The Pomp Podcast - #388: Robert Rosenberg on Lessons Learned Running Dunkin Donuts

Episode Date: September 21, 2020

Robert Rosenberg served as the CEO of Dunkin Donuts for 35 years. He took a company with 100 shops and $10 million in sales when he first became CEO, to 6500 outlets including Baskin Robbins Ice Cream Shops and nearly $2.5 billion in sales the year he retired. In this conversation, we discuss how to hire, how to fire, finding culture fits, defining competence in specific areas, the four primary functions of a leader, when to go public vs stay private, and the value of a brand. ======================= Choice is a new self-directed IRA product that I'm really excited about. If you are listening to this, you are likely part of the 7.1 million bitcoin owners who have retirement accounts with dollars in them, but not bitcoin. I was in that situation too. Now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. Absolute game changer. https://www.retirewithchoice.com/pomp ============================== Pomp writes a daily letter to over 50,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at https://www.pompletter.com

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Robert Rosenberg served as the CEO of Dunkin' Donuts for 35 years. He took a company with 100 shops and $10 million in sales when he first became CEO to 6,500 outlets, including Baskin Robbins ice cream shops, and nearly $2.5 billion in sales the year he retired. In this conversation, we discuss how to hire, how to fire, finding culture fits, defining competence in specific areas, the four primary functions of a leader, when to go public versus stay private, and the value of a brand. I really enjoyed this conversation with Robert, and I hope you do as well. Before we

get into this episode, though, I want to quickly talk about our sponsors. First up is BlockFi. BlockFi is one of my favorite products in all of crypto. I'm an investor. I sit on the board of directors, and I'm a heavy, heavy user of the product. You can buy and sell crypto on their crypto exchange. You can deposit crypto and take out a US dollar loan against your crypto collateral. Or you can use my favorite product, which is their interest-bearing account. In those interest-bearing accounts, you can deposit crypto or a stablecoin and earn up to 8.6% APY.

Go check it out at BlockFi.com slash Pomp. Again, BlockFi.com slash Pomp. Next up is Choice. Choice is a new self-directed IRA product that I'm really excited about. If you're listening to this, you're likely part of the 7.1 million Bitcoin owners who have retirement accounts with dollars in them, but not Bitcoin. I was in that situation too. Now you can actually buy real Bitcoin in your retirement account though.

I'm talking about owning your private keys and using tax advantage dollars to do it too. absolute game changer. Choice solved my problem. They've got a self-directed IRA product that lets you buy Bitcoin, hold the private keys, and use tax advantage dollars to do it too. You can go check them out at retirewithchoice.com slash POMP. Again, retirewithchoice.com slash POMP. Go check them out. Lastly, don't forget that I write a daily letter to over 50,000 investors about business technology and finance. I break down complex topics into easy to understand language while sharing my personal opinion on various aspects of each industry, you can subscribe at pompletter.com. Again, pompletter.com. All right, let's get into this episode with

Robert. I hope you guys enjoy this one. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. I have a very, very special treat for you today. Robert is here. Thank you so much for doing this, sir. You're welcome. My pleasure. All right. So for those that don't know, you are the brain behind

Dunkin' Donuts and the absolute epic scale that that business ultimately achieved. Maybe we could talk a little bit about just your background before Dunkin' Donuts and kind of where you grew up and how did you eventually come to run the business? It's a family business. I sort of figuratively grew up over the store, worked in all kinds of jobs as a kid, running donut shops, running canteen carts my dad had a lot of different businesses so i i spent time putting in my hours in each of them and then went into hotel school i came back worked a bit for the business i went into the army did my military service in those years was mandatory military service and then after that went to graduate school and i graduated business school in 1963 and lo and behold at that

time my father turned to me and what I can only describe as a breathtaking moment asked me if I wouldn't take over the CEO ship of his business then called Universal Food Systems which were eight little businesses and as you can imagine a little bit cocky 25 year old fresh with an MBA but still an overwhelming request something I didn't expect I thought I'd be joining the family business. I went to hotel school. And so I was studying to go into the business, but clearly not in that capacity. And so when you take over as the CEO, I love how you describe being the 25-year-old with an MBA and kind of, you know, let's go take on the world. Talk a little bit about what was the aspiration? Did you know that you wanted to build kind of national chain and really kind of

scale the business? Or was that something that just kind of naturally happened? Like when you took over as CEO, what was the goal? The real goal was to try to keep the family business in the family. My dad was an eighth grade educated guy. He always wanted to be a millionaire after taxes. He had had a partner, his brother-in-law, who he split that partnership. They didn't get along. The partner, my uncle, started a competitive donut chain with the money that he took from the sale of his half of the business and so my real goal at the time really was to try to straighten out the business to beat our competitor the family rivals in the donut business and I thought I saw a way to straighten out what was a chaotic business situation when I arrived in 63

but profits had stagnated my dad was trying to sell the business couldn't sell it he wanted a million and a half dollars. He'd be a millionaire after taxes. And he had really left the day-to-day management of the business to an executive vice president, a former Montgomery Ward executive. And basically, I thought that I could do a better job in terms of rationalizing the business, putting it on the right track than my predecessor, who was this fellow who was running the business on a day-to-day basis. So my aspirations really were to please my dad, keep the family business from being sold and try to grow it. But in terms of a big grand design plan, 35 years later, that evolved as the journey progressed. But I did think I saw a way to straighten out the chaos

that I inherited. Got it. And so you served as the Dunkin' Donuts CEO for 35 years. Talk a little bit just today, as you look back and reflect, it has become one of the largest, most nationally scaled chains. What are some of the lessons learned or takeaways that you had from that 35-year journey? There's so many stories in there. There's so many different things that you probably remember, but what are the big takeaways if you had to summarize it? In my book, really, it's a buffet of lessons, stories, and experiences that can apply to almost anyone, not only in business, but people just designing a life. So it depends upon where an individual might be. My own personal experience is that when I read a book, attend a seminar, even have a conversation

with colleagues, which are really my big teaching moments, encountering a problem, I often found that I come away with maybe two, three possible nuggets, and almost always were those things that I was wrestling with at the moment that I began a search for an answer by attending the seminar, by reading the book. And so much so is true in the case of the book that I read. So for example, if you're an emerging entrepreneur, I think the lessons about the opportunities that exist within the franchise system, I think could be illuminating. The importance of perseverance, second chances, I think are critical. If you're, if you're joining a family business, the unique opportunities and challenges that are inherent in that may be helpful. If you're

trying to scale a mid-size or an emerging business larger, the issues about planning that we found useful, how we basically recruited, retained, motivated, uh, really what I consider would be a phenomenal staff, great teammates, might be useful. If you're a larger company, how we emerged and found ways of being able to organize our board of directors, I think was kind of unique and very useful to me as the CEO, and you might find benefit there. So I can't pin one or two key lessons out of all of it. I think I lead with the notion that leadership is essential, whether it's a family whether it's a company whether it's a country if the leadership is faulty if the if the character the leader is wanting then almost all that follows will will

be a problem and the only way it changes you can't change it sort of from the middle you can't change it from the bottom the only way you can really change it is if the leader changes and and so that's a critical lesson and the the functions of what a ceo does the four critical functions that I found that I had to focus on that I hope will be useful to others and add value to other other executives. Absolutely. So you wrote this book, the title is around the corner to around the world, a dozen lessons of I learned running Dunkin Donuts, and it literally is packed with all kinds of different things. I think one of the pieces that is so interesting to me personally is Not only did you scale what was a family business into this large national chain, but you also were consistently tapped for your experience and knowledge.

So you sat on the boards of Domino's and Sonic and kind of these other types of businesses. And as you think back, how much of what you were learning as an operator at Dunkin' Donuts gave you the ability to kind of be a good board member, be a good sounding board and governor of those other businesses, right? were there a lot of kind of common lessons and common challenges and obstacles that each of these businesses were going through? Or did you find that even though they were kind of in the food services space, these other businesses actually had different challenges and different things that they dealt with than what you're dealing with as the operator seat at Dunkin? Well, 35 years is a long run, and it gave me an opportunity to make a lot of mistakes. And And so those setbacks and successes, I think, were helpful as I served on other boards.

And basically, I was a believer that I stuck to my knitting, the things I knew. So I only served on boards that were either chain-operated, small-box retailers, I call them. They either utilized franchising as a method of distribution, and it could have been in the automotive industry, or it could have been in the food service industry. And I did find that on a board that there is an advantage to having an operator alongside other types, people who understand governance, people who understand maybe international market, what other issues that business may be facing, I think comprise an effective board. But having a practitioner, someone who's been there, done that, has been helpful. And the answer to your question is yes. I found my experiences were extraordinarily helpful. For example, I was on one board where we owned a cotton, a muffler repair, not a muffler repair, but a transmission repair business.

And we bought Amco. Well, I had experience in buying my competitor, Mr. Donut, and rebadging them to Dunkin'. So that kind of experience could have been very, very useful to us as Cotman as we bought Amco and merged the two brands together and began to rebadge the stores onto one brand. So there were lots and lots of experiences that I think I brought from one business even to the automotive aftermarket repair business that were useful. Absolutely. And so obviously, a lot of what you've kind of learned, and I think built your career on was finding the best people, right? And kind of just whether it was other board members, executives, franchisees, just people, people, people. When you thought about people, how much of this was trying to find kind of talent that was impressive, but did not yet have kind of years and years of experience doing something. And so they could kind of grow into the role versus you wanted to go find people who had already done the

job, let's say at another company or on a bigger scale. Like, were you hiring for experience or were you more focused on hiring for kind of potential and competency? There were three things that I utilized, really the company utilized. The first was a real crisp understanding of the assignment we wanted someone to fill. And the better you define the assignment, the more likely you are to find a candidate to come fulfill that assignment. So I spent a lot of time thinking about what is it exactly? Where are we? What do we need filled in that job? So it's a definition of a job. The second philosophy or principle that we sort of followed was that we weren't looking for someone who was effective or knowledgeable in all things.

We really, really, we were a team culture. We relied on the complementarity of the skills in the team. And it was no big, including myself, no big admission not to be good at everything. Certain things we were thrown to be better at and not so good at others. And the whole notion was to have in the team the complementarity of skills that we really would support and lift each other up. So long as you had mutual respect, no backbiting, which was not allowed in our culture. We basically wouldn't put up with that. And the third thing was fit.

And you had to fit the culture. And the culture in our case was, you know, teamwork, aspirations. We liked to win. Winning was a part of us. I just gave it our DNA. So whenever we sort of achieve one objective, we set more lofty objectives to spur us forward. We kept changing all the time and kept growing. So I would say those were the three sort of principles that we utilized. In some cases, it didn't require a lot of prior knowledge. In fact, just the fit and the complementarity of the personalities might have been enough, depending on the assignment. Yeah. It's really interesting how you obviously did this for so long. You know exactly what you were looking for. And I think that that's a key piece to this is if you just go out and say,

hey, we want to hire somebody, you obviously can make all kinds of mistakes. But when you say we specifically want to hire somebody based on these three criteria, that focus seems to drastically increase the probability that you do it the right way, right? Agree. Absolutely agree. Yeah. Today's environment in both the public and private markets could be described as frothy, if I was to be kind. And there's all kinds of kind of craziness and people are kind of scratching their head as to what's going on. You've got experience with public and private companies. How do you think about, you know, when a private company should go public, when they

should stay private, when they should stay family owned versus take on investors? Like, just how do you think about navigating what I'll call the capital markets and kind of governance of public and private companies? Is there some framework that you would use to think through that if you were an executive today? Both have pros and cons. I'm ambivalent about the answer to that. I think having a public company is a great tool with the stock options to be able to attract and retain and be able to punch above your weight if you've got a growth company. That's a huge advantage. By the same token, when their quarterly earnings can be a terrible tight noose around your neck, and when you really have to make some longer term investments and wait, in an environment that

historically had been maximized shareholder return and with lots of opportunities, the private equity buyout funds that are looking for act or activist shareholders that are looking for that opportunity can step in so you have the issue of control so on the one hand there are tremendous advantages of public ownership in my view and by the same token there are some disadvantages uh if i were to do it again if i could have and i had to sell the business in order it to equitize my father's holdings and not have the company sold. We didn't need a lot of capital. I would have invented phantom stock options to replicate those of a public company and I would have stayed private. Yeah. And it's really interesting, I think, today too, when the

equation almost changes or the evaluation, when the public markets will just be so disjointed, it seems like from kind of traditional multiples and things like that. It's almost as if the financial incentive becomes greater to for people to get into the public market. But I recently had a gentleman on he's been a CEO of a company for it's publicly traded for 22 years. And what he said to me was, once you're in the public markets, it's really hard to go back, you can go back, but you're pretty much a public company. And so you have to understand it's not just about the short term decision making, you know, you're completely changing the way that you're going to govern this business and kind of make decisions? And do you want to sign up for that or not?

In my case, I broke the 35 years into six distinct eras. The first five years, we were magical. We made little mistakes. We moved from success to success. The second five years, once we were a publicly owned company, that success became a terrible impediment to future success. We were growing the first five years at 50% compounded. I basically changed the mission and objectives now as a public company to try to maintain that frothy price. We were trading at 60, 70 times earnings. We were back in the late 60s. Again, most food service franchising businesses were akin to what you see in high-tech businesses today in terms of the darling of Wall Street. I lost my way, changed the mission, and tried to maintain an unrealistic objective in terms

of maintaining share price, and almost drove the company off a cliff. That's when I learned the importance of strategy and how important it is if you're aiming at the wrong target, the kind of cataclysmic result that that can create, and how as the leader you can take a whole team and franchisees and everybody along with you a lesson i never forgot and implied it in the next four eras five years each never look back again but that is the seduction of a public ownership you know it was hard to put a a a wise

head on a 30 year old body that had enjoyed an immense amount of success it was a real problem i got fired um had to talk my way back in. We had realized the error of our ways. And I said, give me another quarter. And the board luckily did. But we had to learn a lesson. It was a tough, tough lesson, a tough five years. Yeah. What's so interesting is now after having done for 35 years and kind of had the benefit of hindsight, you're very rational about being a 30-year-old who had a bunch of success. And as a 32-year-old, you always kind of remind yourself like, yeah, I probably am acting arrogant compared to my future self, right? I will look back and be like, I knew nothing.

Talk through a little bit, like, what did you do in the moment to try to surround yourself with maybe people who were older or who had more experience or could kind of help you understand the things that you didn't know? Were there specific things you did? Or was it literally just trial by fire and I'm going to show up to work every day and I got to figure this out, one way or the other? It goes back a little bit to what I was saying. Sometimes when you're in the midst of a problem, when you read and you get counsel and go to seminars, the nugget or the issue that you're wrestling with might come to you. I remember vividly sitting in my wing chair in my living room reading David Halberstam's Best and Brightest, which was his review of the

Kennedy and Johnson administration of the Vietnamese war. And what he maintained in his book was, although the administration was comprised of the best and brightest, most well-educated people that our country had to provide, they were basically basing their numbers on FAR reports, body counts, never going into the hamlets in the villages where the war was being wage to really find out what was going to happen. They suffered from what Albert's name called hubris, arrogance. And I sat in that chair and said, oh my God, he could just as well be talking about me. And we convened, talked about it, began to set up processes, planning processes, reinvigorated our board, made sure that there were people, wise heads that were able to be able to

test whether or not I had mission creep, whether my objectives were appropriate or not, a better trial, a better group of people to be able to manage major strategic decisions. So it occurred as a result of a lightning strike from a book. But then we began to set processes and policies in place to ensure that we didn't do that again. In fact, when we sat down and we discussed it as management team we decided that each of us would go into the field and each year visit a hundred locations talk directly to franchise owners travel with district managers get a feel we also decided we would work one day waiting on customers in the store so that we would have not only you know the notion of being responsible for strategy and organization and communication all the things that

senior managers do but we make sure that we were in touch with frontline people who really ran the business on a day-to-day basis and we created an advisory council of elected representatives to meet with us where we had clear objectives that guided us like store profitability growth that would ensure that we would continually improve the system and that people got buy-in and it was wonderful we we went and apologized for the oversights of a bad strategy before we took full responsibility not 50 50 100 0 you know wouldn't blame leadership if problems occurred. Take full responsibility. Wouldn't blame my teammates if the problems occurred. Leadership would take 100% of the responsibility. So a lot of learning comes from making mistakes.

And that was the case in my talking personally about myself. That was a clear learning point for me. Absolutely. When I hear you talk and understand that you were in the military, a lot of what you're talking about is leadership lessons that were also taught in the military. How important do you think it was, that experience and kind of preparing you to run a business and kind of have the success that you did? Partly, it became a lot of different influences. I was an enlisted man, but in those days when you took basic training, I began as a squad leader and then advanced individual training, I was a platoon leader. So I was responsible for my men getting ready for car duty and KP, getting into class on time, ensuring that they were there when they were asking for extra leave on weekends with the captain of the company. So it helped me understand the importance of taking care of my team.

I think other lessons really came. A lot of my lessons in terms of what a CEO does actually came out of business school. My second year of business school, we took strategy courses. That was how I got the instinct about what I saw was a faulty strategy that existed in the business. It was far too much experimentation and not enough exploitation of the diamond in the rough that they had within their midst. So that was a lot of help came in. And it came from all different sources. You know, basically, as I look back, it really was a lot of different things that helped me.

and mostly if I had to say what was the most important element of it was what I learned from my colleagues I had exceptional teammates and and there's a book that really touched me by Michael Eisner of all people who talked about working together and the beauty of if you look behind you lift the curtain of most enterprises and in life too in families you won't find one person on a white horse that comes in and saves the day what you generally find is a couple of people at least who love each other respect each other and not vying and competitive with each other that are there to support and complement each other and that was the case with our team

and i had a team partner a guy by the name of tom schwartz for 20 years who was my almost my you know we weren't fit legally business partners but my coo who would come up through the ranks a guy who graduated business school year after me who was essential i i the business wouldn't have been been the same business without him. And I think if you pull the curtain behind a lot of institutions, a lot of families, and a lot of businesses, you'll generally find that symbiotic relationship exists elsewhere. So I learned a lot from my teammates. They really were an exceptional group of people. We were together for a long time, and I owe them a great deal. Yeah, that's amazing. One of the things that you guys did very, very well was you kind of continued to reinvent what was on the

menu and innovate and keep pushing forward in terms of the offerings that you had. There's things like the munchkins or the culottes and all this stuff. Talk a little bit about just what was the process internally? How intentional is it versus serendipitous in terms of creating these new products and really scaling them to a national organization so that you can remain fresh and at the top of mind for consumers? Early on, it was serendipitous. The introduction of Jumbo Java, which was from a six ounce to go cup of coffee to a 10 ounce cup of coffee, came from a competitor or a marketing head I hired from a competitor. Munchkins was an idea that surfaced from our Hartford franchise owners, a lady by the name of Edna Demery, the wife of our franchise owner,

Bob Demery. She created Munchkins. But later on, it became very sophisticated and very process-oriented. Basically, we had a first-rate marketing department. We had product managers for bakery, beverage, and donut categories. Their job was to continually search the marketplace, the competition, the consumer. We took ideas every which way. We ballot tested them. We tested them thoroughly a year in advance in order to ensure that they delivered on the same store sales growth that we wanted we try news is important in a retail business whether it be price product promotion there always should be some activity that excites and enthralls the consumer give them another reason to come into the store and so we manage those calendars very carefully and

product was among them and and in terms of business strategy we used a a planning model it's now pretty much commonplace when we started we modeled our performance way back when we first ran into trouble. So in the early 70s, we were using Jay Forrest's concept of modeling. And we wanted to grow earnings at least 15%. And that drove us to keep innovating and adjusting and need to plant saplings well in advance of the time that you might need those earnings. And those that worked out well, we water them and make sure that they grew. And those that didn't work out so well, we'd stop. So there would be a lot of false starts. You got to sort of put a lot to catch fish. You got to put a lot of hooks in the water sometimes. So we did a lot of measured

experimentation, still achieving our objective, but with an eye to the future, both in terms of markets and in terms of products and in terms of business strategy. Absolutely. You also, in multiple of the organizations you were involved in, either as the operator or on the board, they've built very recognizable, defendable brands. And so obviously there's some value to that. Talk about how important that was, how intentional the brand building and kind of how you saw that as an asset as you built these businesses. I think brand is hugely important. To me, a brand is a shorthand for the goods and services on offer. And for the consumer, it basically is a time saver. Their most precious asset is time. And it allows someone,

when you have a well-identified brand that consistently delivers, it shorthands and saves the consumer time. That is a valuable benefit to the consumer. And so, for example, when we were building our chain out, we did not go where we got an interest from a prospective franchisee to grow in Cheyenne, Wyoming. We were very intentional in terms of building distribution in a market to build brand. We weren't so aware of its value until we actually bought the Mr. Donut chain and rebadged it. Then we were among very few who were in a position to really measure brand. So in New England, where the Dunkin' brand was much stronger than the Mr. brand, same store, same operator, a minor remodeling, a change from the Mr. sign to the Dunkin' sign,

sales went up 40%. Let me repeat that. 40% value of a brand. In markets where we had similar distribution, some places in Pennsylvania, sales went up 12%. In those markets where Dunkin' had no presence and no history, no brand recognition, and Mr. had some like Toronto, they had 10 or 15 stores, we had none. When we rebadged one of the first or second stores, sales went down 10%. So I could say in our case, if you want to know what the value of a brand was In those days, if the average sales of a store were $500,000 or $600,000, they're now close to a million, but maybe even more. But a value of a brand can be worth hundreds of thousands of dollars to a store. What's so interesting about that is, why do you think that?

Is it because there's a trust with the brand, and especially in the food services, retail chain business, they know what they're going to get when they walk in. So there's this promise of consistency and kind of value, or is it something else as to why the brand was so powerful when you would go into markets? Trust is important in every relationship. It's essential. No successful relationship exists without trust. And if you look behind it, when you don't have trust, it's rare you can ever have any

kind of success. And so trust is the ability, basically, in my view, of four things. It's sincerity, your public and private conversation of the same competence. You basically can live up to the standards that you set up, reliability as you meet your promises, and finally is care. So I think the answer to your question is people have trust. And the fast food business, the QSR business, quick service restaurant business, runs on two things, always has and seems to continue to this day.

And it really runs on value and convenience. And value is more than price. Value is a whole series of attributes, one of which is trust. I think I place a high value on trust and reliability is one element that builds that trust. For sure. And so you built an amazing team. You built an amazing business. One of the challenges of running the type of business that you did versus many of the people who listen to this, who run kind of digitally first businesses is that you're trying to build a culture and trying to build an employee base that is all kind of rowing in the same direction, but

they're literally scattered among hundreds, if not thousands of locations across the country. And so how did you think about culture and morale and kind of really ensuring that everyone was working towards the same goals, even though they may not be in the same office or even know who each other are, kind of the actual service worker level? Well, part of it was the planning process. Everybody was involved, and everybody had a clear view of what our purpose was, what our mission, what our objectives were, what the four or five strategic levers we were going to pull in any one year to bridge scarce resources, the achievement of those objectives, and then the tactics that supported that. And we use that common planning language throughout, even for franchisees and district meetings. We would have them utilize that same language and that same framework to keep aligned and to keep together.

We had a lot of high-touch supplemental services to what would be a hierarchical organizational form. In our business, we have thousands of operations far-flung all over the place. People expect consistency and sort of delivery. But there had to be an informal network that supported that, which was high touch. And that was store visits. That was advisory council meetings. That was fun outings, constant contact in terms of ensuring that everybody sort of was subscribing and aligned.

Communication became extremely important. And every one of these methods and processes was designed in order to accomplish that. But a lot of it, in my view, starts with really having consistent planning language and engaging everybody in it. utilizing it year in and year out. I find in a lot of cases where people aren't clear about defining terms, it can be an awful lot of misery and unhappiness. In morale, we would take temperature meetings. We basically had staff. Every couple of years, we do an attitude usage study, which we do with consumers. We would do them with our staff to find out. A big question

I would always look to in other businesses where I served on the boards is, would you recommend this is a place to come to work to your friends and family that was a big touch for me that people really loved it and really would recommend it to others to come join us we knew then that our communication policies our pay policies that the mood the teamwork that we were trying to engender the culture we were trying to engender was on track when it was off that was like a red a red alarm fire for us in terms of finding out why what went wrong and how to fix it yeah One of the keys to building a national brand and business like you did was obviously making investments and kind of thinking about where you were going to focus your time, resources, and energy. How did you think about evaluating all of the different options that you had and then prioritizing where to make investment and where maybe to wait until later to actually make those investments?

Was there any process or framework that you used to make those investments? I would say the first thing we were, you know, we really wanted to maintain a real significant competitive advantage with the consumer day in and day out. I mean, if you're going to be in a business that doesn't have a huge menu, you're only in certain day parts, and you're competing against other businesses that are in more day parts, you've got to make sure that the offering, it really does provide a sustainable competitive advantage. So first investments generally went to ensure the product quality delivered on what it promised to be. And after that, it was pretty standard stuff, I would say. The things that competed so long as they were within the mission were basically whether or not it would provide at the store level something on the order of at least a 15% ROI before we would ask a franchise owner to be able to invest in it. It had to be worth it while they would stop following us if, in fact, we asked them to remodel the store. which is an important thing to provide a new face

every seven to 10 years, pretty standard in the industry. But if we couldn't justify that on an ROI basis to them, we would not do it. We would not ask them to make that investment because we believe to our very core that if we allow them to make too many bad investments, that they would stop following us, that they wouldn't listen in the future.

And so we would search around until we found the right combination of factors. In our case, we found out the gating variable for that was that if there were more than four people in line, there was a 25% block rate in terms of customers turning away. One out of four would leave. So we found out that we had to have more throughput in terms of more registers and more touch points with customers. The point being is that we ensured that we had to have a minimum ROI for our franchisees. And that's where most of the investments were made. They were made mostly at the store level, mostly made by independent businessmen, the franchisees themselves. In terms of our major investments, the one investment I did

make along the end of 35 years was when we diversified in the last era of the company's existence, or next to the last era of the company's, my administration was basically in Chili's restaurants. And there we had found that same-store sales were slipping, and the fast food the area as the baby boomers were aging and they were moving to casual dining operations. We took a license for Chili's and we began to invest some money in Chili's, hopefully to plant those saplings for future growth. As it turned out, events worked out so I had to sell that business and never really was able to keep it to fruition.

But that was the one diversification that we did make the required capital. Other than that, most of the investments were being made on behalf of franchisees. one of the advantages of a franchise system to the franchisor. Once you get a brand going and you build that, you basically can invite other people in to invest wisely and to grow the business. Yeah, it's absolutely fascinating. And how did you think about incentivizing the franchisees, right? So obviously there's a number of different models that people use when franchising, but how did you think about balancing the financial incentive and kind of feeling of ownership for a franchisee, but also ensuring that the Dunkin' brand and kind of core business

had a significant upside and also control over that kind of brand quality? Where was that balance found? Basically, it started with one of the three objectives that the company had. I talk about mission, objectives, objective. Mission is what you want to be and objectives are what you want to have. In our case, it was a 15% compound rate of growth. The second objective we had as a company was to ensure at least a 15% ROI at the unit level for the franchisee. That drove us so that we were ensuring that they would have a fair return for the amount of effort and time that they put into the franchise. When I traveled to the stores, I would often ask the franchisees,

one of the two questions I would ask them is, if you had to do this all over again, would you invest again? Because that was, to me, a question that really was the acid test of whether we were delivering on our promise. Second question I would ask them is if you were the CEO of the company today, what would you do differently than what we're currently doing? So those are my two standard questions. But we were driven by that return. And today, less understood that a franchisee is in business for himself but not by himself.

He has the advantage of having a large company. And when we changed the way we went to market away from manufacturing product in each and every store to sometimes doing that and more often moving out of commissaries and less space and broad distribution began to franchise not a store, but a territory, the ROIs went up dramatically, as did the rate of growth go up. So Dunkin' Donuts franchisees initially started as mom and pop operations, provided a wonderful standard of living, an improvement of standard of living to hundreds of families that wouldn't have existed without us. As we changed the business over time, it became a lot more than that. Now there are enterprises of franchisees that run into the hundreds of stores and net worths that are in the tens of millions of dollars as franchisees. Most people don't realize the tremendous wealth potential that a franchise can offer. When people consider entrepreneurship, this is something they should really give a look at. Today, in a lot of communities, the pillars of those communities could be automobile dealers, John Deere dealerships, Dunkin' Donuts, franchise owners, and a community.

It's amazing what from little acorns these wonderful oaks have grown. And so we were very mindful of that kind of opportunity and everything that we kept doing was designed not only to thrill the customer, but also to ensure that that franchisee who was delivering day in and day out, who was the backbone of the business, was getting a fair return and an opportunity to really build an enterprise and an empire. Absolutely. That's fantastic. I highly suggest everyone go get this book. It is called Around the Corner to Around the World, A Dozen Lessons I Learned Running Dunkin' Donuts. Robert, you are fantastic and a wealth of knowledge. Before I let you go, I ask everybody the same two questions, and then you'll get to ask me one to finish up. The first one is, what is the most important book that you ever read in your career? Well, I would go back to say Halberstam's book

because of the influence it had on me. And it's a lesson I never learned. You need humility. You got to stay open and you got to stay. But there's so many. I mean, and the appendix to my book, I think I list 20 books that maybe have made an impact and influenced me.

Chris Zook, a guy that's a partner, I think, at Bain wrote, Expand from the Core, really about don't change your mission too quickly. Be very thoughtful about it. But there are a number of terrific books, all of which I've listed in the back of the book, that have influenced me, that I've found useful over time. Awesome. The second question is a new one for listeners. I used to ask people if they believed in aliens. And I got tired of hearing everyone tell me yes. So I'm going to try a new one, which is who is your business hero?

Who's somebody that you look up to and think, you know, that you tried to emulate throughout your career? The guy that I look at mostly now, I think, is Bill Gates. I'm impressed by his thinking, his values, his character, what he and his wife Melinda have done together as a team in terms of helping society. helping mankind. I think I aspire to some of the things that I see him as a bright young businessman did. I admire this generation of tech leadership. They are so much more sophisticated and on target than I was at 30. I admire a lot of them. But of all of them, I think he's now middle-aged, but I think Bill Gates probably is one of the better models for people to follow. You can't go wrong with picking him for that answer, for sure.

You could ask me one question to end this. What one question do you have for me? What part of this resonated with you? Which topic? I noticed that you were making notes when we were talking about organization. Which part most resonated with you? What did you take away from this conversation? I tend to think that it's the simplest piece of advice because everyone knows that it's true, but it's very easy to forget. It's actually about leadership. It's just the person who is the leader. In every organization, there may be many people involved that they're all working as a team, but ultimately, there is one person who is going to take responsibility when things go wrong and then hopefully shower all of the praise on everyone

else when things go right but whoever that person is uh you go the way of the leader right and um i think that people uh easily forget that because there's so much complexity in business and things can get much more um kind of nuanced but at the end of the day if you have a good leadership then you can usually figure out the problems and figure out a way to thrive you got that right you take the pain when things go wrong share the rewards and the glory when things go right absolutely sir Listen, thank you so much for doing this. This was fantastic. I think people are really going to love it.

Thanks, Bob. Thank you very much.