Southwest just gets it

A quick post on Southwest Airlines - I am becoming a bigger fan all
the time. Today I straggled onto my flight late with a suitcase full
of pizza. The plane was pretty full, but guess what - plenty of room
for my suitcase in the overhead.

It's because of their pricing.

Here's why I say that. They have a low-price culture, so they
wouldn't dream of charging for a bag. Which means, people check bags.
Which means, the overhead bins have free space. Which means,
boarding goes faster even if you have the occasional late-comer.
Which means, faster flight turnaround times. Therefore, fewer delays
which equals lower costs. So if they want to, they can charge lower
prices.

It's a small example of how a company being committed to a strategy
and a culture helps them exceed their customers' expectations. So
obvious but somehow so hard for many companies to achieve.

Sent from my iPad

How to Motivate Your Team (even when they don't work for you)`

I read on this week on @avc's /Fred Wilson's blog that a CEO has only 3 jobs: set vision and strategy, constantly recruit/hire/motivate, and make sure the company never runs out of money. Recently I have thought a lot about #2, especially how to motivate people.

Assuming the NakedPizza concept works like I think it will, we are going to grow like crazy, which requires laying groundwork, which requires people. Check. I have a lot of people working for me, but actually, none of them actually work for me.

That is, we have a real estate broker building a site pipeline, architects driving plans for store #1 and store #2, law firms driving contracts and permitting, a franchisor, a large group of investors with time, energy and expertise, an accounting firm whose gravitas lent credibility to my business at a crucial stage, vendors trying to help get me open on time and on budget, and a small army of people motivated by the cause to offer their time.

In grappling with this (growing) army of vendors and volunteers, I have fallen back on a few very simple principles:

• Define a compelling vision/mission/strategy
• Clearly lay out the person's role and goals in bringing that to fruition
• Hold people accountable and make them responsible

These seem to get progressively harder for entrepreneurs. By definition, entrepreneurs believe they have a unique vision, even it's compelling only to them at first. Laying out roles and goals to accomplish something is pretty difficult for many of us (more on these in another blog post). Whole books have been written about roles and goals, so for now, suffice to say, that roles in early-stage growth ventures are tricky because they evolve so quickly, but goals should be clear, specific and achievable.

In my experience though, giving out both accountability and responsibility is absolutely crucial to having motivated teammates. Accountability means "You are the person who wakes up in the middle of night thinking about how to get this goal done." Fair enough. But many entrepreneurs hate to give away responsibility, which means, "You are going to make the intermediate decisions that lead to how this goal is achieved, and I am not."

That is the magic of building a truly scalable organization. First of all, it takes the entrepreneur, and eventually executive, out of the critical path of day-to-day decisions. It turns vendors (and by extension, employees) into partners who feel empowered to accomplish a goal that they understand to be important. Think Starbucks and hospitality - employees there don't have to ask Howard Schultz if they can give you a free drink to replace the one you just dropped - they just do it. It helps unleashes expertise and creativity.

Even more important: it allows them to make mistakes, own them, and learn from them. For the more cynical among you, it makes their mistakes more obvious (as they are not yours) so you can learn from them more quickly.

Quick case study: I want to open store #1 by a certain date. My architects need to know that date and why it's important so they can execute and submit building plans in a timely way. If they know that date, and it's achievable, and they have full responsibility to get it done, they are highly motivated to make it happen. We live in a reputation-driven world, after all. And let's face it - they know *how* better than I do.

Second case study: as a franchising startup, even one with the Krafts as investors, being taken seriously is hard. Enter my accounting firm, who prepared impressive-looking statements to help seal the deal with a skeptical landlord. I didn't tell them exactly what I needed - I described the goal, why it was critical to the mission, and let them know I was counting on them. Done.

So summing up - clear goals + responsibility + accountability = motivation. So far, so good. Now I just hope it works when we have actual employees.

How did I get into the food business anyway?

I am a recovering tech person (first as an engineer and then as an exec), so I get asked sometimes "how did you get started in franchising anyway?" Usually there is an "anyway" like it's almost an apologetic question.

This adventure started for me about 3 years ago, when I was a part of a publicly-traded software company that I helped pull together. I was checking in for a flight at SFO to come back to Boston, a nearly weekly occurrence for me for a while. My friend and would-be business partner called let to me know that his good friend Peter Weber, with whom I had worked for many years myself, was considering buying an area franchise for a DC-based burger and fries shop called Five Guys. Because they were sold out in Virginia (where he lives), he wanted to know if we’d be interested in investing alongside him to build it in Massachusetts (where he is from).

I think my response was something like “Peter’s a pretty smart guy, but that sounds like a dumb idea.”

But he’s someone I respect a lot, and he was telling anyone he could find about (a) how great Five Guys is and (b) how great the area franchising model is.

I’ll start with (b).

Peter is a technology CEO and investor, and despite having an MBA from Harvard is a decent business person. The beauty of the area franchising model, he explained to me, is that it’s a basically like buying a number of small businesses that all generate a lot of cash, which can then be used to buy more businesses, which then generate more cash, and so on. For example: you can spend $400,000 put up a retail store that then generates $200,000 per year in cash flow, which is a 50% dividend. Banks pay 1%.

The trick is to raise enough money to get started. Most franchisees, historically, have bought a single unit franchise of a concept that they themselves can run, and they do it by scrounging up whatever cash they have, getting an SBA loan, and almost always, taking out a second mortgage and using their house as collateral for business financing. Think “guy buying a Meineke franchise.”

For an area franchise deal, you buy the rights (development and franchise) to build not 1, but several stores. If you have the money to do this, good management, and the right concept, it is hard to avoid having good returns.

The right concept is the (a).

Marc and I had never tried Five Guys, so we drove 2 hours to the nearest one we could find, in Avon, CT, west of Hartford. It was great and we could see immediately that there was nothing like it in the Boston area. I lived in California for a while and the formula reminded me of In-N-Out: really good burgers, really good fries, and soda. Food items were made with actual food, not pre-processed semi-ingredients. And a simple buildout and operating model – a total of 15 menu items and 100 SKUs that went into them. Even we could figure out a business like this one.

Then we tried to raise the money to get started. This is a longer post for another day, but the executive summary version is: every bank except 1 said “no”, and adding investors was tough because most prospects saw it as a “restaurant” investment from a bunch of guys who had no track record. But eventually we slogged through this part of the process as well, getting a credit facility from a regional bank and attracting three more excellent investors (who at the moment are happy that they returned our phone call).

Finally back to how I got involved in running the business. In March of 2008 when we signed our paperwork with Five Guys, Marc and I had other full-time jobs. Our thought all along was that we would someday hire an “operating partner” (this is common – investors hire someone with experience to actually run the business), but our group didn’t have a store yet. So, Marc and I volunteered to do it in our spare time until we could justify it. Our logic at the time, which I remember one of us saying out loud was this:

“How much work could this possibly be?”

And that's how I became someone involved in the food business.