#372: Amancio Ortega: The Genius Behind the Inditex Group

**David Senra** (0:00)
Amancio Ortega is one of the wealthiest people in the world, with a net worth around $120 billion. And as I was reading this biography of Ortega, the same idea just kept coming to my mind over and over again. The fact that Ortega is the Henry Ford of fashion. If you go back and you read Henry Ford's autobiography, or really any biography written about him, you realize that Henry Ford's philosophy was, get rid of waste, increase efficiency through technology, lower your prices to increase your volume, and you'll make more money overall, even though you're making less money, or less profit per car, in the case of Ford, or a piece of clothing in the case of Ortega. Watch your costs religiously, and then bring that business process in house, so vertically integrate as much as possible, and then always focus on service. Henry Ford was determined to concentrate on the lower end of the market, where he believed that high volume would drive his costs down, and at the same time feed even more demand for his product. It was a fundamentally different philosophy than the rest of his industry at the time, and you could say the exact same about Ortega and his industry. Driving their costs down, watching their costs religiously is something that Ford and Ortega had in common with each other, and in common with all of history's greatest entrepreneurs. Not only did all of history's greatest entrepreneurs study history's greatest entrepreneurs, but all of history's greatest entrepreneurs also watched their costs, like their businesses depended on it. That ever-present and reoccurring theme is why Ramp is now a presenting sponsor of Founders. I've gotten to know all the co-founders of Ramp and have spent a ton of time with them. They all listen to the podcast and they've picked up on the fact that the main theme from the podcast is on the importance of watching your costs and controlling your spend and how doing so gives you a massive competitive advantage. And that is the reason that Ramp exists. Ramp exists to give you everything you need to control your spend. Ramp exists to give you everything you need to make cost control an obsession. Ramp helps you run an efficient organization. In fact, I read a Ramp customer review that sums this up perfectly. They said Ramp is like having a teammate who you never have to check in on because they have it handled. Ramp's website is incredible. Make issues-based entrepreneurs proud by going to ramp.com to learn how they can help your business control costs. That is ramp.com.
One afternoon after school, I went with my mother to a store to buy food. I was the youngest of my siblings. Many times, I accompanied her for a walk while she did her errands. The store we walked into was one of those old-time grocery stores, with a high counter so high that I couldn't see who my mother was talking to, but I heard something that, despite the time that has passed, I have never forgotten. I'm sorry, ma'am, I'm very sorry, but I cannot lend you any more money. That left me shattered. I was only 12 At that moment, still holding his mother's hand, Ortega stopped being a child.
After reacting with shock to the words he had just heard, he made an irrevocable decision. This will never happen to my mother again. I saw it very clearly from that day onwards. I would start working to earn money and help at home. I quit school, left my books, and got a job as an assistant in a shirt store. That incident marked a before and after in his life, and this is what Ortega said about it. The impact of that story cannot be overstated. That gentleman will never know that he was the cause of what came after. That was an excerpt from the book that I want to talk to you about today, which is, This is Amancio Ortega, The Man Who Created Zara, and it was written by Covadonga O'Shea. So for years and years, listeners to Founders have been requesting an episode about Ortega, and I have to, before this was suggested to me many, many times, I didn't even know who he was. And I was shocked to find out that Ortega is one of the wealthiest people in the world. His network today is around $120 billion. He owns 60% of a publicly traded fast fashion company called Inditex, with Zara being most well known brand, and then the majority of the revenue inside of the company. And so actually, one of the most interesting things I learned this week was that he made billions of dollars manufacturing and selling clothing, and then he invested a lot of that money into commercial real estate. He's actually one of the largest tech company landlords in the world. Tech companies like Facebook, Google, Apple, Spotify, Amazon, all lease property from Ortega. In fact, his commercial real estate portfolio alone is worth around $20 billion. And the reason I brought that up now is because I thought being a landlord to tech companies is fitting, because I don't think this is actually a story about fashion. Instead, it's a story about applying technology to an ancient industry. I think of Ortega as the Henry Ford of fashion and I'll explain why. But before I do that, I want to go back to his childhood and his decision to immediately start working to help save his family. So the author of this book tells a story inside of this book where she's actually interviewing this very famous bullfighter many years ago. This bullfighter in Spain named Luis Miguel. So Luis Miguel, at the time he's having the conversation with the author, was at the peak of his career. And they're at Luis Miguel's house, and Luis Miguel and the author are watching Luis's son play in the garden of their home. And this is what Luis says. He says, this child will never be a bullfighter. To face a bull, you have to go hungry. And I think the author included that story because the same applies to Ortega. He says over and over again how hearing that exchange, the fact that his family could go hungry, made him determined to work and to be able to contribute to the family. I would also say he never uses these words, but I would have to imagine as a 12-year-old boy that it also made him afraid. And so the way I think about Ortega is he's a man on a mission. In fact, he says that over and over again in the book. So I guess I got to back up. The reason it's taken me so long to cover Ortega, even though so many people have asked me to do so, is because all the biographies on Ortega are in Spanish. So actually my friend Cameron Priest translated this book and he sent it to me. And after I finished reading it, I organized all the highlights and notes by subject matter because Ortega is remarkably consistent. He knew the author for over two decades and he repeats what's important to him because what's important to him remains consistent. So again, the way you think about Ortega, he's a man on the mission. I just want to pull some of his quotes. This is something that he repeats over and over again in the book across many years and nearly all the chapters. He says, we are all born for something. He often repeats with an absolute conviction that he has a mission to fulfill. That mission started that day when he was 12 years old. He says, there is something deeper in me that drives me to work, that has moved me since that day as a child. This has led me to do things tirelessly. Another way he describes the importance of having a mission. The important thing is to set goals in life and put all of your soul into fulfilling them. He is 72 when this book is published. He's 88 now. He's 72 years old when he says that the important thing in life is to set goals and put all of your soul into fulfilling them. He says, I have dreamed of growing this company since I was nobody. A few chapters later, he says the same thing. Since I was nobody and had hardly anything, I dreamed of growing. We have never been complacent, nor have we accepted easy success. Optimism can be very negative. You have to take risks. This was something I repeated tirelessly to all those who have joined the company. Another example of this, we gave it every day. My priority has always been the company and I have committed myself to it with full dedication from day one. And it's not just that he describes himself as a man on a mission. Other people literally say that Ortega is a man of mission. He is so convinced of what he is and what he has to do. And when Ortega is asked, like, what is the why behind life? He says, I am absolutely convinced that we all come to this world to fulfill a mission. None of us are here by chance. So the first thing he does is get a job in a shirt store. He is 12 or 13, and he is just a gopher, an errand boy. He also is responsible for cleaning the store. And when they are busy, he also has to help serve the customers. And there are two really important parts to this. One, he said from day one, he took his work seriously and with a sense of responsibility. He was like that at 13, at 72, when the book is written, he is still like that. And so even though his tasks were like minor, some people might think they weren't important, you know, just running errands, just sweeping the store, you're helping like the customer overflow. There is this maxim that tends to reappear in the history of entrepreneurship, and it's that opportunity handled well leads to more opportunity. And you just see it over and over again, the importance of doing the best you can with the opportunity in front of you because that's going to unlock an opportunity you couldn't possibly predict or even see at that moment. And then the second most important part about this experience is that he just realized that customers should never be lost sight of. His main critique of the fashion industry is that they basically ignore the customer. And so what he's going to realize is that total dedication to serving his customer in ways that other companies cannot or will not is going to be a massive edge and something strangely that no one else in his industry was doing before Ortega came along. And so Ortega has that quote that the most important lesson he learned at the store was that customers should never be lost sight of. This sounds a lot like Sam Walton who would preach inside of Walmart. He would say there's only one boss, the customer, and he can fire everybody in the company from the chairman on down simply by spending his money somewhere else. So he's working in the apparel industry for about 14 years before he finally quits his job and sets up his own company. So he's around 27 years old. He quits his job and starts his own company that's going to manufacture clothing. This company is going to be called GOA, which is just his initials in reverse. So he didn't have a lot of money, but he did have some assets, non-monetary assets, let's just say. So he's got contacts with fabric manufacturers as a result of working in the industry for 14 years, he had relationships with customers, and he's got the trust of his family and friends because they're going to leave with him and help him set up the business. So he actually gets a bank loan of 2,500 peseta, that is in 1963 This was the currency of Spain at the time. So with his soon to be wife, his brother and friends of the family, they set up a modest workshop and they start manufacturing bathrobes. These bathrobes sell much better than expected. He starts manufacturing more clothing, and at this point, he's just selling clothing to stores. He does not, to other stores, he does not have his own stores. But this, I think, is an insight, or I guess some kind of indication, that he was a gifted entrepreneur even, or it takes him a long time to build up Inditex. But from reading this biography, it's clear that every step along the way, he's just trying to do the best with the opportunity in front of him. So he starts selling, he's just manufacturing clothing at this time, but within 10 years, so from 27 to around 37 years old, okay? 10 years later, his company has more than 500 employees, has absorbed the supply and distribution operations, and has hired a team of designers. But he is not satisfied with the state of affairs because something he observed in that shirt store, you're ignoring the customer. So in 1975, this is going to be about 12 years after he starts Goa, he's going to open the very first Zara store. Ortega is around 39 years old when he does this. It'll be obvious in the quote that I'm about to read to you from Ortega, talking about why he did this. He wanted the trait that he shares with most of the entrepreneurs and almost all of his entrepreneurs, they want control. And if you want control, you're going to naturally vertically integrate. I loved on the James J. Hill episode last week when he's building the most profitable, the most successful railroad in American history. He understood the importance of controlling all aspects of his business, so he starts to vertically integrating, but he didn't call it vertical integration, he called it rational integration. And I think for entrepreneurs obsessed control, that's exactly what it is. Because it is very rational to us, rational integration. So this is Ortega talking about the early years at Goa and why he wanted to eventually control every single aspect of his business. So he says, when I started manufacturing, we sold to third parties. I never really liked this. We couldn't sell a nice dress no matter how nice it was. If what that customer asked for at the moment was something else, I was convinced that I had to dominate the customer. And at the same time be by their side. But I would only achieve it if I managed to sell to them directly. The product has to be right. That is the key. That was the first hint of what I would argue is Ortega's most important insight. He realizes that it's better to start with the customer and work backwards. And he says over and over again, I'm just going to manufacture what the customer wants. So this is the beginning of why I think that I would call Ortega the Henry Ford of fashion. And what I would share, what I think Henry Ford and Ortega share, is that they really built their career on one idea. And so Ortega says, since I started working, I had an idea that obsessed me. Why can't I invent something different from everything else on the market? I clearly saw that I wanted to fill a gap that existed in the textile business, and I decided to follow that impulse. So Ortega's great idea was the ability to enable what he wanted to do. He wanted to enable the entire world to dress well. The problem that he's trying to solve is, how do you make and distribute clothes that are fashionable and affordable? The existing fashion industry, when Ortega starts, right? The existing fashion industry already knew how to make clothes fashionable and expensive. Ortega is going to invent the process to make them fashionable and affordable. Henry Ford's one big idea was to mass produce a simple, affordable car that the average worker could buy. That was impossible at the time when Henry Ford had that idea, so he had to invent the company and the processes to make his dream a reality. The same is true for Ortega in 1975 when he opens his first store. He's got to invent the company and the process where you can make and distribute clothes that are both fashionable and affordable, and obviously do so at a profit. And so to do this, number one, he needs to work backwards from the customer. He's going to think about his very tight and close relationship with the customer as a form of a competitive intelligence. And number two, he has to invent. And working backwards from the customer in the fashion industry. So think about all the episodes, like I've read biographies of Christian Dior and Coco Chanel and Balenciaga and Ralph Lauren. They are way more like Steve Jobs in their approach. They have a perspective, they have a point of view, they have an idea in their mind's eye that they want to bring forth and make a reality. In many cases, they are creating the products that they want to see in the world, and then they will educate and sell to the customer and try to convince the customer to buy them. Ortega is not interested in that at all. He says over and over again, it's better to start with the customer work backwards. I'm going to manufacture what the customer wants. So to do so, he has to have a very tight relationship with the customer, be able to react fast. Because when you're just a manufacturer, when he was just a manufacturer, as you say, and he sold his products to other stores, what he realizes is like, oh, they're just guessing at what the customer wanted. Ortega noticed this dislocation between, well, I go into these stores, the buyer at the stores I'm selling to when I'm just a manufacturer, they're asking for products, then I leave the store and I go out on the street, and none of the customers are wearing that. That observation is the difference between what the buyer is actually one of the stores and what the customers are actually wearing on the streets. That gave him the initial idea of, hey, maybe I need to have my own stores. When he opens his first store, this is not stated, but reading through the line, like understanding who he is as a person, as reading RP. I don't think this guy would ever, I know for a fact, he didn't, his idea was like, I'm just gonna have one store. He is relentlessly dissatisfied. He is never complacent. And one hint that he was not gonna stop at one store is his decision to computerize, that's the quote, computerize the company. And he does this in 1974, before he has the first Zara store. This is one of the craziest things, but I need to go back to this idea before I get there, that he states over and over again, I'm going to make what I understand customers will demand. Just like Henry Ford said, I'm going to figure out a way to make a simple affordable car that the average worker could buy. Henry Ford had to invent the way to mass produce automobiles to get the price down so an average worker could buy. The same exact situation is happening here with Ortega. To do what his stated goal is, to I'm going to make what customers will demand. To do this, he has to invent the logistics and distribution system that enables responding immediately to customers' desires. Now, the reason this is so important is because unlike a car, in fashion, the desires of the customer change all the time. So the way I would think about this is he actually wants to build a company capable of responding to customer desires. And he knew those desires will absolutely change over time, so he has to invent the logistics and distribution system that enables his company to respond immediately to changing customer desires.