in 1973. Jewel placed him at Star Market, its supermarket division in the Boston area.
Henry Nasella, who is now president of Staples, remembers meeting Stemberg at a Star Market that Nasella managed. Stemberg was reporting for his first day of work. "He came in 15 minutes late, his hair too long, his tie over his shoulder, his shirt hanging out the back of his pants," says Nasella. "I thought, 'What in the world do I have here?' " What he had was a man who would cut cabbage and bag groceries, learning the business from the shop floor.
As Stemberg rose to the top sales and merchandising position at Star, he came into conflict with Leo Kahn, one of the country's leading supermarket entrepreneurs. Kahn had started the Purity Supreme supermarket chain in eastern Massachusetts in the late 1940s, and as inflation ravaged consumers in the early 1980s, he founded Heartland Food Warehouse, the first successful deep-discount warehouse supermarket in the country. Stemberg and Kahn fought their marketing battles relentlessly. At one point, Kahn ran ads guaranteeing his customers would get the best price on Thanksgiving turkeys. Stemberg parried with his own ads promising Star would match the lowest advertised price on turkeys. Technically, that made Kahn's claim untrue, a point Stemberg made to the Massachusetts attorney general's office. Kahn pulled his ad.
In 1982 Stemberg joined First National Supermarkets Inc., in Windsor Locks, Conn., and the next year became president of its ailing Edwards-Finast division. To build market share, he got into the warehouse food business himself, copying Leo Kahn's Heartland chain. By the time he left in January 1985 -- fired over "differences in management philosophy" -- Edwards-Finast was profitable.
Fortified by a year's severance pay, Stemberg searched for a job and thought about businesses to start. That's how he found himself a few weeks later walking down the office-supply aisle of the discount warehouse club in Langhorne, Pa.
Excited about the possibility of starting his own office-supply chain, Stemberg called on his old adversary Leo Kahn, who had just sold Purity Supreme and Heartland to Supermarkets General Corp. for $80 million. Despite their battles, Kahn agreed to back him in a new venture and put up $500,000 in seed money. "I had a lot of respect for him," Kahn says. "He was very aggressive, an excellent businessman."
Stemberg's union with Kahn was the first glimmer of his philosophy of building a management team. It wasn't enough to find good people; to minimize the potential for conflict, Stemberg insisted that they be colleagues or acquaintances who had shared the same corporate culture.
As officers, Stemberg recruited aggressive managers whose values had been shaped while rising, as Stemberg had, through the Jewel management-trainee program. Jewel pushed responsibility far down through the organization, supporting the frontline employees who had constant contact with customers.
What's more, Jewel insisted that managers work their way up through operations. In bagging groceries and scaling fish, future managers would see the business in the same way as customers and employees. Myra Hart, Staples's group vice-president for growth and development, had started in the produce aisle at Star; Todd Krasnow, the vice-president of marketing, had trimmed meat and stocked shelves at night; and Paul Korian, the group vice-president of merchandising, had taken photo orders at Osco Drug, Star's sister company. When it came time to hire a president and chief operating officer last year, Stemberg chose Henry Nasella, his early mentor at Star Market. "My trust in Nasella is based on firsthand experience, not interviews or hearsay," he says.
By the spring of 1986, all the seed was in the ground. With the capital he needed and a cohesive management team in place, it was time for customers to confirm Stemberg's idea.
In May the first Staples store opened. To get sales going, the company sent $25 to each of 35 office managers of small local businesses, inviting them to shop in the store and pass along their reactions.
Staples called the 35 office managers nearly every week. At the end of the fifth week, when the company finally gave up, only 9 of the 35 had bothered to come in.
So much for the euphoria of creating the next Toys "R" Us. Stemberg realized that he now faced his greatest challenge: to lure customers into his stores.
