Friday, January 29, 2010
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.