I’m enjoying reading Built from Scratch: How a Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion, a book about Home Depot’s founding. It was published in 1999, and initially I was worried because it missed the last 25 years of the company’s history, but I realized I was looking at it the wrong way. Because the book covers a shorter period, it goes into more detail about things I care about most—mainly the actions taken in the early days and the wisdom gained from them. If the book covered 25 more years, it would have to be twice as long or less detailed.

I’m a fan of founders thinking about the market for their products or solutions. It’s hard to build a big business in a small market—there just aren’t enough people willing to pay for what you’re selling. Given the importance of markets, I’m always curious about how founders who achieved outsize success thought about their market in the early days and how that shaped their strategy.

This book detailed how the Home Depot founders thought about their market and how their thought process and strategy evolved. Again, this book was published in 1999, so the data reflect that period. Here’s what they realized:

• In 1996, the do-it-yourself industry was thought to be $135 billion in annual sales. Home Depot had sales of $20 billion that year, so 15% of the market. That left 85% of the market for it to go after—$135 billion is a big market, and 15% leaves a lot of room for growth.
• The founders realized their market wasn’t the do-it-yourself market; it was the home improvement market. The home improvement market included consumers (do-it-yourselfers) and businesses doing home improvements (i.e., contractors). This expanded market included anything needed to maintain and improve homes and was more fragmented, which equaled more opportunity.
• The home improvement market in 1996 was $365 billion, not $135 billion, meaning Home Depot had only 5% of the market.
• Selling to smaller contractors was a huge opportunity. The company retooled its stores and operations to cater to smaller contractors in addition to consumers.

Home Depot redefined “the pond in which we fish,” as they put it in the book. The realization that its market was much bigger than consumers doing weekend projects led to an adjustment of their growth strategy.

Over 25 years have passed since this strategy was implemented. I was curious how it played out, so I checked Home Depot’s SEC filings and found its 2023 10K (annual report). The company reported annual revenue for 2023 of $152 billion.

Markets matter a lot. Founders should understand their market and formulate their growth plan accordingly. Home Depot found a large and growing market that helped propel the company to levels of success the founders never dreamed of.