Lessons from the executive suite

FRANK CARNEY

Papa John’s and Genghis Grill franchisee, co-founded Pizza Hut in 1958 with brother, Dan Carney.

LESSON: Do what you’re naturally gifted to do.

Dan is probably one of the better dealmakers I’ve ever known. He could take on 10 businesses at one time, but I didn’t really have the knack for that. I was the operator who liked to focus on what I need to do with one deal, not get into three or four. I got my kicks from getting stores built and focusing on building that company. When Pizza Hut was bought by PepsiCo [in 1980], I learned quickly I wasn’t going to survive long there because they wanted me to change things I believed in, like products. I got out of there and into investing in businesses, like Dan.… Initially, I made a lot of money at it, but then some of those businesses failed and I lost a lot. It wasn’t working for me like it was for him.

When I found my way back to the pizza business [in 1997], I said to myself, “This is one I understand very well and I know I could be successful doing it.”… I got back to focusing on what I was good at doing. Since then, we’ve gotten into Genghis Grill franchises, and those are doing well.

When people ask me [for career advice], I tell them to find two or three things they like to do and go get experience doing them. And don’t play around; do your best. Once I tried 10 or so other deals that didn’t match what I’m good at, I went back to the pizza business. It’s very comfortable being back in an area [where] I know what to do.

KENT TAYLOR

founder and chairman, Texas Roadhouse, Louisville, Ky.

LESSON: Smart operators are real estate savvy.

When we started Texas Roadhouse, my first store [in Indiana] did well, and then for some goofy reason I went to Gainesville, [Fla.], and opened the next one—which did well. I did locations three, four and five in Clearwater and Sarasota [Fla.], and in Cincinnati in 1994, but all were losing money. Not only did I have to sell part of my ownership in Gainesville to cover my losses, [but also] my [partners] told me they were done because they were losing money.

I realized I’d made some bad real estate choices, so I started reading books on that. I learned I needed to do surveys of the stores I had that were successful and learn who comes there and who our highest users were. Then I could find markets where those people lived. Our highest users are families ages 25 to 45, but in Clearwater, Fla., kids are 65 and their parents are 85—not our high-user target.

Two of those three locations didn’t have enough parking, and they weren’t easy to get into. You had to drive down and turn around a median and then go back to them. Eventually, I closed all three.

To this day, I still approve all real estate decisions; I’ve gotten pretty good at it. I closed three out of the first five I opened, but since then I’ve only closed one out of the following 315.

On my office wall I have [three plaques]: two fish and a skull I took from each of those stores I closed. On each I put how much money I lost on those stores, and when I’m at the table making decisions, I can see them on the wall, and they remind me to pay attention.

BILL FREEMAN

chief executive, McCormick & Schmick’s, Portland, Ore.

LESSON: Get firsthand knowledge of any business—before you buy it.

When I was a CPA many years ago, a group of my clients wanted to buy a Fuddrucker’s franchise. It looked like a great concept, and so we got into it thinking, “How hard could this be?”

So we opened that Fudd’s in Augusta, [Ga.], where apparently there was such a pent-up demand for the concept, we had a line of 150 people waiting outside to get in before we opened. We’re thinking, “Wow, this is going to be great!”

Well, we started serving people, and it just never stopped. It was crazy. And in the middle of the day, the general manager comes to me and says, “I can’t handle this; it’s too much for me,” and he handed me the keys and quit. I’m looking at the keys and his manager’s card thinking, “I don’t even know what to do with these things.”

About an hour later, we’re still getting beat up, and our two guys on the grill tell me, “This isn’t worth it. Here are our aprons.” I couldn’t believe it.

So I went to the grill—with all my backyard burger-grilling experience—started cooking and didn’t stop for the next four hours. About midnight, I sat, exhausted and realizing I never should have bought into a business where I couldn’t literally do every position myself. So I embarked on a path of learning everything I could about the restaurant business, working every position. All throughout my career since, I’ve had an insatiable appetite to learn everything about it—and probably because I still recall how vulnerable I was that day those people handed me their keys and spatulas.

MATT FRIEDMAN

co-founder, chief executive, Wing Zone, Atlanta

LESSON: Unit profitability—not unit growth—matters most.

When I and my business partner, Adam Scott, got Wing Zone growing, we understood you could do incredible sales, but if you didn’t put profit on the bottom line, it didn’t matter. Unit profitability was everything—at least that was our thinking in the beginning. Like a lot of people in this business, we eventually got focused on unit numbers, systemwide sales and the next market we wanted to develop.

The ability to grow is sexy and exciting, and it’s easy to get caught up dreaming about 500 units when you’ve got franchise interest like we did then. We were selling franchises very quickly and bringing on qualified people, worrying about how to get staffs trained and stores opened. But we lost our focus on profitability at the unit level, the details that matter.

We had a wakeup call in 2004 when we developed some units in the Dallas area. We had a very aggressive growth plan there that included opening a lot of stores developed under a master franchise agreement, which is something we’ll never do again. We wound up closing 11 or 12 stores in that market.

So we asked ourselves a couple of basic questions: “Are we making any money? And if not, what are we doing to improve the bottom line and make money?” We knew that if we weren’t profitable, we couldn’t grow, that we’d have a system that would struggle no matter how many units we opened. So we went back to the basics of analyzing our P&Ls. Today, we have P&L meetings every four weeks with every franchisee.

When you make mistakes like we did, you learn that the number of units you have is not your report card. Your report card is how profitable those units are.

JIM GROTE

founder and chairman, Donatos Pizzeria, Columbus, Ohio

LESSON: A public company has its drawbacks.

I’d been in business for myself 36 years when McDonald’s came along and offered to buy the company [which it did in 1999]. What a compliment that was.

Working for them was incredible, a textbook education. The focus groups they ran [for product trials] mesmerized me. They were so professional about it. At Donatos, our focus groups were a half dozen people sitting around with me asking, “How do you like this pizza?” and them saying, “We like it, man!”

For a while I was thinking, “If this is the biggest restaurant company in the world, then they surely know what they’re doing.” …But over time I started to realize that just because they were the biggest in the world, they didn’t necessarily know my business.

[With McDonald’s] we opened a lot of [dine-in] stores that cost $1.8 million to build—but our average was only a million a year in sales. When you’ve got crazy-expensive buildings going up, the concept won’t be viable for long. Yet they kind of led me to believe they were going to be very patient about Donatos, that we’d take our time to get established.

But in public companies, if it’s not making a profit every quarter, then shareholders and analysts are upset. I can’t blame the board for making the necessary cuts to get the company back to profitability [such as selling Donatos back to Grote in 2003] because it worked. Look where they are now.

When we got it back, we started reinvesting in the company and making decisions for the long term. We closed more stores…and built a factory for our dough—that cost a bunch—because we knew that would make Donatos a much stronger company over time. I can tell you that if we had to report quarterly earnings back then, our stock would have been crap! But we’re in a great position now because of all that investment.

JOHN Y. BROWN JR.

former co-owner of Kentucky Fried Chicken, current co-owner of David Toole’s Original Roadhouse

LESSON: Entrepreneurs, not bureaucrats, should lead companies.

The biggest mistake I’ve made is the same one I made a number of times: hiring corporate bureaucrats to run my companies. Sometimes you get tricked into thinking that, when you get to a certain size, you need some corporate organizational skills. But what size is that? We had 3,500 Kentucky Fried Chicken stores before we learned we were supposed to have an organizational chart.

We were bigger than McDonald’s at that time—there really weren’t any chains of any size back then [in the early 1970s]. So who were we going to hire who had experience? I was only 35 at the time [he’s now 76]; what did I know? So I started hiring all these corporate types with great résumés.

What I learned first is there’s no such thing as a bad résumé, because everybody gilds that lily. I also learned these bureaucrats are afraid to fail, so they never take chances. They close the office at 5 every Friday, while entrepreneurs are there until 9. They’re more worried about protecting their jobs than growing the business. Entrepreneurs don’t see their mistakes as failures; they seem them as lessons to learn.

The old Colonel [KFC founder Harland Sanders] was just great.… I listened to him more than anyone in the company. He was obsessed with the product and he had a real feel for the concept. He started that company when he was 65! Now, he was a character for sure, but he was an entrepreneur.

JON LUTHER

executive chairman, Dunkin’ Brands Inc., Canton, Mass.

LESSON: Never work for anyone who doesn’t share your values.

In the late ’80s, I put a deal together with a venture capital team to buy a foodservice management group.… It went well for about three years but ended disastrously. They cut me loose without a severance. I was out on the street with a wife and a couple of kids in college and virtually broke.

What I did wrong was I didn’t really do my due diligence on my partners, ask them about their values, their strategic vision for the company, or find out how they would react in good times and bad times. I learned that when your values aren’t aligned, there’s going to be trouble.

Later, I was offered the position of president of Delaware North’s restaurant group [CA One Services]. That time I knew to ask a lot of questions. When we met, I saw that our values aligned perfectly, and so I took the job. It was a great company to work for. Other opportunities came along, ones that paid well, and I could have used the money. But I said no, I need to be aligned with their values, so I stayed.

When I went to Popeyes, I met with all their leaders and I articulated the vision I’d have for the company if they hired me, to see if they’d allow me to proceed along those lines. I asked a lot about my contract because I wanted to protect my family and not have happen again what happened in 1991.

Eventually, talking with Dunkin’ was a protracted process because I didn’t want to leave Popeyes. But it was such a compelling opportunity and the fit seemed right, so I asked the same questions: “If I did this, what would you do?” “Here’s what I think we can do to put Dunkin’ in the coffee game. Are you comfortable with that?”

None of this is perfect, though. You always take a risk. That’s why contracts are so important. I went in a little naïve a long time ago and came out a little humbled by it—but I made sure it would never happen again.