LESSONS OF A BLUE-COLLAR MILLIONAIRE--ADDENDUM
There is always a lot of good material that does not make it into a magazine story, and that was true of my latest article in Inc., Lessons from a Blue-Collar Millionaire. http://www.inc.com/magazine/20100201/lessons-from-a-blue-collar-millionaire.html. I think my editor was wise to have me structure the article as I did, but in the process I lost parts of the story that may be of interest to you and that have a direct bearing on the concept I refer to as trust-and-track. So I thought I would share the missing details in this blog. I will be repeating some of the points I made in the article, but I think it will help to understand the context.
When I interviewed Nick Sarillo, we talked at length about the problems he had had with the previous round of general managers he had hired to run his restaurants. He had eventually concluded that, nice as they were as human beings, they were so steeped in the practice and habits of command-and-control that they could not change, and they thus were inadvertently undermining the culture that Sarillo had been trying to develop. Coming to grips with those issues had been a difficult experience for him, but also an important one, not least because one of the general managers was somebody he had been very close to, both personally and professionally.
That person—we will call him Gerald—had come to Nick’s Pizza and Pub in 2004 after working for Brinker International, which owns Chilis and other casual dining chains. By then, Sarillo and his partner, Chris Adams, were already committed to growing the business. (They eventually settled on a goal of having five restaurants by 2010.) Recognizing that they would need experienced managers to run the restaurants, they had hired Gerald to open the second Nicks, in Elgin, and he had done a spectacular job, as measured by the growth in sales in the first year. With that success under their belts, the partners turned their focus to the next target on their radar screen, Chicago, and began recruiting the additional people they would need as the company grew.
As I mention in the article, the Chicago restaurant ultimately fell victim to the financial crisis in the summer of 2008, when the company lost its bank financing. Meanwhile, the recession was taking its toll on the other two restaurants, where sales were down more than 13 percent and food-and-beverage costs were higher than they should have been. Sarillo and Adams realized they could lose everything if they did not fix those problems. So Sarillo dove back into operations at the Elgin restaurant, while Adams focused on Crystal Lake.
It did not take long for them to realize that the problems went deeper than they had imagined. Sarillo discovered, for example, that the manager at Elgin was not handling the beverage- and food-buying the way he had been trained. That was why the restaurant's costs were out of control. Sarillo questioned him to make sure he knew how the systems were supposed to work, and he appeared to understand, but week after week the purchases did not line up with the inventory counts. When Sarillo did it himself, the numbers worked out fine. So why could he do it and this guy could not?
At the same time, Sarillo was hearing from Adams about cultural problems at Crystal Lake, where Gerald had been serving as general manager. For months, Rudy Miick—the consultant I mention in the article—had been warning that Gerald was not practicing what the company preached, but Sarillo had not wanted to hear it. “I liked him. He was a great guy. And with all the stuff I had on my plate, I did not want to believe that one of our best leaders might be a problem.”
But he could no longer ignore the evidence before him. “I was really shocked at how off-track we were with the training and the culture, and how little follow-through there was on the systems,” he said. “I called my dad and said, ‘I cannot believe what I am finding. There are so many things I thought we were doing, but we werenot. What I assumed Gerald was following through on he was not doing at all!’”
Looking back, he realized that he had missed some clues. For example, it is very common for employees at Nick’s to do a lot more than is in their job description. When I asked several of them why they did the extra stuff, they all told me that they thought it would help them become better leaders in the long run, or that they loved the company and wanted to do whatever was necessary to make it successful. In contrast, Sarillo said, when Gerald would ask people to do something extra, they would want to know how much more they were going to get paid to do it. In retrospect, Sarillo realized that this was a sign of an us-versus-them mentality creeping in. It should have tipped him off, he said, that something was amiss with the culture at Crystal Lake.
All that got me thinking about different approaches to management. I was familiar with command-and-control—we all are—but Sarillo’s experience made me realize that it has more nuances than I’d previously been aware of. When I hear command-and-control, an image of a drill sergeant springs to my mind. I imagine a boss barking orders and the grunts doing what they are told. But the command-and-control mentality is often far more subtle. It can reside in the nicest of bosses, including some who talk the language of empowerment and employee involvement. You can find them practicing command-and-control even in ostensibly people-friendly environments. Under Gerald and the other general managers, the culture of Nick’s was very people-friendly. Employees liked working there. Why not? Gerald, et. al. were nice guys and good bosses, as traditional bosses go. It is not hard for employees to adapt to a command-and-control boss who is not a jerk. Most of us do not mind taking orders if they are sensible, and many of us would just as soon have the boss take responsibility for the success or failure of the company (or the department, or the project, or whatever). It relieves everyone else of the burden of worrying.
But in trying to explain what Nick had discovered, I ran up against an obstacle. What exactly was the alternative way of running a business that he was trying to promote? I mean, what do you call it? It was obviously incompatible with command-and-control, but it did not have a name, which made it more difficult to explain and discuss. Sarillo was hardly the only person trying to come up with such an alternative to command-and-control. His management philosophy was very similar to those of a lot of other people and companies I had written about. Jack Stack and his colleagues at Springfield ReManufacturing Corp. (now SRC Holdings) were trying to do the same thing way back in 1984, when they began implementing the Great Game of Business, their system of open-book management. So were most of the companies in my book Small Giants. Zingerman’s Community of Businesses in Ann Arbor is a prime example, not to mention Clif Bar in Berkeley, CA, and Union Square Hospitality Group, the restaurant company started by Danny Meyer. Then there is Joie de Vivre Hospitality, the California hotel chain founded by Chip Conley, author of Peak. And Joe Cirulli’s Gainesville Health and Fitness in Gainesville, FL, which I wrote about in the August 2008 issue of Inc. As I looked at the list, I realized that it read like a who’s who of iconic, privately owned, small-to-midsize companies.
So what should we call the type of management they practiced? I asked Jack Stack that question, and he suggested trust-and-delegate. That did not have quite the ring of command-and-control, but I figured it would do until I came up with something better. A couple of weeks later, I was in Munich attending a conference, and I discussed the matter with my friend Steven Wilkinson of Buchanan AG, a private equity firm based there. When I mentioned the phrase trust-and-delegate, Steven rolled his eyes and said, “Yes, I tried that, and it cost me a fortune.” We talked it over and agreed that the phrase was missing something. You needed another element beyond trusting and delegating or you could get into a lot of trouble. We came up with trust-delegate-and-monitor. Otherwise, Steven noted, you were really practicing trust-and-hope.
But trust-delegate-and-monitor was a mouthful. I figured we could do better. I recalled the phrase that Reagan had used when negotiating nuclear weapons agreements with the Soviet Union: trust-but-verify. I thought maybe trust-and-verify would do the trick. Then, in early December, I had a meeting in New York with Paul Spiegelman, CEO of the Beryl Companies, and Ping Fu, CEO of Geomagic, as we prepared to launch the first of the Small Giants Safaris. (For more information about these, check out www.smallgiants.org.) They didn’t like the sound of trust-and-verify. We batted around some ideas before hitting on trust-and-track. Eureka! It struck me as the perfect name for an alternative to command-and-control.
I am sharing all this because, as Steven says, ideas only become personalities when they are christened and given a name. Trust-and-track now has a name, but its personality remains to be developed. I am hoping that all of you who are intrigued by the concept will join in that effort.
The Wave of the Future
Check this out: http://blogs.harvardbusiness.org/bregman/2009/03/why-small-companies-will-win-i.html?cm_mmc=npv-_-WEEKLY_HOTLIST-_-MAR_2009-_-HOTLIST0326
Thanks to all of you who have left comments here lately. I apologize for not responding sooner. Many people have asked about the availability of an audio version of Small Giants. I'm working on getting one produced, but first I need to re-acquire the audio book rights. Apparently, the audio book makers decide whether to create an audio version of a book before it's published, and they passed on Small Giants. I can get one produced if I can get the rights back. I'll keep you posted.
The blog is on hiatus. In the meantime, if you would like to leave a comment about the book or a related topic, please feel free to do so here as a comment on this post.
Cheers, Bo Burlingham
Names and Labels
Recently I've come to appreciate how important names and labels can be. It's much easier to ignore a phenomenon if it has no name. I suspect that's one reason why the Small Giants phenomenon -- that is, companies choosing to be great instead of big -- has been ignored up to now: It hasn't had a name.
These thoughts come to mind as a result of a meeting the staff of Inc. had last Friday with Timothy Faley and Mary Nickson of the Zell Institute for Entrepreneurial Studies, which is affiliated with the Ross School of Business at the University of Michigan in Ann Arbor. We naturally began discussing the different types entrepreneurial companies. Dr. Faley explained that the institute was formed to leverage the University's enormous research base and thus focused on the fast-growing, venture-backed companies. He and Ms. Nickson noted that there were programs at community colleges to support people who wanted to start restaurants, salons, clothing stores, and the like. What about other types of entrepreneurial businesses? we asked. They said that they also saw people who wanted to have lifestyle businesses.
That is, in fact, the way most people have divided up the world of private companies during the past 25 years. We've had the fast-growing, venture-backed gazelles; the stereotypical small businesses; the lifestyle businesses -- and that has been about it. In retrospect, it's clear to me that, in the process, we overlooked a large and important class of entrepreneurial companies, namely, those that aspire to be the best at what they do but that aren't interested in getting as big as possible. They don't force growth. They let it come to them. What drives them is the desire to contribute something great to the world. They regard financial success not as the goal, but as a byproduct of having great products and services, of cultivating great relationships with their customers and suppliers, providing a great place for people to work, and being a great corporate citizen. They are, in other words, the Small Giants.
My fondest hope is that, by giving the phenomenon a name, we will help to make visible a part of the economy that has remained invisible for far too long. I also hope we will provide people just starting out in business with a new goal worth striving for.
How big is small?
You can't talk, or think, about Small Giants without considering the question of scale. How big is small? That is, how big can a company be and still be thought of as small? That question has come up in some of the responses I've gotten to Small Giants.
Here's one from Taylor Bodman, a partner in the venerable firm of Brown Brothers Harriman & Co. "We fit the Small Giant bill in so many ways, but looking at your criteria, I can see why we'd be excluded. 3,000 employees... a bank (!)... 188 years old... 38 individual owners (still a general partnership after all these years). In what is our primary business line these days, securities services, we compete directly with the world's largest financial institutions. But in its 30 year retrospective of the global custody business, Global Investor magazine named us 'The Best Custodian Ever.' Stranger still, virtually all of our customers are licensed and capable to do for themselves what they instead have hired us to do for them." Is Brown Brothers Harriman & Co a Small Giant? Within its industry, you'd probably have to say yes.
The point is that size is a matter of context. To a person with a home-based business doing $200,000 a year in sales, a company with 6 employees and annual sales of $2 million is huge. The mainstream media, on the other hand, tend to view any business with less than $500 million in annual sales as small. Years ago, Business Week ran a (very good) article about companies that had become "management Meccas." One of them was Springfield ReManufacturing Corp., the pioneer of open-book management, which had $104 million in sales at the time. The magazine referred to the company as "itty-bitty."
Nevertheless, I knew that -- for the book -- I had to decide how to think about size. As I went along, I came to believe that, for my purposes, the relevant measure was not the amount of annual revenues, but rather the number of employees a company had. The companies I was looking for all operated on what you might call "human-scale," that is, a size at which it's still possible for the CEO and owner to meet with new hires and to have a personal connection with everyone in the organization. That, I found, was a factor in developing the kind of culture these companies have -- what I refer to as a culture of intimacy. Can a company with 3000 employees have that type of culture? I'm not sure, but I couldn't rule it out without knowing a lot more about the business in question.
Bill Taylor's Question
As I've gone around promoting Small Giants, I've gotten a lot of great questions. One of the most interesting came from Bill Taylor, the cofounder our sister publication, Fast Company, at my very first book signing event. My friend and former Inc. colleague Tom Ehrenfeld was there, picked up on the exchange, and subsequently persuaded Bill to write down his question and got me to write down my reply. Tom posted them recently on the excellent business blog at 800-CEO-READ. I thought you'd be interested in reading them.
Here's Bill Taylor's question: It's easy to understand what your Small Giants gain by choosing not to grow as fast as they might. But did many of the entrepreneurs you chronicle -- or did you yourself -- think about what these companies give up by staying small? I'm not thinking about money, I'm thinking about impact -- the chance to have a big effect on the world. Imagine if Herb Kelleher of Southwest had decided to stick to flying routes within the southwest. Or if John Mackey, the cofounder of Whole Foods Market, had decided to stop at a couple of stores in Austin, rather than spread across the country -- and, in so doing, raise the bar for nutritional standards, the treatment of animals, the future of organics. Isn't it almost selfish, in a sense, or at least a missed opportunity, if you're a passionate company-builder who believes in what you're doing and thinks it's important, to do less than what's possible, to have less of an impact than you might have otherwise?
And here's my reply: First, let me be clear about one thing: In no way do I mean to suggest that a company can't be great if it grows fast, gets big, goes public, does acquisitions, and so forth. The two companies you cite are prime examples of great, publicly traded companies, although it's worth noting that they are striking exceptions to the rule. They have been able to resist the pressures to compromise their values only because they have so far managed to deliver consistently great returns to shareholders, who have thus been willing to let the company's management teams operate as they see fit. Most other companies that have started out with similar values -- The Body Shop, Ben & Jerry's, and People Express come to mind -- have eventually been forced to make compromises that have utterly transformed their cultures and ways of doing business.
It's also important to recognize that there are always trade-offs. Although Southwest and Whole Foods are both great corporate citizens, neither one is rooted in a community anymore, and they've both lost some of the workplace intimacy they had when they were smaller, not to mention the intense relationships with customers and suppliers. My point is simply that there are sacrifices -- lost opportunities -- no matter what you decide to do. Company owners have to choose which opportunities they want to focus on and which pressures they want to deal with.
That said, it may be true that a couple of the Small Giants' owners/leaders have given up an opportunity to have a greater impact on the world by choosing to remain private and closely held and by staying (relatively) small. I say "a couple" because extremely few people are capable of building a Whole Foods Market or a Southwest Airlines without losing control of the company along the way. In any case, I certainly wouldn't describe the decision to remain small and private as selfish. For one thing, most of these people work extremely hard to make the greatest contribution they can to their employees, their customers, their communities, and the world. Saying their decision is selfish implies that people who try to get their companies as big as possible, as fast as possible, are somehow being selfless, or at least less selfish. We both know that the motivations of company-builders, even the greatest ones, are far more complicated than that, and that altruism or selflessness seldom enters into the equation.
By the way, Tom has his own blog at www.startupgarden.com.
Also, be sure to check out Bill's new column called "Under New Management" that appears once every four weeks in the Sunday Business section of the New York Times. Here's the first one.