In this episode of Partnering Leadership, Mahan Tavakoli speaks with Robert Rosenberg, CEO of Dunkin Donuts for 35 years and author of the book “Around the Corner to Around the World: A Dozen Lessons I Learned Running Dunkin' Donuts.” Robert Rosenberg shares his origin story, leadership successes and mistakes, and lessons learned in growing Dunkin Donuts to the household name it is today, and his advice on how to effectively lead an organization.
Also mentioned in this episode:
Charles Lubin, founder of Sara Lee
Nathan Cummings, founder of Consolidated Foods
David Halberstam, author of “The Best and the Brightest”
Bob and Edna Demery, Dunkin Donuts franchise owners in Hartford, Connecticut
Thomas Schwarz, former president of Dunkin Donuts
Leo Prieto, Dunkin Donuts franchise owner in the Philippines
Rosabeth Moss Kanter, author of “Think Outside the Building: How Advanced Leaders Can Change the World One Smart Innovation at a Time”
Howard Samuels, former director of the Small Business Administration (SBA)
Connect with Robert Rosenberg:
Connect with Mahan Tavakoli:
More information and resources available at the Partnering Leadership Podcast website:
Welcome to partnering leadership. I'm really excited this week to be welcoming Robert Rosenberg to the podcast. He served as Chief Executive Officer of Dunkin Donuts from 1963 until his retirement in 1998.
He's really the person that put Dunkin on the map. After becoming CEO at age 25, and over those 21 years, he earned investors a 35% compound rate of return. More important than that is the way Robert led that organization. He shares some of those leadership insights and a lot of great stories in his recently released book “Around the Corner to Around the World: A Dozen Lessons I Learned Running Dunkin' Donuts”.
Thank you for all the comments about the podcast. Feel free to keep your feedback coming, email@example.com. There is an icon for a microphone on PartneringLeadership.com. You can leave voice messages for me there. Don't forget to rate and review the podcast. If you listen to it on Apple, that will help more people find these episodes.
Now here's my conversation with Robert Rosenberg.
Robert Rosenberg, welcome to Partnering Leadership Podcast.
Thank you, Mahan. My pleasure to be here.
I am absolutely excited, Bob and I have to tell you, this is the podcast that my girls are also really excited, knowing that you were the main reason for a Dunkin’s success over the years.
So I can't wait to share some of your leadership journey with the audience. I read your book “Around the Corner to Around the World: A Dozen Lessons I Learned Running Dunkin' Donuts”. Would love to capture some of those leadership insights.
But before we go there, our upbringing has a big impact on who we become as leaders. And I know yours did for you. So what was your upbringing like and how did that impact the kind of leader you became?
I was born into a very poor family. At 1938, was my birthday. And my father had worked in the shipyard during the second world war. And had also run some ice cream trucks around, which were ice cream trucks in New Haven before the war.
And after the war, he went into a partnership in Bridgeport, Connecticut with two guys in an industrial feeding business. These were the two-tone trucks called Industrial Lunch and Service. The sides came up and they would serve coffee. And I remember as a kid, I must've been, oh, I don't know, seven years old or so, going with him on Saturday afternoons to football games and selling coffee and donuts and sandwiches to the people in the stands and always was associated with the family business. It was almost like another family member; it was always present.
My father didn't last long with those two partners. They basically broke up after six months and we moved from Bridgeport all the way to Dorchester, Massachusetts. And we moved in with grandparents and had also live with grandparents, with my mother and father during the war, during parts of the war. Some other words, we were, I would say lower middle class. We were not wealthy people.
And my father started this industrial luncheon service business, same name, same two-tone trucks as he had been in partnership in Connecticut. Apparently they didn't trademark the name and the concept. So he was free to start the very same business in Massachusetts in Dorchester. And aunts and uncles, basically rehabbed a small little commissary, small, couldn't be more than two or 300 square feet, very modest.
My father sold a new routes to small factories and offices and my uncles either pushed the canteen carts or drove the trucks. My mother made sandwiches and I, after school would wash out the five-gallon coffee cans that came back. And that was basically my upbringing. I virtually grew up over the store. And as the business grew, and it did grow, yeah, I would work, you know, whatever spare time we had in the business. I learned the business. I loved the business. Dinner conversations were always around the business.
And so it was a part of me and I suspect that even at a very -- and I adored my dad, to me he was bigger than life. An eighth grade educated guy, but a natural born philosopher and entrepreneur. Big guy, that weighed sometimes 230, 240 pounds. He would say ‘big man and a big personality.’ And he shepherd me along the way as a kid.
And as time went by, that business grew, he felt his eighth grade education limited him. So he took on a partner, my uncle, who was a CPA by training and he thought my uncle really was his mentor. And they were partners for a while. And the business had problems though, because vending machines came on the scene and started displacing, make the truck business a little less successful.
And in an attempt to diversify, they decided, because of baker and the commissary that made baked goods for the trucks, said there was a donut shop around the corner that had 12 or 13 trucks that went around and sold donuts wholesale and made more money in their one retail store than they did on all the trucks.
That was enough of a inspiration to have the partners try to open a business in 1948 called the Open Kettle, which was a donut shop with 28 varieties. The best coffee we could make at the time. But unfortunately, it was in a little adobe shack, it was $75 a month rent. No one knew what we were selling inside. It was a thousand dollars a week in sales, probably no different than the other 1500 doughnut shops that existed in Massachusetts at the time.
And luck, what happened. And I find this is true in all business startups, luck plays a huge role. The guy across the street was a restaurateur and he decided he was going to add a donut shop to his business. The partners were out of their mind that they were experimented on. It's got to be stopped in the bud immediately.
They went out and hired the architect that was going to do this for the competitor. And this man, by the name of Bernard Healey came in and he said, you know, “This little shack isn't doing you guys any favor. No one knows what's going on inside. The product’s delicious, the coffee’s the best in the world, but no one knows. So we got to, I suggest you rip it all down, we put up a California style shop, put it all in a fishbowl.”
We changed the name so people know what's going on inside, and that's in fact what they did. And so a-thousand-dollar-a-week Open Kettle closed in 1948 or 49. And in 1950, I think it was a Memorial day, I remember going there for the opening day, same location, same managers, the Spyros brothers from the shipyard my dad had worked with. Everything was the same, formulas were the same, pricing was the same. The only thing that had changed was the design and the name. And a-thousand-dollar-a-week Open Kettle became a five-thousand-dollar-a-week Dunkin Donut shop.
And that was when coffee was a dime over the counter and donuts was selling for a nickel. And they were, you know, 50 cents a dozen. And it was a wonderful success. It opened at 5,000, $5,500 a week in sales, and it was the beginning and the foundation of an enterprise to come. That's a little bit of my background and how the company came to be.
And that success was great at the beginning, Bob, but this Universal Food Systems had everything from hamburger stands to pancake houses. And your dad was smart enough, after you graduated from Harvard business school at 25, to ask you to become the CEO of this mishmash of a business doing about $6 million in business earnings of only about $93,000.
Now, to put it in context for everyone, right now the market cap of Dunkin is about eight and a half billion dollars. So what I'm curious about is why did you choose, when you came on board as CEO, to focus primarily on donuts and coffee, while at the same time your uncle had started Mr. Donut which was competing with the business too.
Let me step back a little bit. The company my dad asked me to take over the helm was called Universal Food Systems. It was comprised of around eight small little businesses. When I went away to college and ultimately to the army, and then ultimately to business school. When I left, there were five Dunkin Donuts shops that were serving just donuts and coffee and quite successful.
When the partnership broke up, my father and my uncle then took the book value. My uncle took that money and started a competitive donut shop chain. When I came back while I was in business school, which wasn't far from the home office, the company had begun to change. My father decided to diversify dramatically. He had an industrial feeding business, cafeterias, vending machines, 15 cent hamburger chain called Howdy! Beef n’ Burger, the house of pancakes called Dunkin’ Donuts House of Pancakes.
He has found out all these businesses, and one of those businesses within the system was Dunkin Donuts, but the management, and he had brought in an executive vice-president from Montgomery Ward, they had lost faith in just a doughnut and coffee shop business. And they started to diversify the menu, the size of the shops, and it had lost all, some sense of conformity.
While I was in business school, I was fortunate enough to take courses in strategy and retailing and I had the opportunity to think through what would I do if I ever had an opportunity to manage this business. Never expecting I’d get the call in a week after I graduated, that was never part of my plan, but basically came to the conclusion that a young company can die as much from indigestion, having too much on its plate and unable to do it, as it could from starvation, not having enough capital and people.
So as a result of that, my notion coming out of business school was the only business that was truly unique and offered a purpose of something better and different than what existed in the marketplace was the original Dunkin Donut concept. And then if we went back to that, we would have a vehicle for the sustainable competitive advantage and the other businesses didn't. They were ‘me too’ operations that were larger, more effective, better managed in their categories that were far larger and far more able to capture the march than we were and their categories.
So it was the notion. And the first thing I did is, when I got the call to be CEO of the business, about six weeks after, it took me about six weeks to make up my mind, I got the invitation, my dad asked me right away. The first thing we did was sit down as a management team, the senior managers, and we decided on a strategy, what were we going to be? What were we going to invest time and money in? What really made us significantly better? What was sustainable that we could develop and grow? And what wasn't?
And out of that came all of these donut shops that were no longer donut shops, they were serving breakfast and eggs, some of them are 90 seats, some of them are 18 seats, some of them are still selling hamburgers and hotdog.
So decided we're going to standardize the menu back to what it was in 1955, coffee and donuts. Standardize a 20 seat counter, standardize the menu, the price, the format, and we were going to standardize and focus, really niche down to what markets we could build our business and exclude interested franchisees in markets where we couldn't sustain growth to the point where we could be large enough to get on to advertise and we could provide a supervisor.
So we really narrowly focused—obsessively focused, and it worked brilliantly. The fact is that when my second year in business school, when Mr. Donut was about to overtake Dunkin in terms of size, my father was so frustrated losing the battle with his brother-in-law, who he had dismissed during the tough days of the partnership breaking up as a bean counter. He tried to sell the business then, which was earning about $90,000 to $100,00 a year before taxes to a private equity buyer.
I went with him to New York and he couldn't get the million and a half dollars that would allow him after taxes to be the millionaire he always wanted. So he was frustrated, didn't know quite what to do with his mishmash. And I did have a vision and my team shared that vision. And luckily, we were able to put it into effect and before we knew it, we sort of exited all those other businesses slowly but surely.
And within five years, the hundred thousand pre-tax profit had grown to $800,000 in pre-tax profit. And my father kept trying to sell the business all the time during that growth between 63 and 68, at five-year time period. And I kept resisting, and ultimately, my commitment to my dad to be able to, and he was a child of the depression, frightened, you know, he had seen his own father go bankrupt from a depression. So that he would have some money and equitize. And I promised him, the first opportunity, we would go public. And on February 6th 1968, Universal Food Systems ceased to exist. And we went public with Dunkin donuts at $20 a share. So I guess the market cap at the time at 2 million shares is about $40 million dollars.
And before I knew it, the public market took to us and the whole notion of franchising and food service, and they were a little bit similar to what would be true today in the high tech era, we were trading at 60 times earnings. So by my 30th birthday, in 1968, I was sitting on a company with a market cap of something close to $120 to $150 million dollars at 60 times earnings. And that's when the mistakes started to happen.
Before we get to that, because that's a key part of what made you the great leader that you are. You had this wonderful focused strategy that you were able to execute along with tremendous value of quality. It's impressive that Dunkin has 27 paced specification for how to make a cup of coffee. And you tell a wonderful story about what helped you understand that quality will help drive growth of Dunkin.
“Always be better” dad always drummed that into me, that was a mantra he would talk about constantly. And no reason for being unless you really provided a better product than what existed in the marketplace.
But it was, he had gotten diabetes when he turned 50 and he went to Rice, The Rice House at a part of Duke & Durham, North Carolina. And he met this guy, Charlie Lubin, who was a baker. Charlie Lubin was the baker that started Sara Lee, who was the name of his daughter and he was selling pound cakes everywhere and they were the rage back then.
And my dad said, you got to go to Chicago. You got to meet Charlie. So being a dutiful son, I said “sure” and off I went to Chicago to meet Charlie Lubin who had now sold his business to Nate Cummings who owned Consolidated Foods which Sara Lee was a major part of.
By the way, I had spent in one of the buyers, as the company started to do, Dunkin started to do better, tried to buy Dunkin which by that time was $700 million dollars. I turned him down as a buyer because I wanted to keep the company and family ownership and go public as opposed to sell the whole company.
But in any event, I meet Charlie and we're up at this a club over LaSalle street for lunch. I fly out from Boston in the morning. And I said “You know, Charlie, I'm a young guy, my dad tells me you got the secret to the food business industry”
And I said, you know, “Would you mind sharing?” Charlie who I think was born in Brooklyn, so he leans over the table and he says “Butter.” I said “Excuse me?” He said “The secret is butter. What do you think a pound cake is?” I said “I have no idea.” He said “A pound cake is a pound of flour, a pound of sugar, and a pound of butter.” And he said “There's nothing like it, and if you're going to be in the bakery business, that's the secret.”
And on my way back, on that flight back, it just, all it did was reinforce everything that my dad had always told me. And I was committed to the fact that we were going to have a very limited menu with coffee and donuts, but whatever we did, we were going to ensure that it was the finest products available. That we would solicit real goods as we could find. You know, it has got to be Saigon cinnamon, it was going to be [inaudible] in alum. And we were going to do it, you know, it was going to be real fruit in the fillings and the jelly. And, you know, we were going to focus on a few items.
But you know, if I look back over what really sells over long periods of time, when you look at Heinz Ketchup, Hershey Bars, or any of these food products, in general you would find that they are made with fine ingredients. Budweiser, Beechwood aged, they took care in terms of developing their product. They loved the product and they made sure that it was dealt with tender, loving care. And they tried to, there's design elements that made sure that it was really better than what else was available at that price within the marketplace.
I said, we have to be committed to the very same thing. So I in fact, regrooming an old idea, but really now making it a real part of in terms of how we would conduct ourselves into the future.
And that focused strategy and that focus on quality obviously helped you grow and do very successfully at the public valuation, as you mentioned, 1968 of 120 million. But then you decided to start the portfolio of other franchise companies, fish and chips chains, franchise learning centers. What got you to start all of these different businesses?
Basically the very same mistake that my dad had made. Not drawing a distinction between exploitation and experimentation. And the niching down and the focus had paid off so brilliantly in the first five years that the success is at, was really an impediment to my future success. Selling at 60 times earnings was seductive and I then made a decision and change the strategy of the business.
Instead of being a focused donut and coffee company and being preeminent in each market in which we selected to distribute our products so we can advertise and supervise, I decided that we would become a portfolio of franchise businesses. And I opened a Fish and Chips chain, I began to talk to IBM about learning centers. Hats started to go away after JFK didn't wear hats and Hat Corporation of America was looking to open a chain of franchise haberdashery men's stores. I talked to them about franchising those.
So I basically had taken my eye off the ball and began a lot of other initiatives and began to push the organization into fast growth without understanding distinction. I was shooting from the hip.
Business school was vitally important to get me started, but then I found that I had gone way off track, lost all that focus. Didn't have enough guidelines and guide rails to get me to be more thoughtful about what we wanted to be, what we wanted to have and what levers were we really capable of pulling at any one time.
I just basically gouged the company and here we were again, suffering from indigestion. Massive indigestion. And earning started to falter off. I had recruited friends of mine from business school to join me out of Goldman Sachs, great people. One of them was one of my closest friends. He and I would drive to school every day.
Lost faith in my leadership. Left the company, rightfully so. Lost confidence in my leadership. And the franchisees started to buck and started a class, a couple of them started a class action lawsuit. It was a mess. So I had done exactly the same thing my dad had done.
And fortunately, before I had gone too far, I was an avid reader and I like to read about business. I was reading, but this was about history, I was reading a book about the Vietnamese war called “The Best and the Brightest” by David Halberstam. And he talked about the Johnson’s and Kennedy administration and the administration of the Vietnamese war being really waged by the best and the brightest our country had to offer. Ivy leaguers, and I could read that, look at me. And who didn't go into the fields, into the hamlets, into the townships where the battle was being waged, where the Viet Cong was winning the hearts and minds of people. They were relying on third hand information and data, body counts, other information that really didn't reflect the true story of what was going on and what was required in order to win the war.
He called it, in his final analysis, that our people, our leadership was suffering from what he called hubris. The Greek word for arrogance. And Mahan, I can tell you honest to goodness, sitting in my easy chair, reading the book, it was a transformational moment for me. I said, Halberstam could just as well be talking about me. I was doing the very same thing.
So we caucused as a management team in the early seventies. I think Halberstam's book was 72. And we decided that we were going to do a 180, that this was going on the wrong direction, that we would all visit a hundred stores, including myself, a year a piece to talk to the frontline leadership, form an advisory council as franchisees, apologize for the error of our ways and our wrong strategy, invite them in to help us fix it.
And also ensure that the board was better utilized. I had great board membership. They were very instrumental early on, but I had no forum as I was changing strategy. I was shooting from the hip. I wasn't discussing it with them. I wasn't bringing them in on the plans. And I was running sort of untrammeled. I needed a better forum to ensure that I was not making impromptu and intuitive decisions that were incorrect.
And so we did a whole host of things and sure enough, we began to turn the business around dramatically. Closed down the Fish and Chips store, I ceased doing the other things, I was expanding in Japan at the time, I was in the chairs to become chairman of the International Franchise Association at 32, I was the 10th chairman and basically decided to cut those activities down, go right back to our basic formula.
What had made us so successful in the first era of our business from 63 to 68, we were that unsuccessful in the second era, 69 to 73. And we were often running in the next four eras, each of them could be anywhere from three to eight years in periods. But basically, that was a transformation.
They now talk about emotional intelligence. Well, that language wasn't around in 1972. That's a late 1990s kind of identification, but that's what it was to me. I was beginning to understand the importance of my role as a leader and how much, when I get it wrong, how everybody who is following me pays a fearful price, horrible price. And that you had to be a lot more thoughtful, a lot more thorough, a lot more disciplined, better processes, better procedures, and a lot more involvement in getting the input of a lot of smart people to help you.
And so for me it was kind of a growing up moment. I would tell you that didn't make me fully grown up. Hopefully I'm still growing up to this day and still learning, but that was a critical lesson or lesson I never forgot.
And Bob, that is such a beautiful example of also what you talked about with respect to extreme ownership. You had the humility and the openness to look at how you, as the leader of the organization, needed to improve in order for the organization to be put back on the right track.
That's correct. It stuck. I mean, my first lesson in the book is it all starts with leadership, and we can see it in our public life today, what kind of problems can occur if a character is missing, is on doing the wrong things, get the wrong policies, and also the wrong character because it takes both of those elements that play a role on leadership, and it casts a massive shadow.
I was watching Dr. Birx, I can't remember, Deborah Birx, on television yesterday. And she basically was in such pain because, and my position is you can't fix it from the middle. You can't fix it from the bottom unless you vote someone out. But fundamentally, it doesn't change until you have an effective leader. You've got to change the leader and then everything falls right in.
I mean, she was in such pain, Dr. Fauci, in such incredible pain. And there was, as well-intentioned as they were and as much as they had hoped they could fix it by trying to keep things on track, if the leader doesn't see it as it misaligned, there is nothing you can do from the middle. You just, you're in an impossible situation.
And you not only embodied that kind of leadership, you also stayed very close to your customers, primarily through the franchisees and listening to the franchisees. And I love the story of how the munchkins came to be at Dunkin Donuts.
It was right after that time. It was just about that time. It was, let me set the stage a little bit. In the seventies, there were oil embargoes. So there are odd and even lines when you could get gas or you had to have an odd or even number on the back of your license plate, you couldn't get gas lines, they were miles and miles long. Tempers are flaring. The end product of Johnson's guns and butter administration was coming home to roost. The stock market was suffering. People didn't have a lot of money. We were in the verge of a lot of inflation.
And at that time, I get a phone call from an old friend, young man who had actually taught me to make donuts in our early years, we're both about the same age. Guy by the name of Bob Demery and he owned, he had gone from a donut man to owning two stores in Hartford.
And he says, you got to come down to Hartford and see what Edna has developed. Edna was his wife. And I said “What is it?” And he said “Edna were selling these donut holes.” I said “Oh no, we always did that in the past.”
You know, we would pick up the cuts, the little donut holes, as we would cut the first cuts out of the rings and we would put them around Halloween, we'd fry them off. And we had plain, and cinnamon, and powdered sugar. And we’d put them into little cellophane bags and put them on a potato chip holder. You know, and sell them for a week or two as a trick or treat item.
He said “No, no, no. You've got to understand that Edna went out and made up her own cutter, a lot larger, a lot different. And she's making them both out of the yeast product, as well as the cake. She's filling them with apple, with jelly, and with cream, and every kind of conceivable thing. She's piling them high on the gold trays and the fancy case. And our business is up 20%.”
Well for anybody who knows retail same-store sales, you know, anything in the double digit is a huge number. To be up 20% is a once in a lifetime occurrence. It took us about a day to get it in the car and go down and see what Edna had done.
And sure enough, it was just as Bob had described it. And I was myself, Tom Schwarz, Bob, and Cameron Shannon, who was head of marketing. And we said, this is a winner. And we decided to hire an agency outside of the one we were regularly using just to handle this product. And it was Hill Holliday, which at the time was a tiny little agency and had worked for Howdy! Beef n' Burger way back in the early sixties.
And we asked them to come up with a name, and the first name they tried was ‘Penny Poppers’. And then we said, well, it's inflation, we can't give them anyway in pennies so let's try another name. And they said, you know, every year CBS brings back The Wizard of Oz and the little people in The Wizard of Oz, around Easter, the time when they show the thing, are called Munchkins. Let's see if we can get the name ‘Munchkins.’
And Archie Southgate, who was a great partner at Ropes, and ultimately the managing partner at Ropes & Gray's, a great law firm in Boston. He contacted Jack's Cookie Company and found out they weren't using the name and for a dollar a year, he leased the name ‘Munchkins’ and we're off and running.
And now, here we are 50 years later, the product is still a wonderful part of our menu. It’s still thrilling everybody. And we sold them in buckets, in 10 counts, 20 counts, and 30 count buckets. And our same-store sales that year in the middle of all of these gas lines, all of these tumult, all of the oil embargo—and same-store sales that year were up 12%. It came just in the nick of time.
And just happening, about the same time, is the Halberstam book. You can see the first payoff of having two ears so I can listen twice as much as my one mouth could talk, was paying off immediately by listening to this idea that Edna Demery had created.
What a great example, Bob, of the fact that the people closest to the customers are the ones with the ideas and leaders need to be willing to listen to those closest to the customers.
But it's not only with respect to products. I also love the fact that even with respect to your go-to market strategy, you were willing to look at ideas that came from the field. And from an experience in Philippines, you came up with ideas or saw additional opportunities for Dunkin Donuts go-to market strategy.
And that's so true. Actually, I was on a trip to the orient. We were having some problems with our Japanese licensee and I was going to stop in the Philippines. We had opened a few stores there and they were very, very successful, they were expanding rapidly. But I was told that they were taking donuts out of the Makati store, which is a very wealthy, nice part of the neighborhood in Manila. And they were selling them at convenience stores, in theaters, and gas stations, they were donuts and coffee.
There are things in Manila called jeepneys, these old motorized bikes. And you know, that was the time when we had Fred the Baker advertising “Time to make the donuts!” had that supermarket donuts, so that we were making all the product within the four walls of the store. We just didn't take the product away and sell it in other places.
So on my trip to Japan to solve the problem there, I was going to stop and try to convince them that this was not a good idea. This isn't the way Dunkin does things. And traveling, I think at the time with Tom Schwarz, who's the president of the company, my really partner in business for 20 somewhat years.
And we get to Manila and I find out that these little businesses are being designed and run by the wives of the board members. The board members were among some of the wealthiest merchants in Manila. And the wives, very fancy ladies, basically had their household help take the product out of Makati on the jeepneys during house cleaning chores, bringing them to these, all these different venues and they were doing gangbusters business.
Well, the franchise was controlled by a guy by the name of Leo Prieto, who is a delightful guy, a very fancy guy. He was also president of the basketball league. He never confronted me with this issue. He knew what my mission was, but he carefully arranged a series of dinners during my stay, the opening of Dunkin Donut in the university belt in Manila and the distribution center.
And we had dinners and award ceremonies, and he always sat me between the wives whose business it was. They were talking to me, you know, “You can't, mister Rosenberg, you can't do this to us. This is, let me tell you how much I'm doing, let me tell you how much we're making” and on and on and on.
And you know, by the second and third day, my head was spinning and I said, my God. I mean, this is like a whole different way of going to market the way we did. We always sold within the four walls of the store, this would be a major change, but it really looks like it's got an opportunity.
So Tom and I, on our trip on into Tokyo, and I think ultimately we went on to Bangkok. I tell him “What if we changed the world and we allowed this to happen? What would our world look like?”
Well, by the time we got back, some other franchisees in the United States wanted to do the same thing and it wasn't long before we basically decided, a little bit like Coca-Cola, when they took – you know, Coca-Colas only sold in fountains and some were syrup during its earliest. It wasn't until they put it in bottles and distribute it wherever people worked, shopped, traveled to play, that it really took off. And we decided we're going to do the same thing.
That rather than sell an individual store with solo territory, within that territory, they will try to get as many sources, points of distribution, instead of having 2000 square foot stores, half of which were going to be for the production of donuts. We're going to have 1000 square foot stores and manufacture our donuts centrally and distribute them. And it increased the return on investment at the unit level, which is in my view, what the critical metric is for success.
And we were often running. And explosive growth through the eighties. And a large part of that was because of the housewives of the board members in Manila.
And that is fantastic because there are so many examples of how you listened to the franchisees, and how they listened to their customers, and then you adopted what worked.
Now, you mentioned earlier, Bob, the sort of the tension between exploitation and experimentation. Obviously as a worldwide organization, you needed to maintain a certain level of consistency. How would you decide what is worth exploiting and spreading to the rest of the franchise network? And how did you determine this idea might be good in one market, but it's not something we want to take to other markets?
Luckily, because we had thousands of stores, even when we had hundreds of stores, we would never, under our administration, never provide a product or a process unless we had tested it and unless we could show that they had a particular kind of return on investment.
So we would not ask them to remodel, we would not ask them to put an oven in when we introduced muffins or croissants. We would not ask them to do anything that we weren't sure that could provide them. We would then state: there’s a 20% return on investment, five-year payback.
And we were slavish to that. We felt very strongly that if we would ever just ask them to do things that weren't in their own self-interest where the returns weren't satisfactory, they would ultimately stop listening and stop following us. So that was a, sort of a part of our philosophy, part of our value system.
Sometimes it took us a long time, but that was our job as the guardians of the brand to ensure that any changes that we proposed required investment of changes, process and practices, would provide that fair return to the franchisees. And they began to understand that we would do that.
Now with that said, clearly, internationally, different products meet different tastes. But in the US and in Canada, I would say for the most part, they were pretty much universally accepted, the products deliver.
And we would do the same thing for new products. We live on ‘news.’ A retailer has to have something new and exciting. So during the course of the year, we might have six news items. It could be a price off, could be a new product, it could be a promotion, but we would have them. They would last about six to eight weeks and we would promote them.
And we would panel test them. We would ensure that all of that stuff was well tested a year in advance. So we said, if you take the time and energy to do that, here's the penny profits that you're going to enjoy either by discounting that product this much, this is what you'll do incremental over standalone, or do nothing.
And that was, everything was done mathematically. Everything was done by regions and we would, we had regional marketing managers and district managers. They would, they were all organized into district meetings, and those would be proposed to each district. And then within each district, if we had six events for them that had come from headquarters, two of them, they could pick on their own that met their needs in their community. And we would help them and guide them, ensuring the penny profits and the returns would be as consistent.
And it seemed to work well, but it's partially a lot of communications. It's kind of a military organization span. For every sort of eight people, you have another district manager, another director, and it all builds up. But you have to communicate and keep people organized at each level through store visits, including by senior management, district managers. And a standard way of looking at the business.
We would try, as we did with our own company, we would manage by objectives. We would have the franchisees and the districts do the same thing. So in the advisory council, rather than units, a lot of back and forth conversations, we would say, with their involvement, you know, this year, we want to see same-store sales grow so much, we want to see profitability grow so much, and returns be so much for the unit.
And here are the five strategies, we would agree with them in general. They might alter somewhat from region to region. So we had a common language, the way I look at this, we were united together in terms of ensuring what that store profitability would look like. And that was the guideline. So everybody benefited. It wasn't just reopening more stores and selling more and getting more royalties.
We really had a vested interest in having their ROIs high. They could expand because the better ones would buy out the weaker ones. It was just a virtual cycle and circle that worked out for our benefit.
You show as a leader, that your success was because of the success of your network, franchise network, and those people that you elevated.
You also mentioned, in terms of functions of the CEO, all the six different areas that you look at in your book. You use the same framework of strategy, organization, communication, and crisis management.
So with respect to advice to leaders of organizations, whether franchise organizations or general, how do you view those four factors as playing a role with respect to how leaders should look at leading their organizations?
This was something that had occurred to me over time. But all of us, as we sit in our chairs and travel into the field, things every day, maybe hundreds, at least scores, come in over the transit. And there's a tendency for them to sort of attract and demand your attention. Today's emergencies, today's issues, today's tactics.
And I concluded that there were a couple of things that absolutely had to go on my calendar. That were absolutely essential. And that if they didn't exist, they wouldn't exist and the business would falter. And so I synthesized those four activities that I thought were absolutely essential and they would get highest priority and go on my calendar first.
So the first was strategy. Strategy was a clear articulated view of what the purpose of your businesses is. And in our case, people might say, well, it's just donuts and coffee, but it really were, we were providing a start to a day’s business for 5 million people around the world, put a hop in their step. And that we thought, very strongly, that the world would be a sadder place had it not been for our products. And we felt strongly about that.
And our mission is we wanted to be preeminent, at least 50% share of the coffee and donut market and in each market, we had liked it to compete. So there are hundreds of SMS’s. I won't go into each of the details, but it was a very rigorous look at strategy.
What did we want to be? What did we want to have? And what four to six levers were we going to pull to take scarce, every scarce resources to the achievement of those objectives. We only have three objectives. You can measure tons of things. We picked, we thought only three you could keep your eye on.
One was, we wanted to grow our own earnings per share. You know, between 15-20% a year. We wanted to have franchisee returns at least to 15, closer to 20% return on investment. And we didn't want to have too much debt. And those were the three criteria.
I mean, you can measure customer satisfaction score. You can measure all kinds of things, hundreds of them, but we would synthesize it down to the few that made the biggest amount of difference. And it might vary lower on the organization, which three things they were going to measure. But everybody had to have something to measure, an objective to measure.
And then the strategies, we felt that whether you are the United States government, a community, a family, a business, no one organization could devote itself at any one time effectively to any more than maybe six, preferably four major levers to pull that are going to bridge scarce resources to the achievement of those objectives. And we'd spent a ton of time.
Second thing was organization. Basically, to find the right people, man the organization appropriate to the execution of that strategy. Find, retain, and motivate. And that took up a lot of time. And we would never skimp on doing that.
And the third was communication, aligning everybody behind the strategy. And it doesn't happen by saying it once and putting out a memo. You got to get in the stores, you've got to go to district meetings. You have to, a lot of people are busy in their own lives. They have family issues, they got sickness in families.
They don't always buy in to the one message you send out. And it's a constant, never ending process of aligning, listening, back and forth, adjusting. You know, and in fact, that's what I was doing in the Philippines. I was trying to align them, and luckily, they aligned me. That's the process. You know, that's where the benefit comes in. But you got to be out communicating.
And the last one is crisis, existential crisis in our case, came maybe four or five times in my 35 years and you have to be prepared. And there was a way we went to market in terms of how we organized for crisis. And I won't go into details on that right now. But that's how it happened.
In other words, looking back, I said, these are the must-haves. The things that come in every day that demand my attention will come second because fundamentally, I believe if you do not get the strategy right and if you do not get the right organization to implement that strategy, there’s damn little else you can do to create a successful business. Nothing.
And there's great advice in your book, and especially touching on the aspect of crisis management and your view that it is the role of every board of directors to be very actively involved in assessing crisis management of the organization.
And I know recently over the past year, a lot of organizations have faced the crisis with the pandemic, bigger than many had anticipated. But the ones that were guided by insights like yours, that were planning for crisis have been able to weather it through a lot more effectively.
Absolutely. The first rule of crisis management is pre-planning, pre-preparation. I was on a number of boards, public boards and private boards. But the public boards particularly, at least one day a year, we would do something called risk assessment.
In the food service business, and those were the primary businesses in Sonic or in Domino's where I was on the board for long periods of time. You know, God forbid you should make someone sick. That's an existential threat to the brand. And there have been companies like Jack in the Box, back in the eighties that had done that.
You know, what did we learn? How would we respond? Who would be on the team? Who would talk to the health department? How many hours would it be before you…when would the CEO go into the community? And who would he talk to? And what kind of PR people, you know, investor relations people, whatever it was, to help him with his communications, to show concern?
Some companies waited weeks. And that wasn't a good look. You know, you got people getting sick. So it could happen in another way, where someone could hack your data information. Who's going to be on the team? How are you going to fix it? How are you going to take care of it? So, in other words, all of that was worked out in advanced.
For me, these were food service companies, this wasn't the United States government. So I find it hard to believe that someone several, who could have believed that this kind of pandemic could possibly have happened. The fact of the matter is, is that I believe, at least I heard Susan Ice on television once say: We were prepared for weather, massive weather issues, we were prepared for pandemics, we were prepared for terrorist attacks and we have books and teams.
And the other thing I find is you have a small group of people who are really well qualified to deal with it, and a lot of the rest of the organization to continue to execute on a day-to-day basis. But that team should a hundred percent be dedicated to the resolution of the crisis.
And communication is extraordinarily important. But yes, pre-preparation’s the first and most important essential step. And I think it goes without saying that that would help a lot in terms of dealing with issues like this.
Bob, in addition to your own continual reinvention of yourself over the years, you also emphasize the importance of trust with respect to leadership and some of the insights you gained from Fernando Flores on trust.
Very important. Came later, came in the eighties, actually. Flores was formerly a finance minister in Chile, and was imprisoned when Pinochet, I think, imprisoned the Allende regime. And Amnesty International got him out and sent him to the University of California where he wrote a lot of theses.
But he's basically a linguist. And from him, I learned the importance of language, and the power of language, and how most people in up to be rigorous about how they use language.
But in the area of trust, I mean, it stunned me and it's something I learned and utilize day in and day out. It's an absolute part of me now. He basically said: Trust given too soon, you're naïve. Trust withheld too long, you're prospectively a cynic. Neither one of which are particularly attractive. And he gave me four tests upon which determined if I myself was being trustworthy and how to measure trust in other people in a very concrete way.
And I find that in all successful relationships, trust exists. And in almost all unsuccessful relationships, trust does not exist. I have concluded that in interrelationships, there's nothing more important than trust.
So the four tests that Fernando Flores gave me, the first was sincerity, your public and private conversations are the same. Second is competence. Competence is not the same as never making a mistake. We make mistakes, but you can live up to the standards of the job.
So as a CEO, basically, I was promising stockholders and employees, a certain kind of rate and earnings per share, the three or four objectives that I mentioned before. And that we could, we might go off course here or there, and I might make a mistake on this or that, or that product or this strategy might've been ill timed over my 25 or 35 years. But generally speaking, we would get to the end product. I was competent, my management team was competent to do the job. And if you're not competent, it's time for the board or the time for the voters to make a change, but that's competence. And I say again, it's not the same as never making a mistake. We all make mistakes.
The third is the ability to keep your promises. We make promises and we've got to keep them. Now the world is stochastic, stuff happens. Whether problems that weren't anticipated, but rather than just allow the promise to go unanswered or unidentified, you go back to the people you made the promise to and see if you can strike another condition of satisfaction, another chance, another promise to take care of people so that they really believe that you are a promise keeper.
And the last is care. And care is really basically treating people, not in a transaction sense, but very much as humans in a win-win situation where, you know, you are concerned about their identity and about their wellbeing, even if it came to difficult times as in parting, when the business changes and there isn't a fit any longer. Even then, paying attention to a person's wellbeing, their future and their identity, it's all part of building trust.
So those are the four tests that Fernando basically taught me. And I've tried to implement in the business, wrote about in the book. And I find it does take a bit of time to be able to determine, when I'm dealing with someone, whether or not they in fact are identifying and practicing those four and whether they can be trusted.
Bob, this is just some of the brilliant insights in addition to some of the great stories that you tell. You're a wonderful storyteller, but also convey what great leadership is all about, whether it is with respect to extreme ownership or how to have trust in people, how to establish trust, how to have the right strategy.
Now, I also know that you keep reinventing yourself. Being the CEO was one act. You were a professor, another act in your life. You now are an author and promoting this book and I believe you have even more acts ahead of you. What's next for Robert Rosenberg?
I think the secret of life, or at least maybe the fountain of youth is having a dream and having something to aspire to. And I basically, it wasn't only till recently, a friend of mine, a great writer, great business writer, Rosabeth Moss Kanter, is a friend of mine, and who endorsed the back of my book, thankfully, wrote a book called “Think Outside the Building.” And what she was doing was talking about people who are finishing long careers in business but still had 20 or so years ahead of them. And taking their competence, their skill, their Rolodex, and putting to good use.
And I said, well, I've done that already. I've been a teacher and I've been a board member, and I'm now an author, and I've got my grandkids to travel with, and on and on and on. And then I started to think, I said, you know, I still have some energy left. And if I do, I could dust off an old idea I had.
1968 is I was about to take on the chairmanship of the International Franchise Association. 68, racial justice was just as much in the fore as it is today. And my idea at the time was taking a bunch of complimentary franchise businesses and putting them together, and going into inner cities, into enterprise zones with some advantage of tax advantages and loans from within the community, owned by minority owners from the community, employing people from the community, knows complimentary.
So it could have been a 711, a Dunkin Donuts, a McDonald's, an ACE Hardware store, a Lapels Dry Cleaning. In other words, all the services so people didn't have to leave the inner city. And some of these old neighborhoods I went, I grew up in Boston, and some of those neighborhoods were once vibrant and robust and could be again.
And I thought that through franchising, you would create employment, you would create tremendous business opportunities back in these enterprise zones. And so that's something I'm going to take a look at as soon as my book tour is over to see if I can regenerate the program in 68.
And 60, I had found out distrust was so high when I wanted to do a pilot in Boston. I didn't have the skills as a 30-year-old kid to get over the hump and get local support. I did have support from the SBA, Howard Samuels in Washington, he loved the idea. But I couldn't get local support in Boston and I was on to other things, and basically diversifying the company, and deficiencies still is another thing.
So I dropped the ball there, but I think that I'll go back and try to pick this ball up and try to put it into effect. I think it will have a real beneficial impact in those communities.
And as you have been so successful and impactful in the other phases of your life, I am sure you will be on this one.
While the vast majority of our audience hears this episode, I urge them to also see the clips on YouTube to see your bright shining, smile and energy and enthusiasm which I know gives energy to everyone that you engage in your cause.
Really appreciate you joining this conversation with us, Bob. Where would people find out more about you, your book, how can they connect more with you?
I’m on Wikipedia and the book is “Around the Corner to Around the World.” It's got its own site or you can get it from booksellers everywhere.
And it is a fantastic book of wonderful stories and more importantly, understanding of an icon, understanding of something that brings joy to a lot of our lives, and most importantly, what great leadership is all about.
Thank you so much for joining us Robert Rosenberg.
Thank you for the invite, Mahan.
CEO of Dunkin Donuts, Author of Around the Corner to Around the World
Robert Rosenberg took over as CEO of Dunkin Donuts in 1963, 13 years after the first restaurant was founded by his father, William. In his remarkable 35-year run, he grew the company from $10 million in sales to over $2 billion, with more than 3,000 outlets. Through his tenure, Robert learned important lessons on running and scaling a family business.
In From Around the Corner to Around the World, Rosenberg shares his insider perspective on all the dramatic highs and lows that are part of the Dunkin Donuts story to guide you to your own success story.