Tom Stemberg

(Text only) Tom Stemberg founded Staples and served as CEO for 16 years. Under Mitt Romney, Bain Capital helped finance the first Staples, which opened in Brighton, Mass. in 1986. Staples was one of Bain’s earliest investments. This is an edited transcript of an interview conducted on June 15, 2012.

(Text only) Tom Stemberg founded Staples and served as CEO for 16 years. Under Mitt Romney, Bain Capital helped finance the first Staples, which opened in Brighton, Mass. in 1986. Staples was one of Bain’s earliest investments. This is an edited transcript of an interview conducted on June 15, 2012.

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    So you get this idea about Staples. Where does that idea come from?

    First of all, you need to be unemployed. I got fired from my job running a grocery store chain. The guy they're trying to sell my company to, named Leo Kahn, they tell Leo, "Gee, Tom's not coming with the deal." And Leo says: "No kidding? Have him call me. I want to back him in a business."

    And so the guy who fired me on Monday, Tuesday says, "You should call Leo Kahn." Leo and I get together, and we try to find another grocery store chain to buy, and we can't find one.

    Meanwhile, Leo whispers to me: "Tom, why don't we find some rip-off business where people are really getting ripped off and see if we couldn't start something there? Because groceries, it ain't that great."

    We focused on office products. I spent a lot of time looking at the opportunity and figured out that if you could buy the way the big guys bought and give those values to small business, roughly half off all their offices products, and put them all under one roof, gee, that'd be a big idea. Turned out I was right.

    So you have a big idea like that, and you go looking for money to back the idea?

    I do. At this point, Leo's 70 years old. His financial adviser's in the hospital having triple bypass surgery, so I thought it made sense to diversify my funding sources.

    And in the process, a group called Bessemer introduces me to this brand-new venture capital fund they were going to work with called Bain Capital. And the principal, of course, of Bain Capital was Mitt Romney.

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    Bain
    Mitt is 'so cheap, the idea [of Staples] immediately resonated with him.'

    So you go in and you see Mitt Romney for the first time. Where's the meeting? What's he like? What's his aspect, and how does it go?

    I'll never forget meeting Mitt the first time, because many venture capitalists, when you pitch this idea of saving on pencils and erasers and pens and diskettes, thought the idea was nonsense. Why would you ever want to save money on something like that? They didn't realize how much money it was costing them. And in Mitt's case, he is so cheap, the idea immediately resonated with him. You could see his excitement and enthusiasm.

    Of course, what happened then is Mitt has his team go to work on this, many of the same guys, like Josh Bekenstein, who are running Bain Capital today, and they come back and call me up and say: "Come in. We want to talk to you." And I said, "Yeah?" And he said: "Well, you know, we did some research. We polled 50 small companies we know, and your claim that they're spending $1,000-plus per employee per year is overstating the market by fivefold, because our research says it's only $200."

    Now, first of all, this was the first venture capital firm to do any research. I was already pretty impressed, the fact that they went through the effort. I said: "No, you don't understand. They don't know what they spend. Go check their invoices, and you'll find out that I'm right." Left the office thinking: "This is dead. Too bad. These guys are really nice guys. They really could have helped me."

    A week, 10 days later, they called back. "Come in again, will you? Well, you were right." They went out -- in those days it wasn't on computers; you had to actually literally add up on an adding machine all these invoices -- and sure enough, I was right. The market was even bigger, at which point we began negotiating a deal, and Mitt became our lead investor.

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    BainRomney as a Leader

    In that very first meeting, ... what was he like? What did he look like? How did he present himself? What was the feeling of it all?

    When you first walked in and saw Mitt, he looked like a guy who ought to be president of the United States. This guy, he looked perfect; he dressed perfect; he spoke perfectly. He asked the most poignant questions in a very, very nice way and didn't make you feel defensive and really drew the best or worst out of you. He was just really, really good.

    ... When he's skeptical, what's he like? Did you feel like, "Man, there's a lot of horsepower behind this engine"?

    After we started working together and Mitt was on our board, he had a very interesting way of probing you, and he would always ask these questions like: "You don't really mean that, do you? Do you really believe this market's going to grow at that? Should we really invest in this?"

    And you never knew, was he just probing you, or did he really question it, so you had to react as if he's really questioning it. All he's doing is always probing, wants to make sure you've done your homework, done your assumptions. I think it's the way he governed as governor. It's the way he'll be as president.

    Was he ever argumentative, angry, profane? You know what I mean. Was he one of those hotshots?

    I never heard Mitt utter a swear word. I've seen him get annoyed when he felt his questions weren't being answered. You could sense a certain annoyance. Never anger, though.

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    Bain
    The all nighter before the first store opened

    How much did they kick in in the first instance?

    The first round of Staples, we raised a little over $4 million. To my best memory, Bain Capital represented $600 or $700,000 of that.

    And what did they do? The way I've read it, they were involved early, like the night before you guys are all still stocking the shelves?

    Staples is one of Bain Capital's very first investments, and they realized in order to grow this investment business, they had to create success. They set a sort of mode of operation which I think they follow through until today, knowing how they operate today, which is to get very involved in every company but in a very helpful and constructive way.

    So in the case of Staples, one of Mitt's young guys, Adam Kirsch, literally helped us put together our computer systems, helped us hire the head of IT [information technology] through his network of friends. He was an MIT [Massachusetts Institute of Technology] guy and had a lot of connections there. Mitt was a terrific cheerleader for the company.

    So the eve before the first Staples store opened on May 1, 1986, Mitt Romney surprised everybody at the store, along with my co-founder Leo Kahn, brought in boxloads of pizza. And we'd pulled one all-nighter, we're about to pull another all-nighter to live up to our promise [that] we're going to open on May 1, 1986, and he gave us all pizza, and he gave us a rah-rah speech. And you saw these young people, and they're bleary-eyed; they had tears in their eyes.

    He's got a way of motivating people. He talked a lot about how Bill Marriott taught you to treat everybody who entered your store or establishment as if they were guests in your home. And he told people, "We do this, you could be part of retailing history," which, of course, turned out to be true as well.

    So that's the speech. And was it genuine?

    Absolutely. Mitt's a genuine guy.

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    Now tell me the glory story of the success of Staples. What happens from that first day on? Were you anxious? ...

    Staples was this big new idea to open a new kind of store, and half price and a complete selection. Prior to Staples, you had to go to a stationery store, to a business machine store, to a computer store, to a software store, to a supermarket to get all the things that Staples put under one roof. And with long operating hours -- I opened early in the morning and late at night versus the traditional competition -- it was a real revolution.

    And we thought, gee, we can grow this nice and deliberately all ourselves. Lo and behold, within a year and a half, 28 different clones came up: Office Depot, Office Max, Office World, Office America. So it became a very competitive business.

    And during that time phase, we had to make a lot of key strategic decisions. One thing Mitt advised us, and always he wouldn't say, "I think you should do such and such." He would say, "You know, based on our study of other businesses in similar positions, we have found that building a really strong fortress around your home market is the first thing you got to do."

    At Staples, we built a franchise in the Northeast from Washington up through New England, which has been largely unchallenged within the sector, even as all these other competitors spread around. And he helped us strategize how we go to the West and went to California and how we participated in Canada. And he remained a director of Staples for 15 years.

    [Can I] ask you where the name Staples came from?

    The name of the business originally was going to be 8 ½ x 11, which wasn't a typically clever name. And one day I was driving back and forth between Hartford, [Conn.],  and Boston and just throwing out names in my car, and the word "Staples," "Staples, the Office Superstore," that has a ring to it.

    ... Staples -- how many jobs did it create? How big did it get in the end?

    I left Staples a number of years ago, but today Staples is about a $25 billion company employing some 90,000 associates, the vast majority of whom are in the United States.

    How much of that would you chalk up to Mitt Romney's contribution?

    People ask me, would Staples have succeeded had Mitt Romney never entered the scene? And the answer is yeah, we probably would have succeeded, but not nearly to the same degree.

    Why?

    Mitt was a terrific adviser to a CEO. Remember, here's a guy who had just been advising Jack Welch at General Electric on his strategy matters, Chuck Knight at Emerson Electric, and some of the best, most respected corporate leaders in the world.

    He learned a lot doing that, and they respected him enough to have him at their side. And now here you are, this little fledging enterprise, you've got a Mitt Romney at your side. That's pretty good.

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    RomneycareRomney as Governor
    'Hey Tom, remember that idea about health care?'

    The story of health care now. So the way the story goes, you come to Mitt with an idea, or he asks you, "What would you do?"

    I strongly encouraged Mitt and Ann to have Mitt run for governor of Massachusetts. I really thought the state was in trouble and needed his leadership. Mitt, in fact, comes back, runs for governor and wins, and he asks me to be on his transition team.

    And after one of the meetings, he says, "Why don't you just come by my office?" So I came by his transition office, and we start talking, and he says: "Let me ask just a crazy question. If there are two or three things I should do as governor that make a difference, what do you think they should be?"

    And the first, I says: "Mitt, you should blow up Logan Airport and start all over again. That place is a mess." He said, "We're not going to do that." "OK," I said. "And the second thing I would do, I would provide health care to everyone in this state. The uninsured are creating a crazy burden on our system. They're going to emergency rooms. It's the most expensive form of health care. The hospitals through insurance companies end up getting paid for it anyhow. It just ought to be made more efficient, and you can't do that unless you get everybody covered."

    He listened politely and mumbled something about, "Gee, that would be very difficult to do." And that was the end of it. I never thought I'd hear from him again, until a little over a year later -- it may have been longer -- the phone rings. It's Mitt, and he says: "Hey, Tom, remember that idea about health care? We're going to go with it."

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    Why did you pick health care?

    Health care has been a hobby of mine for a long time. I've been involved in helping start the Tufts Health Plan here; I'm on the President's Council at Mass General Hospital; I'm on the Partners HealthCare; I teach steering committees. So I just have a real interest in health care.

    If you think about it, it's kind of like retailing and providing a service, except you're helping fix somebody's wrist as opposed to give them a haircut or selling them Pinkberry yogurt.

    So how bad was the state of health care financing in Massachusetts when you first suggested it?

    The system was basically a mess, because tens of thousands of people every month would show up in the emergency rooms looking for very simple primary care that could best be dispensed in a medical office or even by a nurse practitioner in one of these drug stores as opposed to having it done at the emergency room, meanwhile clogging out, in some ways making it difficult for the true emergencies to get access. So the solution in terms of what your objective had to be, at least to me, was pretty obvious.

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    And so when he calls you up and he says, "OK, I'm going to do it; I'm going to try it," what were your thoughts about what were the obstacles Mitt and the state of Massachusetts were about to face?

    Well, remember, Mitt is now trying to pass revolutionary legislation in a state where I don't know the exact numbers, the [Legislature] was like 4-to-1 from the other side. That's not easy to do. And Mitt managed to bring all the constituencies together to get it done, and to this day I still marvel at his ability to have done so.

    How did he do it?

    I wasn't on the inside there. I was too busy running Staples. 

    So then he does it, and there's a big hoo-hah signing ceremony down at Faneuil Hall.

    I was invited to the signing ceremony. I think I had an obligation somewhere else and a board meeting. I couldn't go. I still have the picture with Mitt's signature framed in my office. Very proud of that.

    ... Was it Romney's accomplishment?

    Mitt would be the first one to tell you that nothing gets accomplished by one person; you only accomplish things in teams. One of the things about Mitt Romney, he gets that, which is why he tries to surround himself with people who are smarter than he is, and he'll tell you that. He listens to them. He's not shy about making the decision at the end, but he surrounds himself. Look at how well the people he has surrounded himself with have done in various forms of life. I think it speaks to Mitt.

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    Romney as GovernorMitt and Ann
    'Nobody pushes Mitt Romney around'

    ... What makes him decide to go for governor, do you think, and how did you help him talk about it?

    I think a whole bunch of friends of his inside and outside politics -- and I of course was outside politics -- told him that we thought the state needed him and his leadership to right the ship.

    The state was running huge deficits with no end in sight, and I was out at the Olympics when Mitt was running the Olympics and saw him out there and gave him my pitch. And Mitt did his normal smile, listened: "Gosh, you know, we've got a Republican governor. I can't imagine going back there, Tom. I've been so tied up with the Olympics. I've got to think of what's going forward." So I didn't get very far at all.

    Then I grabbed Ann, and I give her my same pitch. And she goes: "You're right. And I've been telling him the same thing. He's got to go for this, and you really got to work on him." So she clearly thought the state needed Mitt, and she was going to get him to do it.

    Is she that capable of pushing him around a little bit for something that really matters?

    Nobody pushes Mitt Romney around. Having said that, if there's one person whom he will almost always defer to, it's Ann Romney. Mitt is extraordinarily parsimonious in almost everything he does of charity. I'll never forget at a Staples board meeting over in Hamburg, [Germany]. Ann Romney comes back with this coat, this absolutely beautiful coat, and this is a Hamburg designer, and it was a huge price tag. And I looked at Mitt and says, "Mitt." He smiles. "It's Ann."

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    Romney as a Leader

    ... You've talked about Romney as a businessman, at least in relation to you. Why was he so wildly successful?

    There's never one reason why someone is successful in business or in life. There's always a whole bunch of combination of things. Being smart certainly helps, and Mitt is very, very smart.

    Realizing that you have to build a team is a significant attribute that a lot of people of significant stature don't appreciate. Mitt always built great teams around him, no matter what he was taking on. And even today, as he runs the campaign, he's learned from his previous mistakes, and he's put together a far more effective team. That's Mitt. That's why I believe Mitt will be a terrific president.

    And he's got that ability, thirdly, to motivate people. And he does it in a, I wouldn't say a charismatic way, in a very practical way, of taking an idea, kind of like Ronald Reagan did, and making it simple enough for people to understand.

    And when it comes to things like entitlements, which are things we really have to tackle as a country, Mitt knows this gets a gut negative reaction from people. He will be able to explain how in a relatively nonthreatening way we can begin to balance our budget for our children's sake.

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    Romneycare

    Why did he walk away from Romneycare now in the campaign?

    ... I think Mitt believes that his health care plan, so-called Romneycare, was the right solution for Massachusetts. In each and every state, the system works totally differently. The insurance provisions are totally different from state to state to state. So this notion of this national, overreaching plan and solving everything is an aborted effort that is never, ever going to work.

    So Mitt's vision is you have to repeal the so-called Obamacare. I do think Mitt will address health care, but he'll do it in a much more thoughtful and intelligent way as opposed to this 2,700 mega loco, loco thing of a bill that just has all kinds of crazy stuff in it. 

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    Do you see him now?

    I do see Mitt from time to time. He's not around a whole lot. He's out there campaigning.

    I have a quote from you saying: "I don't think Mitt's favorite thing in the world is [being a] backroom negotiator of deals. But one thing you've got to remember: Mitt Romney has always surrounded himself with great people who know how to execute his vision." I mean, that is the rap on him, is that he's kind of wooden in the backslapping department.

    I've campaigned with Mitt. If you see Mitt one on one in person and how he connects with people, he does a really darn good job of that. He got elected governor of Massachusetts because the blue-collar worker, particularly in the northern suburbs of Boston, voted for Mitt in the huge pluralities.

    He does not come across that same way on television. Television is a very, very difficult medium, and it works for some people and not for others. He just does not come across as nice a person as he is on television.

    Would you be one of those people who he let himself be surrounded by in his administration?

    I have absolutely no interest in ever doing anything in Washington, D.C., other than visiting Mitt in the White House one time.

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    We're just going back to Staples. ... Bain Capital was just starting, and so the stakes were pretty high. Talk to me a little about that. And we've heard the word "nervous" associated with Mitt a number of times. We've heard the tie-flapping stories. ... How high were the stakes for Bain Capital, and how nervous was Mitt at the time?

    I have a different way of answering the question if it's all right, but I think you'll like it. 

    When you had a business with 28 different competitors, and your second largest investor, Fred Adler, had through other entities invested in the number two company, Office Depot, at the same time, and frankly, because of disagreements about that would have preferred to have fired me, and Mitt was in a very, very interesting position, and I will tell you, he stayed calm throughout it. He remained supportive throughout it.

    I can't say he never thought about firing me, but I don't think he ever really seriously did. He was as supportive as a director could be. We had some tough times, some real tough times early on, and we got through, and it turned out to be the winner in the industry. And I think that's in large part due to the kind of advice and support we got, including from Mitt Romney.

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    What do you do that people want to fire you? This is the second story you've told us of people wanting to fire you.

    When you're an entrepreneur and you're strong-willed and want to do things your way, you get fired lots of times. And if you look at some of the great entrepreneurs in America, [The Home Depot co-founders] Bernie Marcus and Arthur Blank, [founder of Toys 'R' Us] Charles Lazarus, all of them were fired.

    And Mitt's role in that kind of shark-infested water? What does he do? How does he react in an environment where that kind of thing is going on?

    One of the things about Mitt Romney, he will never get flustered. He is as cool as a cucumber under all situations. He remains rational; he listens to all sides and voices opinion. ... 

    And when Mitt spoke at a board meeting, the room got very silent. People listened to Mitt. There would be side chatter during other people speaking, never during Mitt's speaking.

    Why?

    People think he's a very wise man who before he speaks has thought things through. Typically, he's done analysis. And when he speaks, he speaks with a lot of weight.

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    Storyteller or a rat-a-tat-a-tat kind of a guy?

    Mitt is anecdotal. Mitt loves joking. Mitt loves making fun of himself and being the butt of jokes. And he definitely can take that. And frankly, one of his weaknesses, he's a horrible joke teller. Tells the same joke. He's told the same joke for 20 years.

    What is it?

    It's a joke about the guy's out there, and the bear starts chasing him, and the guys says, "We've got to outrun the bear." He says, "No, I just have to outrun you."

    ... What was that moment like for you when Mitt said, Bain said, "We're onboard; we're in"?

    When I got a positive indication from Bain Capital that they were really interested, I thought that was really special. Now, we had some other people who were going to do the deal if Bain didn't do it, so it wasn't like, "Oh my God, I won't get this financed." But I just thought Bain could help me more than any other potential investor other than maybe my co-founder Leo Kahn. And that turned out to be right.

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