Founders - #231 William Rosenberg (Founder of Dunkin Donuts)

Starting point is 00:00:00 Back in the late 1960s, Mario Puzo, the author of The Godfather, said to me, Bill, I want to write your life story. You've got a hell of a story to tell. I said, thanks Mario, but I'm too busy right now. I was growing Dunkin' Donuts, which I had founded in 1950, and the business was expanding so fast, I didn't have time to stop and reflect about my life. I had too much going on. At the heart of things, I'm a man of action. I like results. But Mario's offer tempted me because I had read some of his earlier books and thought he was a fantastic writer. But there's a right time for everything. In the year 2000, I finally sat down to write this

Starting point is 00:00:37 book. At 84 years old, I've had more than enough time to reflect on what works and doesn't work in business and life, and I want to share this knowledge with you. Everything in this book is based on what I know to be true and what I believe to be the facts. It's my opportunity to show you the struggles that are part of any successful venture and impart the wisdom gained, the principles and philosophies that I've developed over the years so that you may benefit as well. This is my story, as I see it, of all that led up to the founding of Dunkin' Donuts and its phenomenal growth. It's about everything that I achieved, my personal triumphs and trials, and my multiple bouts with cancer. Take advantage of my experiences and use them to your greatest benefit.

Starting point is 00:01:20 Nothing is brand new. Whether it's franchising, the internet, or something else that we haven't even considered yet coming down the pike in the future, the basic tenets still apply. My successes came from hard work, born out of determination and risk-taking, persistence, innovation, vision, and passion. How did I do it? How did a poor kid who dropped out of school at the age of 14 to deliver telegrams in the height of the Great Depression become a self-made multi-millionaire? In all that I accomplished, you will notice I established a method for success that has taken me to the top.

Starting point is 00:01:56 I've faced obstacles that I've had to overcome, complications that might have stopped someone less determined. But I can assure you this. If you really want to be successful, you have to be willing to put in the time and effort. Most of the luckiest people I have ever met are the hardest working and most determined. Winning takes effort. I started my first company, Industrial Lunch Service,

Starting point is 00:02:20 with one truck, and I built it into a multi-state fleet of 200 trucks and the largest food service business in New England. From there, I opened a store called The Open Kettle, selling coffee and donuts. We renamed the store Dunkin' Donuts, and the rest is history. In 1960, when franchising was in its infancy, most people looked upon it as an outcast or misfit, but I believed it was the epitome of entrepreneurship and free enterprise. In all these ventures, I made progress by taking one step at a time. Life will test you. That's a promise.

Starting point is 00:02:57 It's what you do with the challenges that determines your failure or your success. I fought lung cancer in 1971. I battled lymphoma six years later. I prepared for my death and got a reprieve. I had three hip replacements. I went through a divorce and remarried. Many times along the way to achieving my goals I ran into roadblocks and made mistakes. The difference is that successful people learn from their errors. We turn pitfalls into windfalls. As I see it, most people do their job, work hard their whole lives, and wonder why things couldn't have been better.

Starting point is 00:03:33 That's because a large percentage of the population is full of excuses. They have a negative mental attitude. These are the naysayers. These are the people who would tell you all the reasons why something can't be done. They're the complainers of the universe. Nothing's ever right for them. Then there's the 10% who overachieve. They're bursting with a positive mental attitude. I've always said that it doesn't take a genius to do what I've done, but it does take passion, determination, and persistence, and above all, a positive mental

Starting point is 00:04:06 attitude. All of my life, I've been a learner and a teacher. I believe in sharing success and knowledge with others. You will witness these lessons I learned, successful tricks of the trade, stories of frustration and inspiration, so that you may follow and do even better. My philosophy is this. Don't reinvent the wheel. Your problem is not brand new. Someone encountered it previously. Find out who solved it best and start where they left off, not where they began. Learn from my experiences and apply my insights to whatever business or venture that you're involved in.

Starting point is 00:04:45 That is an excerpt from the book that I'm going to talk to you about today, which is Time to Make the Donuts. The founder of Dunkin' Donuts shares an American journey, and it was written by William Rosenberg. Just a few quick things before I jump back into the book. There's two, so last week I read two books and I recorded two podcasts. I released the one, the podcast I did on the autobiography of Lucille Ball. There was another book I was able to get early access to. So the author of this new

Starting point is 00:05:10 book on the history of the early days of PayPal reached out to me and asked me if I'd be interested in getting an advanced copy of the book. His name is Jimmy Sony. The book is called The Founders, the story of PayPal and the entrepreneurs who shaped Silicon Valley. I had talked to Jimmy before because he wrote a book. I did a podcast on his fantastic biography that he wrote on Claude Shannon. I think that's Founders number 93. So Jimmy sent me the book. I had a hard time putting it down. It's over 400 pages on a four-year period from the founding of PayPal until the IPO.

Starting point is 00:05:46 I'm going to leave a link down below in case you want to pre-order the book. It comes out on February 22nd. I believe a lot of founders are going to be reading and being inspired by this book. Not only do you get to hear, like, what was Elon Musk like when he was in his 20s? What was Reid Hoffman like when he was young? Peter Thiel, David Sachs, Keith Raboy, all these other founders and investors that have now multiple decades into the future have built these fabulous careers. Like this was one of the largest concentrations of talent that has appeared in any one single company.

Starting point is 00:06:16 And so I'm always fascinated by thinking about what these people were like in the early days of their career. But I think one of the another benefit of reading the book is the insane amount of detail they go into on how all the different problems they had to overcome and how they solve the problems. So I highly recommend reading the book. It's definitely a book I'm going to reread in the future. And the podcast that I recorded on it will be released after the book is released. Also, I'm getting a lot of messages on how to buy a gift subscription. So I'm just going to put this right up front at the beginning of the podcast. Every time I release an episode, you'll see in the, if you look in the show notes, you'll

Starting point is 00:06:47 see a link that says buy a gift subscription. You'll see all the different plans and then you can choose which one you want to get. You want a gift. I'm also going to include this. If you want to go to founderspodcast.com, I'll put that in the header as well. Okay. So there's one thing I want to read to you before I get to his relationship with his dad.

Starting point is 00:07:02 I was rereading my highlights just before I sat down to talk to you. And I realized how much he has a very complicated relationship with not only his dad, but then winds up having a very complicated relationship with his son too. So first thing, he did mention something in the introduction I thought was a good idea. The fact that entrepreneurs know that we don't know. And so he says, though I dropped out in that, that is very different from somebody that may have a more formal education. And so the fact that he dropped out of in eighth grade is something that appears over and over again in the book.

Starting point is 00:07:33 Though I dropped out of school in the eighth grade to help support my family, over the years, I learned a key lesson, as did other entrepreneurs like me. We know that we don't know. That is why we're always asking questions, seeking answers. Sometimes people who hold a lot of degrees think they know everything. If they think they know everything, they stop growing. They're not open to new ideas. So he starts off telling us a little bit about his early life. This is where he gets into his relationship with his dad. And one of the benefits that he would consider a benefit, most people looking back on his life would not, is the fact that he grew up in the Great Depression because his dad is going to wind up losing his grocery store business

Starting point is 00:08:09 that means bill has to start working full-time at 14 years old and never stops so he says everybody knew pop rosenberg he had a dark curly hair and stood nearly six feet tall he had been athletic and good looking as a young man but he was big and. And when I say big, I mean obese. He weighed over 400 pounds, but he was a tough sucker. He broke wild horses. One of the horses kicked him and split his finger open. He stuck his bloodied finger into the open flame of a gas burner to get it to stop bleeding. Another time when he was playing football, he got hit in the face and broke his nose. He just wrapped a handkerchief around his nose and finished the game. My dad taught me a lot.

Starting point is 00:08:47 Like many in his generation, he left school in the sixth grade to work. But he had as much or more logic, common sense, and salesmanship as anyone that I've ever met in my life. And he gets into the fact that he learned the importance of resourcefulness from his mother. My mother taught by example. She was industrious from morning until night. She just had a knack for making something out of almost nothing. In the height of the depression, she would go down to the fish markets. The fishmongers threw away the heads, tails, and bones of the fish. My mother would get them for nothing and make fish stew. These are the things

Starting point is 00:09:19 my mother learned to do and that I learned to apply in my business. Find solutions under any circumstances. I learned from her that it's possible to create something out of nothing. And so one of these lessons that his father teaches him at a young age is something that we've heard from both Charlie Munger and Warren Buffett. They say, listen, you can't make a good deal with a bad person. And so he's talking about the conversations he's having with his dad. And he says, he taught me that there's nothing, nothing in the world you can do to solve the problems of a liar.

Starting point is 00:09:49 When people lie constantly or in the habit of lying, you never know where the hell you're going or what you're going to do with them. So in his opinion, being a liar was the worst possible thing. That was a great lesson he taught me and I took it to heart. And then this is the first mention that maybe their relationship is not the best. He's going to go into more detail later. So he says, my dad had big ideas for things, but he didn't seem to want to start at the beginning and work up to those goals. As a result, he often failed to obtain them. And he blames his dad essentially for causing the family to wallow in poverty.

Starting point is 00:10:22 If you start out setting too high a goal in the beginning, you set yourself up for failure. I applied this principle to all my ventures. When I opened my first Dunkin' Donuts store, I focused on making the first store a success. Then after I did that, I could move on to the second and the third and the fourth. But I gave all my heart and my soul to making that first store a winner. So even before he drops out of school, when he's 14, starts working full time, this is a few years before that happens. He's just always on the lookout for ways to make money. And he learns that it's better to sell something to somebody as instead of getting a job, because then you're not your the income that you can make is

Starting point is 00:10:59 not capped. And so he teams up with some older boys. And at the time, this is around early 1900s, car racing is extremely popular. So they go to a local track in Massachusetts and they just start selling ice cream and water and ice chips. And so now he's looking back at this experience in his life 70 years later and he still remembers it. So he says it was a dirt track and the cars racing around the track kicked up dust. It was dry and dusty and there was no water. I'm skipping over some parts, giving you the punchline here. We charged a quarter for our ice cream. Everybody sold out.

Starting point is 00:11:31 To replenish our supply, the two men, the older men that he's working with, drove down and bought two 300-pound cakes of ice and then drove back to the car race again. With an ice pick, we broke off and sold chips of ice for 10 cents apiece. At the end of the day, they gave me my share it was 71 i got home and gave the 71 to my mother and she cried what did you do why did where did you steal this she could not believe that an 11 year old kid could make that much money in one day i said i made it i made it she couldn't believe it 71 was a fortune for us. And then he talks about the stuff he learned from this experience. And this is something he preaches throughout the entire book. You saw he put in the introduction about the power of your mind and having a positive attitude.

Starting point is 00:12:17 From an early age, these working experiences taught me that if I put my mind to it and worked hard, I could do whatever I was doing as well or better than most other people. I learned to strive for excellence. And then once he sees somebody else succeeding in a venture, he's like, well, I'm pretty sure I can do better than them. He just has an insane level of confidence. So he says the older brother who lived next to us was doing quite well selling magazines. So does his other family. So I said to myself, if he can make that kind of money selling magazines, why can't I? So that's how I started selling magazines. If I saw someone shining shoes and they were doing well or better than others, then I would ask,

Starting point is 00:12:47 why are they doing so well? Do they have a better location, a better corner, better traffic? The reason I'm reading this to you, and I'm going to interrupt myself here, is because he applies, again, he's a kid doing this, whether it's selling ice cream, shining shoes, magazines, doesn't matter, opening Dunkin' Donuts locations later on this these questions that he's asking uh he does this over and over again so he says if i see somebody doing better or than other people i would ask why are they doing so well do they have a better location a better corner do they have better traffic so i'd say to myself if that's the case i have to get myself to a better corner with better traffic and shine shoes i need need to smile. I need to make friends without really knowing it. I got into the habit of thinking like a winner. I'd ask myself, can I do

Starting point is 00:13:30 this? Sure. I can do it. If someone else can do it, I can do it too. And so one of the issues with his father is that he, his father had a real bad temper and would beat the crap out of him. And so he says, we were close, but we had our problems like everyone else. My father had a violent temper. One time he got so angry with me that he picked me up and threw me through a screen door. And looking back, I think he would identify some of the anger issues with the fact that his father was not happy with the outcome of his life. And Bill mentions being motivated to almost be like a, for his life to be like the, the opposite of his father's. He says, odd as it may sound, I think one of the best lessons I ever learned from my dad

Starting point is 00:14:09 is what he didn't do properly. For all his innate abilities and potential, he taught me what I never wanted to have happen to my family. I learned that my first obligation was to take care of and financially support my family. That was probably the thing that brought us the greatest unhappiness. The fact that we lived in such dire poverty and my father never provided for us, although he was capable. I never, never wanted my family to go through the sufferings that our family went through

Starting point is 00:14:35 because of a lack of money. Sometimes the best lessons you learn in life are from what you discover in the weaknesses of otherwise good people. So then he gets into why he had to drop out of school. And he says, my dad couldn't say no to all his customers he had over the years. So he kept supporting them. This is the very beginning of the Great Depression. So he kept supporting them and supplying them with food and products. But they simply couldn't pay him. Dad got to the point where he couldn't pay his own bills.

Starting point is 00:15:01 And he had to go out of business. I decided I wanted to quit school, go to work, and help support my family. I knew they desperately needed help. We didn't have enough money to live. So he drops out of school in eighth grade. He starts delivering telegrams and he thinks it's the best thing ever. He's like, I cannot believe I'm making $15 a week. Some of his other friends are also delivering telegrams at the time. And then one of them jumps to another opportunity. And so he says, my friend quit the postal telegraph to work for an ice cream company. He rode a truck and sold ice cream. He made $30

Starting point is 00:15:38 to $40 a week. That was big money. Almost twice what I was making then at Western Union. And Bill is willing to work from early morning to late at night. The more success he has, the more excitement he has, and it just kind of feeds on itself. He talks a little bit about that here. He says, whatever my reasons, my lack of education, the circumstances from which I came, I had a fire in my belly, a determination to succeed, a determination to do as best as I could. That striving for excellence started at an early age and has never stopped. The more I achieved, the more I felt I was capable of achieving, the more confidence I gained, all of which helped me

Starting point is 00:16:16 reach greater heights. I liked to work and I excelled at it. And this idea of, okay, I'm selling ice cream out of a truck. This becomes really important later on because it indirectly leads to his path for Dunkin' Donuts. Because later on he decides, hey, I want to start my own company. And instead of selling ice cream out of a truck, he starts selling things that factory workers would need for lunch and breakfast. So sandwiches, pastries, coffee. And then when he realizes like how much of his business is coffee and like donuts in the morning. That idea leads him to like, well, how much money could you make if instead of a truck, right? If I just went direct to customers and I actually had a store that sold donuts and coffee.

Starting point is 00:16:59 And so that's why he mentioned earlier, like he's like, listen, I'm a lifelong learner. I know that I don't know everything. And so I'm just constantly keeping my eyes and ears open looking for new opportunities and then I take everything I learned and try to use that to start something new in the future and so he's working for this ice cream company for a while he's now 21 I'm fast forwarding in the story he's 21 and he we get he gets a little state of melancholy because he has no free time he's just he has no he doesn't have the opportunity for free time. And so he brings his ice cream truck down and he says it was one of the big holidays. It might have been Memorial or Fourth of July. I parked my truck on the side of the road. People would

Starting point is 00:17:33 stop, buy some ice cream and be on their way. As I stood there, I remember saying to myself, I wonder what it'd be like to have a day off. Look at all those people going away to lakes and camps to enjoy the holiday. I've never had that in my life. I've always had to work. I wondered what it would be like to go out on a holiday and enjoy myself and have fun instead of having to work. In those days, I just never took any days off. Sundays and holidays were the busiest days of my year.

Starting point is 00:18:02 I was feeling sorry for myself that day. I was down in the dumps, hoping that someday I'd be able to enjoy myself like those people, not realizing that that time would come when I could. And so the entrepreneur that he's working for that owns all these ice cream trucks has to diversify his business because in the winter, no one's really buying ice cream. So he has this idea. He's like, listen, I'm going to start a vending machine company and we're going to stock like cigarette and candy machines inside of factories. And there's a ton of factories in New England at the time. And so this is where Bill learns how to overcome fear. And then he has a really good perspective that he learns for sales because he considers himself a master salesperson. And so he is learning on the job here because these sales skills

Starting point is 00:18:45 and then pitching ideas to factories, to companies that own the factories, is also going to give him a jump in his first business, the business that he owns before he does Dunkin' Donuts. And he says, in the beginning, it took a lot of nerve to go into a big factory. The first time, I must have driven around the block six or seven times before I got enough moxie to park and go inside. I went in and asked to talk to the industrial relations man. He was the vice president. I sat down and explained to him why, in my opinion, he should install the vending machines. He didn't have any at the time, and I told him how it was

Starting point is 00:19:14 an advantage to his employees and no cost to him, and how we would pay him two percent of gross sales. I sold him the account. This was the very first big factory we installed. I was very proud. I learned an important lesson about sales. You don't sell to people. You get people to buy from you. You say to yourself, if I were in their position, why would I want to buy this product that I have to sell?

Starting point is 00:19:43 If I was in their position, why would it be to my benefit? And so the idea that you start, you always start with the benefit of the customer. This is something you and I have learned from people like Albert Lasker, Claude Hopkins, David Ogilvie. All those people built fantastically successful advertising businesses on the principle that your most important job is what benefit are you going to promise the customer? People are self-absorbed. They do not care about your company. They care about what you can do for them. And so that is where you always start. Bill's discovering that quirk of human nature when he's selling to factories as well. So remember that idea where he's like, hey, if I saw somebody doing something, they were shining shoes, selling ice cream, whatever. I was

Starting point is 00:20:17 like, okay, I can figure out how to do it as good or better than them. So this is during World War II. He's going to take a detour because he's got to serve the country but before that there's a regulation that's passed because you have to amp up the production of all the american factories and this is going to lead people to open businesses like crafty entrepreneurs to open businesses to serve this need and this is where he's like oh i can do this too so he gets approached says soon after the government decided that companies that wanted to be big producers had to set up cafeterias in their factories to feed their workers. The government rightly felt that people working around the clock should be fed properly. I had already become great friends with the senior vice president at one of these factories.

Starting point is 00:20:54 And so he comes to approach him. He says, now because of the war effort, he approached me with an opportunity. He said, Bill, we need to set up a complete system to feed all of our employees. I would like you to take it over and run it. So this is the idea. Other companies are going to do this right this is the idea that he's going to use to launch his his his first business after uh he's got to serve at a shipyard which i'll get to in a minute though uh his boss that he was working for right that was doing um the vending machines the ice cream trucks this guy had his hand in all kinds of stuff that I'm omitting.

Starting point is 00:21:26 But he also at the same time is like, I don't want you to leave. I'll give you a promotion. So he says, Harry had asked me to come back to Boston and take the job as a national sales manager. Now I had two big opportunities. My head was spinning. And it's always fascinating when you're reading these life stories and these stories of people's careers that span over multiple decades, like the idea will be there usually like they'll sum up on the

Starting point is 00:21:49 idea it just kind of like sits in the back of their mind for a while um and so remember dunkin donuts comes after this industrial lunch service that he's going to start but during the war the war he's he's serving at hingham shipyard and there's a spot by the shipyard and it's just a little donut shop a retail donut shop and so he says it had donut it the little town had a donut shop that sold fresh hot donuts the place was always mobbed I couldn't believe the business it did the smell of those freshly made donuts and the business that small donut shack generated left an unforgettable impression on me so this is happening i want to say like six to seven years before he founds duncan donut and then he mentions multiple times in the book that you can't like there's a large

Starting point is 00:22:37 contingent of humanity that is just completely negative and you have to ignore them really he's talking about ignore the naysayers if you you remember last week, I referenced the fact that Arnold Schwarzenegger was mentored by Lucille Ball and that she gave him advice when he was in his early 30s that he would repeat four decades later. And so from his autobiography, I think this is Founders No. 141 if I remember correctly, the book is called Total Recall, My Unbelievable True Life Story. I highly recommend reading the book. It's insane. It's one of the craziest books I've ever read. But Arnold said, he's like, Lucille Ball gave me advice about Hollywood.

Starting point is 00:23:09 And this applies to obviously other domains than just Hollywood. Just remember when they say no, you hear yes, and you act accordingly. Someone says to you, we can't do this movie, you hug him, and you say thank you for believing me. That sounds crazy, but Bill's kind of echoing that point. He says, in every venture that I've ever undertaken from a project such as a welding issue that he's dealing with at this point in his career in the shipyard to later on when I was building the organization that became

Starting point is 00:23:34 Dunkin' Donuts, I ran into people who resisted what I was trying to do. You have to figure this into your equation. The most important thing to learn from this is to not let these people get in your way. Negativity is part of human nature. It is part of life. You'll find these people wherever you go. But don't let them stop you. Do whatever it takes to pass them by. And so now at this point in the story, he's 29 years old.

Starting point is 00:24:01 We're getting to the end. World War II is ending. So now he can go back to work. He doesn't have to work in a shipyard anymore. And a tragedy is going to happen. And he's reminded how fragile life is and that he's got to hurry to build the life he wants now because he doesn't know how much time he has. So he writes, the desire to have my own business had been stirring in me for quite some time. Now I felt the time had come to prove to myself what I knew I could do and what I had long desired. I knew I could do better

Starting point is 00:24:27 for myself. With the terrible loss of my brother and the end of the war, his brother was fighting in Germany and got shot in the head and killed. Nothing could stop me. I wanted to go into business for myself. I had a fire in my belly. He repeats that phrase over and over again, fire in the belly. I had a fire in my belly. That essential ingredient that all entrepreneurs must have to go out on our own. So he's like, all right, I'm going to do this. I'm going to do like a lunch truck. He gets approached.

Starting point is 00:24:57 And this is another example. There's a lot of shady people that he's dealing with. And again, another example of that. You can't make a good deal with a bad person. That Warren Buffett quote. And so he gets a call. These two partners, Irving Miller is one of them, and his partner with the last name of Siegel, I think,

Starting point is 00:25:14 wind up buying, they had bought old trucks, like out-of-service ice cream trucks from Bill's old boss, and they were retrofitting them so they could be like lunch trucks that they were a new thing at this time but they're very common if you go to any like construction site or anything else you'll see these these trucks that are serving you know food and they're like hey they give him a call they're like hey we we want uh you know let's partner up or excuse me we want you to work for us and he's like no no i'm not working for anybody so says we'd like you to come work for us look i'm not gonna go work for us. And he's like, no, no, no, I'm not working for anybody. So he says, we'd like you to come work for us. Look, I'm not going to go work for anybody.

Starting point is 00:25:47 I'm going into business for myself. And so they approach him multiple times. Every time he says, no, no, no. They're like, okay, what if we make you a partner? And so he's able to buy into the business. He says for 2,500 bucks, I bought a third of the company. I had $1,500 in war bonds and I borrowed the remaining thousand dollars from my mother. So he's does not have a lot of money at this time. These fellows, and then here's the problem, what I meant about you can't make a good deal with a bad person. These fellows were disorganized. I decided it didn't make sense to go out canvassing for additional business until we had the commissary working efficiently. And then he just realized that they're doing shady stuff. It came to my attention, my partners were

Starting point is 00:26:20 not on the level. They had been getting contracts for candy and cigarettes, things that were not available because of the war. So they had a special exemption that you get these things, right? And then they would turn around and sell them on the black market. We had been allocated these desirable items because we were serving them to people working for the war effort. See how shady that is? So these supplies are people that are building supplies for the war effort. They're saying, hey, because other people can't get them, they're valuable in the black market. Let's not give them to the people that are building for the the war effort, they're saying, hey, because other people can't get them, they're valuable in the black market, let's not give them to the people that are building for the war effort, let's sell them for a profit.

Starting point is 00:26:52 When I discovered what was happening, I realized I was in business with the wrong people. They were short-sighted, unpatriotic, and dishonest. And they were not interested in building a long-term business. They were only interested in a fast buck, buying their wives mink coats, and driving Cadillacs. They did not have the same ideas that I had about building a business. These guys didn't care about gaining respect, about being honest and honorable. I didn't want to be in business with people of that nature. And so he's going to wind up leaving. There's this fight they're having. Give me my money and

Starting point is 00:27:23 I'll get the hell out of here. It was a bad relationship and i didn't do well financially and then he has a great line here adversity is a great teacher little by little did i know that this downturn of events would catapult me to a higher ground and so this is his first bad experience with a partner remember he'll have a remember that for later because i have another bad experience and then later on he's like no no no more partners he's gonna wind up owning 100 of dunkin donuts before it goes public so he's like i'm ditching my partners i'm gonna do the same business but i'm instead of doing it i think he's in connecticut at the time he's like i'm gonna go back to boston without question i like the business but i had made up my mind i was gonna go back to boston and open up an industrial lunch service uh without these two characters i

Starting point is 00:28:04 was back to square one and so this is a service without these two characters. I was back to square one. And so this is a crazy thing. Remember, he's around like 30 years old at the time. He's married. He's got two kids. And I just wrote, how bad do you actually want it? He could have got a job. You know, he was his skills are in demand, but he's like, I don't want to work for anybody. So he moves his small family back in with his parents. My wife, my two kids who are now eight and five years old, moved temporarily into one bedroom at my mother's and my mother and father's place. We slept in one room until I got myself organized. These were pretty tough times. I want you to know.

Starting point is 00:28:41 Many years later, I heard a rumor that Miller and Siegel, his two old, his other partners that he just left, got into an argument and that one killed the other and wound up in jail and so he gets started with limited money he's got to buy all the equipment second hand but he's really good at sales so he'll go out and he'll sell the factory saying hey let me provide lunch and breakfast and everything else for your employees doesn't have no cost to use so it says over the next two years we grew rapidly we would we were expanding our commissary to the next empty store until we took over the whole block. We grew like crazy. We had more routes and more trucks.

Starting point is 00:29:09 Remember, he said he started off with one truck and then eventually built his business to 200 trucks. But everything didn't go as easy as it sounds. And so we get into like his workaholic nature here. We had to get up at 2 a.m. to assemble the sandwiches and make coffee. We had to get everything ready for the men so they could be out on their route roots and be the first and be at their first stop by 6 a.m. and then he talks about so now he's the focus on sales but he's always focused what I'm about to read you everything he does is like this he's constantly just observing the workflow and I'm like okay how can

Starting point is 00:29:37 we make this better faster better for the customers cheaper for us and so he says I noticed the lines that the factors were getting tied up because our men had to stop and look at the sandwiches and then read each label in order to charge the correct price i thought why couldn't we get waxed paper with a blue stripe a red stripe yellow and a black stripe red would represent a 25 cent sandwich blue a 20 20 cent sandwich excuse me red would represent a 25 cent sandwich blue a 20 cent sandwich and so on and so forth. That way my man could stand back with his money changer and bang, bang, bang, look at the colored stripes and know the prices instantly. So we established a color code system and that sped things up. And so he's

Starting point is 00:30:16 doing this many, many years before he does Dunkin' Donuts. Later in the book, after Dunkin' Donuts, he gets to a hundred stores, then it gets to 500 stores, then it gets to a thousand stores. He spends a lot of time, very much like Paul Orfalo, the founder of Kinko's, spending a lot of time just going around the country, looking at the stores. And this is what he meant. He's like, I'm not a genius. He's like, I just have passion for this and I'm paying attention. And it's just like, we gave the franchisees a basic system and you wouldn't believe how many of them could just screw it up just because they're not paying attention. And so he'd go. He's like, taste the coffee. Something's wrong with the coffee.

Starting point is 00:30:46 Let's identify what's happening here. Look at the donuts you're putting out. Those are not the freshest donuts. And it was just like really big. It's really amazing to me because you figure like this person that bought the franchise is a large investment of time and money. And yet they just approach their work in such a lackadaisical manner. And just like this, they're comfortable with mediocrity. And this Bill is not. Bill's psychotic when it comes to quality and i think his observation that this

Starting point is 00:31:10 is just it doesn't take a genius to just improve things just look at it i'm like okay how can this be better what if i make it one percent better every time i come here over the years if i do so this business will drastically outperform the competitors that are just not doing this they're fine just showing up turning on the lights and waiting for the customers and seeing how the day plays out. So what I just described to you earlier is about he's growing, he's adding trucks, he's adding routes. That's the euphoria. Remember the famous Marc Andreessen quote that startups and startups you only feel two emotions, euphoria and terror. This is the terror part.

Starting point is 00:31:42 And this is the closest he gets to ever quitting. He says, a year and a half into the business i damn near went out of business due to a serious flu that was going around many of the men got too sick to come to work people were sick at the factories too we worked all night and pushed the carts all day i got so upset i walked out outside and said to myself who needs this shit i stood on the curb and threw up in the gutter. I was sick to my stomach, but it wasn't the flu. It was the pressure that got to me. And I said, who needs this goddamn shit? To hell with it.

Starting point is 00:32:12 I'll just take a job and be happy like everybody else. I won't have all these headaches and problems. What am I going to do about tomorrow? I came from within inches of quitting that day. Then I said, wait a minute. I've worked really hard. I found a way to get these things done before when everything couldn't get done. I did things when everyone told me that they couldn't be done. Now I've got to convince myself that I can do it. I picked myself up and went back in. And he talks about, good thing he did this,

Starting point is 00:32:43 not many things are as exciting and satisfying as being part of a business that is succeeding and growing rapidly. There's an atmosphere and a feeling that's tremendous. So he's talked a lot about what happens when you get bad people, but now he's going to give a short story about what happens when you have good people.

Starting point is 00:33:04 That first winter, we had a huge snowstorm and the entry in and out of our garage became snowed in, so the trucks can't get out for that day. We made all the sandwiches, everything was ready to go, but the trucks couldn't get out. All the food spoiled. It was a bad day. That same winter, another big snowstorm came. This time, I got up and said to myself, I better get down there and shovel so we can get the trucks out. I went down at 3.30 in the morning and found Jimmy and a group of other employees that he had assembled shoveling out the driveway. I swear I had tears in my eyes. Jimmy came up to me and said, Bill, I got the gang

Starting point is 00:33:37 together because I didn't want you to get stuck with all that merchandise and have to throw it away again. Their loyalty was heart-rending. And then he's got another great metaphor here. It's the Mr. Inside and Mr. Outside metaphor that he learned from watching football. And he just realizes like, where are my strengths? So I need to maximize, spend all the time where I'm strong at and just hire somebody that can take care of where my, like cover up and take care of my weaknesses. His strength is like motivating people, managing people and sales. And he's like, i need somebody to deal with like the details the numbers like almost like an accountant kind of type and so he talks about this as being mr inside and mr outside

Starting point is 00:34:12 mr outside is obviously him mr inside is going to be his partner and they're going to end up having falling out and then after this he's going to swear off partners but he says i wanted to spend more time doing the things i was best at promoting and developing the business but i was unable to do that because I was devoting so much time to inside concerns of the organization. In those days, West Point's Army football team was the best football team in the area. The team became champions as a result of the halfback and the fullback. The papers used to write them up as Mr. Inside and Mr. Outside. When they tried to stop Mr. Inside, Mr. Outside. When they tried to stop Mr. Inside, Mr. Outside went ahead and scored touchdowns. I knew if we could get a top flight inside man,

Starting point is 00:34:54 someone who had strengths in systems and cost control and purchasing, we would make the business fly. There was no question how fast and how far we could go if I was free to get out and devote my time to bringing in new customers and making sure the old customers were satisfied. So I started thinking, who do I know and who can I get? So I didn't realize as I was reading the book, but now looking back on it, how much of it is just interpersonal, like how to solve interpersonal relationships with other people. So he's building out this gigantic organization. So he's got employees, but he's also got customers. Like at this point in the story, he's got tons of people in the factories he's got to deal with and make happy. Later on, he's got the organization he's building for Dunkin' Donuts.

Starting point is 00:35:32 He's got the franchisees he's got to make happy. He's got the customers he's got to make happy. And there's a lot of crazy stories of people doing both great things and terrible things. And so this case, he tries to give, this guy's stealing money and he tries to give him another chance. And the guy, well, we'll see where the story goes. We hired many, many people. I met all types of individuals. As a result, I learned more about human nature. People are all different and you have to handle them differently. Just as my father taught me, I came to the conclusion that if a man was a thief, a gambler, a drunk, or a drug addict, it was pretty difficult to correct those problems.

Starting point is 00:36:08 And when I'm reading that, I really think of like what Charlie Munger says. He's just like, stop trying to be brilliant. Just avoid being really dumb. And if you're a thief, a gambler, and a drunk or a drug addict, it can be really hard. If you just avoid those things for your entire life, it's very hard to have a great life when you're drunk or a drug addict. One unfortunate time, one of my executives came to me and said that a manager was falsifying the reports and taking some money. They had caught him red-handed. You're going to see he just struggles. To you and I, this seems like this is a basic thing that you shouldn't have a problem with.

Starting point is 00:36:41 But so many people do have a problem with. And we might have to hire or work with those people or hopefully avoid them, I guess is the lesson here. So he says, this guy's, you know, why, why are you taking money from the store? Like you have a good job. What the hell are you doing? He was a married man with two children, but he had a problem spending money he didn't have because he was running around with another woman. They called me and I went to see him. He was heartbroken. He said, you know, Mr. Rosenberg, you've been so good to me all these years. I'm very sorry for what I've done. And so Bill does something here in his early days of his career I don't think he would do later on.

Starting point is 00:37:10 You should be terminated, I said, but every man deserves a second chance. You seem like you're sorry and you realize your problem. You don't want to destroy your family. You love your children and wife, but you started running around with this woman buying her gifts. I'm going to give you one more chance, but I want to make damn sure you don't ever do this again." He promised, so we gave him another chance. A year later, I got a call telling me that he'd been found dead. He put a shotgun in his mouth and pulled the trigger. He left a note that said, Mr. Rosenberg, I can't face you. I'm sorry for what I've done in the past, but I did

Starting point is 00:37:42 it again. Rather than face me, he killed himself. I felt so sorry that in trying to be a decent person and giving a man another chance, I actually cost a man his life. Whether he would have done it anyway, I don't know. I certainly felt guilty. Okay, so now we get to the beginning of what's going to turn into Dunkin' Donuts. And he's realizing, he's like, man, well, let me just read this to you. The more we grew, the more donuts and coffee comprised a big portion of our sales over 40 percent to take advantage of

Starting point is 00:38:09 that I decided I want to have our own donut department and so he tries to recruit this guy named Alvin who works at this company called Puritan Donut Company and they're donut wholesalers and so they're at they're having lunch he told me about his background and his experiences at the Puritan Donut Company he said said, do you know something, Bill? We had 12 wholesale trucks, and then we opened a little retail store in front of the donut-making plant, and we made more money from that one store than we made from 12 wholesale trucks. He explained the reason for it. If retailers sold donuts for a nickel, as we did, they paid the manufacturer 2.5 cents,

Starting point is 00:38:41 so the retailer has a 50% food cost. But when the people at Puritan Donuts sold in their own retail store for a nickel, they had no delivery costs, no trucks, no employees or anything of that nature. No delivery employees, that is. So it was much more profitable for them. And so the weird thing is, Bill makes the point, it's like these companies are wholesalers. So they open one retail store.

Starting point is 00:39:01 Why wouldn't they keep doing this? And they just didn't do that. So it says, it hit me on the head. Wow, here's a situation where I could get into a business and utilize Alvin without how utilize Alvin. And so I said to him, hey, how would you like to run a retail store for me? So Alvin agrees. He's not going to last long. He winds up being an undercover alcoholic. We opened it up on Memorial Day weekend in 1950 and we called it the open kettle. So Alvin's going to run away.

Starting point is 00:39:28 He disappears in a drunken stupor. And so he winds up recording. Bill winds up recruiting some people that he used to work for at the shipyard. And he makes a really interesting point here. And I think, again, it's like central to how to think about his what he learned from his life and career. He's like, listen, these things existed before. Donut stores existed. I did not invent them.

Starting point is 00:39:44 I just made them better. And so he's constantly looking for like, what are these people doing? Right? So he's going to copy the best ideas, but then he's also like, okay, what are they not doing that I can actually improve on? So it says right from the start, we were very different. We were the first to put seats and beverages in a retail donut store. So customers could eat out on the premises. So all the donut stores were just like takeaway counters. The typical donut store had only four kinds of donuts. I wondered why can't we make 28 different kinds or 52 different kinds or 108 varieties of donuts. And the second thing is donut stores made all their money on donuts. That's where they focus on, but they also sold coffee, but their coffee

Starting point is 00:40:20 sucked. So he says, so he's like, what if we had the highest quality coffee you can get anywhere? People talked as much about our coffee as they did about our donuts so his first donut store is doing well now he's trying to to expand to a different location and he's saying it was like well we're still not well known like not many people know what open kettle is but they didn't know what donut is or donuts are rather and he's like well how do we get traction so he had an idea it works too well where he doesn't do this in the future so he says on opening day we gave we gave away a free dozen donuts with every dozen bought needless to say we opened a store with a bang we attracted such a crowd that my wife and kids and our friends who had come to wish us well all had to help wait on

Starting point is 00:41:01 the customers so imagine that your Your promotion works so well. Your wife and kids show up. Your friends are showing up to support, and you're like, hey, put on an apron. I need you to get to work. And so he's running Dunkin' Donuts. His other company, the Industrial Lunch Service Company, is much larger at the time. But then he starts to realize, so think about it. Maybe you have 200 trucks. Maybe he's got at this point, I think, like three stores, something like that, four donut stores.

Starting point is 00:41:28 Actually, this chapter is called The first five donut stores so he has up to five stores at this point and he's just realizing he's comparing the two businesses one is big and mature and the other one's small and growing he's like i like the donut business way better and so he talks about that here he says the donut business didn't require going out and selling accounts which we had to do for industrial lunch. So he had to go into the factory. And really the way you think about this is like how can you get closer to the customer and then just keep maintaining that relationship? If the factories – he doesn't have a direct relationship with his customer. They're factory employees and the factory can change their mind as some of them do and say, hey, we're're moving you out because we have somebody else like we gave your contract to somebody else and so he says i don't

Starting point is 00:42:08 have to go out and sell accounts at factories in the donut business it was just a matter of getting a store opening it up and you own the customers the name dunkin donuts attracted people customers liked our products and the way that we conducted business and so it's going so well this is the first sign that him and his partner really that what they're going to break up over, and he's going to wind up buying his partner out, is because his partner Harry's like, no, we've got enough stores, five's enough, what's wrong with you? And Bill, as you've probably picked up so far, he's an extreme character. He's like, no, no, my foot is staying on the pedal.

Starting point is 00:42:38 I want to get to thousands of stores, or whatever the case is. Harry was very happy with five stores we had. I, on the other hand, wasn't content to rest on my laurels good enough wasn't good enough for me i saw that we had a good thing going and i wanted to expand in a big big way before somebody else did i decided that we're going to sell franchises and so he has this idea to take a like cross-country road trip this is very similar if you remember the book, the autobiography of Danny Meyer, I think it's called Setting the Table. I think it was like Founders No. 23

Starting point is 00:43:10 or somewhere back there. But he did the same thing when he was going to open a barbecue shop. He goes on this like, and when he wanted to found Shake Shack, he'd go all across the country tasting different barbecue and the barbecue case

Starting point is 00:43:20 and then checking out all different hamburger places. And so we're going to see that that's not a unique idea, that Bill did this as well. And the term that Bill Gurley, the investor Bill Gurley put on this is that it's professional research. So he says, I told Harry that I was going to take a trip across the country in my car and see what was going on with donut stores. If we were going to move ahead, we needed to move fast and we need to move now. I wanted to see what the potential was. I took a six week road trip across the United States. And so he says, all these donut stores were selling only four kinds of donuts and were not only surviving,

Starting point is 00:43:49 they were doing a pretty decent business. I knew I had to get a hold of this thing before somebody else stole my idea. Traveling around the country, I realized we really had something different. Through franchising, I could grow the company before somebody else came up with my idea and took over our leadership position. And so he goes back to his partner and says, we're going to expand. We have this idea. This starts like a two year fight. And so this is going to play out on a couple of different pages. The notes I have is you can't have a partner like this. And then later on, childish crab behavior. And so essentially he's getting a lot of press and a lot of attention he is an eighth grade

Starting point is 00:44:25 dropout his partner is a highly educated you know business edgy business school educated person and there's just jealousy and this is like the the downside to to human nature so it says he and his wife kept asking why i was never satisfied why did i have to keep building why aren't you satisfied with what you have what is your problem and then they start to say, he's like, no, your idea is stupid. No one's going to buy franchises. Who would want to buy a franchise from us? Why would they buy a franchise from us? He brought suppliers and friends to the office to convince his stupid, crazy partner that he should be satisfied and not expand. This is terrible. He even got the people who sold us the donut mix to come and talk to me and tell me how crazy I was. And I said, I think this is where the future lies. I could not be talked out of it.

Starting point is 00:45:10 I refused. It's going to wind up leading to a lawsuit because Bill goes out and sells franchises, but his partner won't sell any agreement. He didn't want to franchise and wouldn't allow me to sign a franchise agreement. He said he owned 50% of the company. He said, everyone told you that you were crazy and you can't franchise. I told him I don't care what they said. I believe that we have a great thing. And then Harry says, I don't believe we have a great thing. Harry grew bitter towards me.

Starting point is 00:45:35 I sat him down and tried to get to the bottom of his feelings. He started to tell me that his wife and daughter were unhappy. It became clear that Harry's wife was jealous of the attention I was getting. She was bothered by the fact that her husband, the businessman who had college degrees, whom she thought had superior knowledge to me, was not getting the top billing. He told me that people looked upon me as their man responsible for the business, technically he's the one that founded it,

Starting point is 00:45:54 rather than the two of us together. Then his wife lets him have it and his partner's wife starts yelling at him. She let go of me. You are egotistical. You want to have all the publicity. Now the whole problem no longer rested in common sense and logic it became fueled with jealousy and envy

Starting point is 00:46:09 success rather than failure was doing us damage success was becoming more difficult to deal with so this fight goes on for quite a while bill is trying to avoid a lawsuit so he's like listen just i'll buy you out okay or you could buy me out whatever so i made him an offer i told him he could buy me out or I'd buy him out for 350,000, which is the total book value of the company. In other words, a hundred percent of the book value for 50% of the business. I told him I didn't want to get out of the business. If, uh, if he bought the company, he would have the names, but I'd have the right to go back into the business. I would not sign a non-compete agreement. He could not, or excuse me, he would not have the same rights, or excuse me, he would have the same rights if I bought him out there.

Starting point is 00:46:48 So what he's saying is like, listen, I'll take the deal, the same deal I'm offering you. If you don't want it, I'll take it, vice versa. Regardless of who winds up with the business, the other person can go out and start their own donut business and then run it the way they see fit. And so that seems like pretty fair. Harry did not want to do that

Starting point is 00:47:05 he just kept stalling and harry winds up having like scumbag behavior says everyone knew that harry didn't want to run the whole thing our fort so they're going to go into equity court to figure this out our former mutual lawyer had convinced harry to turn the business over to the kid who left the eighth grade with the implication that it wouldn't be long before things would go downhill and the uneducated kid he's obviously talking about himself wouldn't be long before things would go downhill and the uneducated kid, he's obviously talking about himself, wouldn't be able to pay the money he owed. It wouldn't be long before Harry would own and run the business. Everyone knew I wanted to buy him out.

Starting point is 00:47:33 I founded the business. I wanted to stay in the business. Although we were successful, we hadn't built up a large cost balance because we kept reinvesting to build the company. I had to dig up the money to pay Harry. I went to my friend Abe and I borrowed $50,000 from him. I borrowed money from some of my suppliers. I got Harry's down payment and agreed to pay him out so much over time. In 1955, so this is five years after he founded Dunkin', I bought Harry out. Harry had the right to compete with me if he wanted to. That's the deal we made.

Starting point is 00:47:58 I then found out that Harry and our former mutual lawyer had formed a company called Mr. Donut. Look at what they do here. We also found out that two outstanding locations that our former lawyer had been negotiating for Dunkin' Donuts had contracts drawn up for Mr. Donut. That's shady. That was a breach of fiduciary relationship. Both Harry and the lawyer had been employed by Dunkin' Donuts at the time. I told Jack about it and I told him I thought we should sue. Jack, being the kind of man he was, wasn't interested in starting lawsuits. And he gives him good advice here, or advice at least that Bill agrees with. He said, Bill, for Christ's sake, forget about it.

Starting point is 00:48:34 Let Harry have them. Continue on. Build your business. Go ahead and do it because you could spend all that time fighting in court. I took Jack's advice and I let them go. For two years, the company had stagnated. So there's all kinds of struggles that he has trying to build a franchise at this point. He's trying to look for alternate sources of money. But the problem is a lot of those sources of money come with a partner.

Starting point is 00:49:11 And he says, he's like, I need a partner like I need a hole in my head. Like he's done. I'm not doing a partnership anymore. And we see the closest thing he has a partner is going to wind up being his son's going to come into the business. And that does not go well. So basically what I'm trying to tell you here is that banks banks wouldn't finance so he's got to find other solutions and so he says as duncan grew from 5 to 10 then 20 and now 30 stores i did what i could what i could to find sources of financing other than going to the banks for instance i convinced my suppliers to finance my growth i pointed out that they would

Starting point is 00:49:41 benefit with the increased volume of sales some help with a small loan but most gave us longer term credit to pay them off why is that important because he says unlike many companies which had to wait for their money to come in in our business we got the cash the minute we sold our product some suppliers went as far to give us 120 day credit so they have like a four month float here we found ourselves in position where we had credit from the supplier and cash from the customer and he really hits on an important point that like what you think is your like you really have to know what your bottleneck is and then if you can identify your bottleneck put all your resources into attacking that bottleneck he wants to grow fast and he says finding franchisees he considered he he compares multiple times in the book that at this point in American history, franchising was like really popular and hot.

Starting point is 00:50:32 He said it was like the internet stocks of their day. Remember, he's writing the book in 2000, 2001. That's probably why he's making that comparison. But he realizes like I can find tons of people that want to buy Dunkin' Donuts. That's not the problem. He says finding franchisees or locations wasn't the problem. Financing stores was the problem. And so as Dunkin's growing, he's looking for other opportunities because you have McDonald's growing at the time.

Starting point is 00:50:53 Kentucky Fried Chicken is growing at the time. And so he says, he's like, maybe I'll start another franchise and like a franchise organization. He realizes this is going to be a mistake. In addition to Dunkin' Donuts, I kept my eye for other ventures. At one point, I opened a hamburger and fries place and called it Gulp and Gallop. And so he's got a partner that wants to come in with a lot of money for Gulp and Gallop. Hood offered me a $500,000 line of credit to get involved in Gulp and Gallop. I agreed, but after I gave it some consideration,

Starting point is 00:51:18 I realized we didn't have the organization to do that and Dunkin' Donuts. I went back to Hood and explained my thoughts. Ultimately, Gulp and Gallop wasn't the way to go, and Dunkin Donuts. I went back to hood and explained my thoughts. Ultimately, gulp and gallop wasn't the way wasn't the way to go when we closed it. I wanted to devote my time to expanding Dunkin Donuts. And so we see that idea that I think Steve Jobs put it the best way focus is saying no, he's saying no to $500,000 and another business because he can't do that and Dunkin Donuts. So I just mentioned that he says that the franchisees or franchises in the 1950s were the dot-com stocks of their day.

Starting point is 00:51:50 He's really giving us a lesson on human nature when people start to make a lot of money really fast. He says, as with anything new, and you have to understand at the time, franchising was very much a new and innovative enterprise. The fast buck artists got involved. Some of the fly-by-nighters had generated negative attention. People of all types were eager to buy franchises, just as people were clamoring to buy dot-com stocks in the late 1990s. If Don Wright, franchising was a cash cow. Those looking for a fast buck would get together and open a franchise. They would often use famous

Starting point is 00:52:21 people's names. So we saw this when I did the Johnny Carson book. So he gave examples like Johnny Carson's men's clothing, for example, or Joe Namath hot dog stands. I didn't even know that was a thing. They didn't have any background in the business and they simply sold franchises. These people who are selling franchises didn't have an organization as we had to back them up. The other people who took the franchises, so these are the franchisees, set up corporations to go on the leases. So it was a domino effect. The individual franchisees were getting hurt. As a result, a lot of people were getting angry. Consequently, some had complained to their local congressmen and local state representatives. In response,

Starting point is 00:53:01 the government started passing legislation that was determined, or excuse me legislation that was detrimental to the industry. Things weren't looking good. It got to the point where you couldn't place an ad in the Wall Street Journal or the New York Times with the word franchising in it. That's crazy. That's how bad their reputation had gotten. You can't even run an ad in the New York Times or Wall Street for your business. In actuality, there were many good outfits out there. McDonald's, Kentucky Fried Chicken, Dunkin' Donuts. These were solid organizations with good people.

Starting point is 00:53:28 But of course, all you heard about were the bad eggs. So a few weeks ago when I was doing that Bloomberg autobiography, I just realized he's always looking for ways to get in front of more customers. And Bloomberg's running media and subscription business, so it's a little different than selling food. But Bill was the same way. And so here's an example of this. He's got this idea of what he calls setting up satellites. As a rule, supermarkets measured their success by how much money they took in per square foot. So I went to a grocery store and spoke to the management and pointed out that there is an area that where people walk through after they checked

Starting point is 00:54:03 out and it wasn't generating any money at all. If you would let me put a case of donuts up on the wall and a coffee set up near this area, similar to what we set up at our Dunkin' Donuts stores, people could buy coffee and donuts on the way out. It would be advantageous to us and to you because you would receive a percentage of the sales. The management agreed. So at this this point he's building up his business he's focused completely on dunkin donuts it's doing really well he's making enough money and getting rich enough that his son can go to harvard business school and his son is in harvard business school and he's like dad i don't understand like you have an eighth grade eighth grade education but you've been telling me my whole life the stuff that now i'm learning in harvard business school

Starting point is 00:54:43 like how did you like how did you do that and so he says to his son that's how I learned it I learned from people like me who started successful businesses I learned from other successful people how they achieve their goals if I had to make a choice between a formal and an informal education I would take the informal education I think you learn a hell of a lot more once you get out into the world and really do it you really don't know what the world is all about until you get out into it. And so that was the first mention of something that's going to come up later on because his son tells him, hey, I want to be like you, dad. I want to come into the family business. He's thrilled that his son says that.

Starting point is 00:55:18 And eventually he's going to turn over the company to his son. But his son hires all these business school graduates without actual real life experience and he's like they just do one dumb thing after another and it's just a weird when you read the book it's a weird thought to have where it's just like he's got to tell us his life story his life story is obviously why are people interested in his life story because he started dunkin donuts right so he's got to tell us the history of his dunkin donuts as he tells us the history of his life. But there's a lot of things in this book I could never imagine writing about my son. And it's a hard decision to make.

Starting point is 00:55:55 Like if you have a business, completely understand you put all your life energy into this. Of course, you'd want to set up the future generations of your family and maybe they manage the business but there's many times in the book where he's got to choose between maintaining the relationship he has with his son or what's best for the business and over and over again he chooses to stand on the side of his son and why they wind up doing so poorly when his son runs the business that they're bought out now that was a financial successful exit but it wouldn't have happened if for if the company was strong and under better management. So it's a, I don't know, that is something that was on my mind a lot. It's like a cautionary tale throughout this, it's weaved throughout this book. And it goes on for many, many chapters

Starting point is 00:56:36 because it's over many, many decades. And so then he talks about the fact that his business and his life were intertwined. The summary of this section, it says, keep your foot on the gas and stay close to the money. And so he says, so much of my life depended on the success of my business. As much as I was enjoying the fruits of our success, I never sat back. I was always a stickler about the maintenance and operations of the stores. I constantly called my people if quality didn't meet our standards. It was my belief that you had to be where the cash registers were because that's where the customers are and so later on this this uh like fierce dedication to the customer which

Starting point is 00:57:10 you and i've seen over and over again in these books like so later on he'll have like a meeting with an executive and they're like here here's the the the organizational structure of this business that we've built look at it and they're looking at it and he'll like tear into the guy he's like i'm not at the top of the company he's like what the hell are you talking about like you're the founder of the ceo the chairman like of course you are he's like the into the guy. He's like, I'm not at the top of the company. He's like, what the hell are you talking about? You're the founder, the CEO, the chairman. Like, of course you are. He's like, the customer is. And like, he'd rip up the papers and make them redo it.

Starting point is 00:57:31 He's like, the customer is the boss. They are the most important part of the company. Now, this part made me laugh. And when I read it, so I just wrote it. This made me laugh. That's the note, right? I didn't realize how, this is like a warning sign. Red lights flashing now that I look back on this.

Starting point is 00:57:46 And so his son graduates from Harvard Business School. He comes into the company, and this is before he turns over the CEO role to his son. And he's just talking to his son about this, like any dad might talk to their son, right, give him advice. You must know how the coffee should taste and what our standards are. He said, I don't drink coffee, Dad. You don't drink coffee? Are you kidding? I couldn't believe my ears. He said, no, I drink milk. I said, Bobby, if you're going to be the president of this company, you better learn to like coffee. And if you don't

Starting point is 00:58:14 start to drink coffee, you're going to, uh, this is funny. If you don't start to drink coffee, you're going to get it in the form of an enema. One way or another, you're going to like coffee. He laughed and then he said, I like Hostess Donuts. I said, how the hell can you be president of this company and tell me you like Hostess Donuts? Don't you like Dunkin' Donuts? I buy Hostess Donuts, he said, and eat them at home. I said, Bobby, you better throw those Hostess Donuts down the toilet and start eating Dunkin' Donuts and learn what a good donut is and what we stand for. You cannot be president of this company and not wholeheartedly believe in its products. You just can't do it. And my thought is just like you never even use the products of the company that your dad has been running for multiple decades the company has generated the profits that has given you a wonderful life a life that is 180 degrees different from the life that your father had

Starting point is 00:59:09 to struggle through what the hell was that this is what i meant like you it's gonna be really hard to read this book and come away with a positive uh outlook on his son um and so again i don't i could i my son's only two you know but i could never i just could never imagine putting like this business out for the public like this family business not for the public it just seems odd to me there's something that he repeats in the uh in the book over and over again the importance of sharing he felt like you should pay your employees as well as as much as possible your goal should be to make everybody works with you as rich as possible this is gonna remind me a lot this is what the no i left myself here this is the less schwab way so i'll tell you what i mean

Starting point is 00:59:48 by that i used to say to our employees and franchisees i only have one wish for you and that is i hope every single one of you becomes a millionaire frankly if all you become millionaires i'll become a multi-millionaire that's how i thought then and i still think today try to bring along great bring along great people Give them incentives to do well. Remember that point. The more people you have doing well, the better off you'll be. It was absolutely my philosophy and my policy, and I did not tolerate anyone who thought otherwise. So I just finished rereading my highlights for a book that I did a long time ago, probably now over two years ago. It's Founders 105.

Starting point is 01:00:25 It's the autobiography of Les Schwab. And it's called Les Schwab, Pride and Performance, Keep It Going. And I'm a very simple person. If Charlie Munger tells me to read a book, I read the book. And so Charlie Munger said, if you want to read one book that will demonstrate really shrewd compensation systems, remember what Bill just said, give your people incentives to do well. Let's go back to what Charlie Munger said. If you want to read a book that will demonstrate really shrewd compensation systems in a whole chain of small businesses, read the autobiography

Starting point is 01:00:52 of Les Schwab, who had a bunch of tire shops all over the Northwest. And he made a huge fortune in one of the world's really difficult businesses by having really shrewd systems. He can tell you a lot better than we can. And so what Les would do, which gave him a huge advantage because he got better quality people, is he would share 50% of the profits of every store with the people that work in the store. And in the book, you'll love the guy. If you read his book, he's like,

Starting point is 01:01:19 I wrote the book every word myself on a typewriter. He's just completely lovable because he's just like this old school dude. He's just like no education. His dad was a drunk and died on the side of the road. And he's just like, you know, he wanted to run a business for years. I think he was like not until he was like 35 until he actually had the money to do it. And he just like chastises other like greedy, what he considers greedy business people.

Starting point is 01:01:39 He's like, I don't understand. He's like, if the store makes $10 million, I still make $5 million and everybody else else makes 5 million dollars why the hell would you not share this with the people that were responsible partly responsible for your success and if i remember correctly i'm pretty sure yeah even though it's one company each of the profit sharing happened like the profit sharing was tied to the store you were in not the overall company performance so if you really kicked ass and the store down the street didn't you would still get money so that's what uh charlie i think is talking about because you know if you study charlie he mentions the importance of a sentence over and over and over again um and so the idea was like this guy had really shrewd systems and those shrewd systems in part allowed him to make

Starting point is 01:02:19 a huge fortune in a very difficult business and so we go back to this relationship with his son this is still in the beginning um and i wrote uh oh, what does this mean? It was eager to have Bob take over. I think this is common in family businesses when a parent hands over the reins to the child. But the danger is that the parent, like myself, becomes blind to some of the drawbacks of such an arrangement. But this didn't become apparent until later. So then he starts talking about the mistakes that siding with his son caused him to make for the detriment of the business. We had a good group going, but they supposedly weren't sophisticated. And he put that in quotes.

Starting point is 01:02:52 So this is what his son is saying. Oh, these people aren't sophisticated. Remember, the son and the business school graduates, no experience, tons of education, are telling these old school guys, generation older, who have now built this business from nothing, that you're not sophisticated. That's fucking ridiculous. And why are they not sophisticated? Because they didn't write out reports and sit at meetings to the degree that my son's group did. But they knew how to go out, and he's talking to his group, but they knew how to go out and make money and build a business.

Starting point is 01:03:18 It was a difference in culture that arose between the old and the new regime. So the new regime obviously is the son, the older are the people that are like him. They may not have, in many cases, not only they don't have college degrees they don't even have high school they didn't finish high school but they know how to build a damn business i think i should have listened more closely so they're talking about like all these people that they want to replace and so he's getting information from his other employees have been with him a long time they're like hey are you sure this is the right idea and he's like i didn't know what was happening and so he taught he was essentially telling us the mistakes he made so we can avoid them i should have listened more closely but i didn't little by little some people left or were

Starting point is 01:03:53 let go i had put my son in charge and i stood behind many of the decisions he made but i was torn internally i couldn't turn my back on my principles and what i believed this conflict of interest between my son and me became a source of many heated arguments in the years to follow. I didn't realize it at the time, and this is so... It's just not worth it. Think about the sentence, how crazy it is. I didn't realize it at the time, but it seemed my son and I were slowly growing apart.

Starting point is 01:04:22 So he is 50. I think his son is 25 at the time. And one of the problems too, I understand what he's about to say here. This is a couple years later. So his dad's like, you know, like, or his dad, his son was like, I think I should be CEO. Like, I, you know, I can run the company or whatever. And so he acquiesces to that request, but it's CEO and title only. So he says, I didn't care about titles. So Bob became president and CEO on paper.

Starting point is 01:04:51 I was chairman of the board and the treasurer. In reality, I was still the man in charge. So he mentioned in the introduction of the book that he had to fight cancer multiple times. He had hip replacement surgery. I'm omitting a lot of this from the book. He's got this weird relationship with his weight where he's just like he likes to do everything the extreme so he eats and he gets fat but then he'll go to this like um it's like a it's almost like an adult fat camp at it's called like the rice diet very popular in in at duke university and so he'd constantly go

Starting point is 01:05:20 away for like six weeks to lose all the weight really fast then you go back out and then you gain a bunch of weight. So he says essentially like he couldn't maintain his weight. He would gain 20 pounds and then lose 20 pounds. And that's how he did everything. So he'd eat to excess. This seems like a really bad idea to me. That's why I'm telling you that.

Starting point is 01:05:35 Eat to excess and then starve yourself and then do it back and forth. It's just like, why don't you just maintain a healthy weight, dude? I don't know what you're doing here. But he's got to fight all these health issues. And it takes time away from the business. And one of this is the fact that he had to have cancer surgery. He was a smoker. So he's like, don't ever smoke.

Starting point is 01:05:53 He says that in the book. So in 1971, fighting cancer and then recovering from the surgery and regaining my strength took up most of my time. I ceased to be as active in Dunkin' Donuts. And frankly, that is when shit hit the fan. And this is what I mean about you're not going to have a good view of his son. They had already gone public, right? And the stock is going to drop. And this is going to happen twice. The second time, I think, is when they get bought out. Somebody takes it over.

Starting point is 01:06:19 But I'm going to read a bunch from these pages. I think this goes on for a few pages here and the way to think about this is harvard business school graduate torpedoes great business built by middle school dropout and so one of his executives comes to him and says listen this man there's a manager who's mishandling funds so stealing money and we need we we fired him next thing i know bob rehired this man so bob's his son we hired this man to work in the real estate department and bob's like oh i do this because i this guy is smart and he says he says to his son i don't care how smart he is you'll never have enough people to watch a crook it wasn't long before my son called to tell me that

Starting point is 01:07:02 we had a problem so this guy is working in a Dunkin Donuts. He's stealing money. He gets fired by the old school, rehired by the new school, right? Because he's quote unquote smart. Let's see how smart this guy is. So let's hire him for the real estate. It wasn't long before my son called to tell me that we had a problem, a big problem. It had come to Bob's attention that we had a hundred stores in bad locations. He wanted to go with me to check on these stores. So he goes with Bob. Sure enough, he goes with his son. Sure enough, this ex-manager, the guy that he told him, hey, the guy's a crook. Doesn't matter if he's smart. Don't hire him. And he winds up not being smart. Sure enough, this ex-manager had taken out lousy locations and they were not doing well. Bob had put him, the new guy, in competition with Dave Siegel, who Dave Siegel is from the old school crew,

Starting point is 01:07:48 who was in charge of real estate in the East and who had adhered to our strict standards. So he's like, it's obviously you're running a retail store. Location is a huge, huge factor in that. You can't have low standards. But this other man, the guy that they rehired, just took anything that was available. The damage was done. We had to close 100 stores and get rid of the leases the best we could. And it makes it even worse because that job of unloading them and trying to undo this, unravel this whole thing, goes to the guy he was competing with, that Dave Siegel guy.

Starting point is 01:08:19 So it says, then the question became how to write off these losses. And all the years I'd been in business, before then and since, we always made a profit. So they never lost money. And now we're going through. So now the company's we always made a profit so they never lost money and now we're going through so now the company's been around for 21 years has never lost money the the sun's and just a fuse into his tenure and is essentially destroying the business the question arose whether to write off the loss over a long period of time or bite bull and take it in one year so they go they have um they talk to people that know about like public equities and also their accountants. And they said, take the $3 million loss all at one time.

Starting point is 01:08:50 Our accountants agreed, and so that's what we did. As a result of that, the stock fell. The stock had been trading at $66, slipped below $12, and then bottomed out at $1.75. And so the board of directors meets, and they're telling Bill. They're like, we've got to fire Bob. Bob doesn't know what the hell he's doing. The director said that they felt I needed to replace Bob. I had to make a choice that repeated itself many times over the next few decades. I came to a crossroads with my son where I either had to fire him or let him run the business. I always chose in his favor. Had it been anyone else but my son,

Starting point is 01:09:26 I would have fired him. I would have made the change. I wanted desperately to have him run the family business that I worked so hard to build. And I was afraid that letting him go would destroy him. And so that was 1971. Here's what Bob does in 1972. In 1972, Bob's group got into a problem with some of the franchise operators by forcing them to buy some of their equipment from the company. Bob and his executives were smart, but they lacked wisdom. We ended up in a class action lawsuit that was brought to us by the franchisees. So now they have to fight a lawsuit. They recommended a Philadelphia attorney because the trial was taking place there. We met with him. I could easily tell by the way he talked that he knew nothing about franchising. When the attorney left, I told the others not to hire him. My experience had taught me that people

Starting point is 01:10:13 don't win when they don't believe in the cause. But I was overruled by Bob. Sure enough, they hired this Philadelphia lawyer and sure as hell, they lost the case. They spent a lot of time in court preparing and fighting legal battles instead of building the business i stuck by my son and his team my fortune in dunkin donuts stock which is about everything i had went from 30 million dollars to 3 million even if i was going to be destroyed financially i was going to write it out and i did so that's the early 70s then he goes into this happened

Starting point is 01:10:46 remember he says this plays off from multiple decades but he had the warning signs and that's the problem he had the warning signs he couldn't I understand loyalty to his son but that's why you have to think twice about getting yourself in situations like this where it's like you should back your family but your business and the thing you worked for

Starting point is 01:11:02 maybe you shouldn't have them involved in it and so we get into one of the biggest mistakes in his life. This is going to happen in 1989, and Bob essentially destroys their business. Bob and I had our differences. Over the years, we didn't always hold the same beliefs. Some of our interpersonal dynamics were typical of many father-son relationships. I had my arguments with Bob.

Starting point is 01:11:21 All fathers and sons have them. Again, I'm a sucker for – he's writing this book, he's 80 years old. Just like he said in the introduction, like we've seen this over and over again, why do entrepreneurs write autobiographies? They sure as hell don't do it when they're in the middle of a career. There's something in human nature that says, hey, I'm 78 years old. I know I don't have that much time left. I'm going to write down all my lessons so you could benefit.

Starting point is 01:11:42 They explicitly say that just like Bill did in the beginning of this book, right? And so when I think about the time I spent, I probably spent, I don't know, 14, 15 hours reading this book, something like that. And it's like, I'm having a one-sided conversation with, first of all, somebody that's dead, right? So there's only way I can talk to him now. But I'm having a one-sided conversation with an 80-year-old super successful founder. And he's telling me the lessons of his life, both good and bad. And all I'm thinking about it, because a huge part of this relationship,

Starting point is 01:12:09 or excuse me, this book at the beginning, it's relationship that a man has with his father. And then, well, I don't even know why I'm getting like broken up over this. And then the relationship a man has with his son. And so that to me is really the part that resonated and made me sit and think and really ponder about what am I learning from this one-sided conversation with Bill Rosenberg. And I think that is the value in reading the book. When you're going to have these relationships either with the previous generation that raised you or the generation that you're raising. It's important to internalize there. This is a smart, capable, driven person

Starting point is 01:12:49 making mistake after mistake. That is extremely important for us to realize. It'd be foolish to think that we're just going to dodge this easily if we don't learn from the experience of others. I guess that's what I'm trying to tell you. So it says, some of our interpersonal dynamics were typical of many father-son relationships. I had arguments with Bob. All fathers and sons have them, especially those who are in business together. As much as I was torn about certain decisions that Bob and his group were taking when push came to shove over different issues on which we strongly disagreed, ultimately, for the sake of the team, I went along. I've made many mistakes in my life,

Starting point is 01:13:18 but I believe one of the biggest mistakes was trying too hard to accommodate my son's desires. Whatever my son wanted to pursue, I backed him, though many times I disagreed. Harsh as this may sound, if there's any lesson I can impart to others from this, it is to never assume others will treat you as you treat them. I presumed that my son would do for me as I would for him, but I was wrong. In reality, it simply doesn't always work out that way. Family relationships, especially when they're tied to business, are complex. But that's another story and another book. Because of my emotional bonds and my love for my son,

Starting point is 01:13:55 I made business decisions that otherwise I would not have made. I gave up control to my son and ultimately allowed him to control the board. As it turned out, Bob and the board of directors outvoted me. So there's a backup. There's a backstory to what I'm reading to you that I didn't, I failed to fill you in on. So their business is selling franchises, right? That is what their business is. Bob gets his ideas like we should buy franchises. And so let's buy a Chili's franchise.

Starting point is 01:14:22 And so he's looking at the contract and he's like Tony, son, we're on the wrong side of the transaction here look at the money that's left over that's not enough money to make this a profitable business this is a bad deal, you can't take it you should stick to what we're good at, not buying franchises, selling them and Bob's like, nope, you know, you have a bunch

Starting point is 01:14:40 of experience, you have an A-grade education and you built this company from nothing, you own 100% of it and got public. I know better. No, you don't, Bob. They decided to purchase a Chili's franchise. I felt we should have remained focused on our coffee and on donuts. But our time and put our time and effort into that.

Starting point is 01:14:57 It was, why wouldn't you think that? You've built a fabulous business that has generated hundreds of millions of dollars of wealth for you and your franchisees. Why the hell would you like, hey, you know what? Let's get into a sideline. Let's buy a Chili's franchise. Like, what are you talking about? I felt we should have remained focused on our coffee and donut concept, put our time and effort into that. It was the final blow, concluding a series of many disagreements that had occurred between us over the years.

Starting point is 01:15:22 At that point, I was 73 years old, and though I had originally planned to retire by the time I was 75, I thought, what difference would a few years make? It seemed to me the time had come to move on. And so now what happens? Fast forwarding a little bit, you already know where this is going. Bob runs the company aground. Unfortunately, the Chili's division of Dunkin' Donuts posted substantial losses over the next several years. These losses drained Dunkin' Donuts' profits, and as a result, our stock began selling for far less than its true value. Somebody from Canada saw the bargain prices and decided to raid us. In 1989, I got a phone call from Bob. Dad, he said, a company is raiding our stock. I told Bob I'll do anything to help out.

Starting point is 01:16:09 But by then, the media had caught on to what was happening. So they're getting raided. They don't have the money to fight back. So it's either take a hostile takeover. Remember, this is the late 80s. We saw this before on previous books. Or find a white knight to buy you out. And so that's what they did. We went looking for a white knight to buy you out and so that's what they did we went

Starting point is 01:16:26 looking for a white knight during the time we were getting radiance off instead of a hostile takeover it's a quote-unquote friendly takeover so they find one of the executives found a company called allied lions allied lions bought us out allied bought everybody's dunkin donuts stock for cash bob stayed on so he loses his CEO job, but he stays on as chairman. And then in the epilogue of the book, he repeats something that he says over and over again. He started a book with it.

Starting point is 01:16:53 He ends with it as well. And that's the importance of learning from the experience of others, which is what you and I are doing every week. Follow successes. Take off from where the successful people left off, not where they began. You will get the advantage of their experiences. There is all kinds of information out there that you can

Starting point is 01:17:09 gather. Although it may not relate exactly to what you're trying to do, put the information together and ask yourself, who else has done something similar? How did they accomplish it? Why was it done that way? If someone has a more successful family life, he's talking about family and business, find out how that person accomplished this. See if you can copy their methods. And then he ends on what ties a lot of successful entrepreneurs together and the importance of belief. The idea that the mind is a powerful place

Starting point is 01:17:37 and what you feed it can affect you in a powerful way. And he says, if you talked individually to people like Kemin Wilson of Holiday Inn or Ray Kroc of McDonald's or Colonel Sanders of Kentucky Fried Chicken And he says, That desire. We all strove to be the best at what we're doing. Our pride is tied to it. I'm a promoter, but you can't be a good salesperson by giving lip service. You have to feel it in your heart. Ray Kroc believed in hamburgers with all of his soul. Just as I believe in coffee and donuts. And that is where I'll leave it.

Starting point is 01:18:24 To get the full story read the book if you want to buy the book use the link that's in the show notes in your podcast player you'll be supporting the podcast at the same time you can also see every single book

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Starting point is 01:18:41 and finally if you want to buy a gift subscription for a friend, that link is in the show notes as well. That is 232 books down, 1,000 to go. I'll talk to you again soon.

Founders - #231 William Rosenberg (Founder of Dunkin Donuts)

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