Supported by Greenhaven Road Capital, finding value off the beaten path.
Ron Shaich is the co-founder of Panera Bread and (former, retired) CEO. He spoke with Guy Raz on How I Built This about going from handing out Tollhouse Cookie samples to opening hundreds of Panera Bread stores.
Shaich’s see it to believe it moment happened in college.
“We were in a local convenience store across from the Clark University campus and they accused us of shoplifting. I came back to campus, I was in my door room with a few friends, and I said, ‘Why are we shopping there? How the heck can they treat us like that?’ We can do this ourselves.”
Shaich grew up volunteering in political campaigns and never considered business as a career. “I didn’t see myself as a business man. It took a while to make sense. But in so many ways, running a business is no different than running a campaign. A campaign is a business where one day it ends. A business is a campaign that never ends.”
He got permission from Clark to open a store. He spent the summer figuring out logistics. It opened in the fall selling cookies, munchies, and drinks. The store took over. “I was more invested in that store than my own academic life,” Shaich said.
There is so much potential in moments that unveil the possible. David Lynch for example, didn’t know that being creative was a job. When a friend told him his dad was a painter Lynch wrote, “I thought maybe he might have been a house painter.”
With his eyes opened to the world of business Shaich headed to Harvard for an MBA, class of 1976. After graduation he got a job with The Original Cookie Company as a district manager. “I spent my time opening dozens of these cookie stores around the country.”
On one trip through Indiana, Shaich wondered why they always opened in malls. Wouldn’t urban centers, with more people, be better? Shaich said, “The reality of the cookie business, of any business, is that you gotta pay the rent. So the question is, what’s your volume?”
He suggested a change of strategy. His boss said no thanks, we only open mall-based retail units. Shaich again sees something that doesn’t make sense to him and decides to do it the way that does.
With what he’s saved and loan from his dad, he opens a cookie store in downtown Boston. “We took the Tollhouse recipe right off the bag and I would stand out front and hand out samples. Then we would adjust the recipe based on what I would learn talking to customers.”
Whether aware of it or not – I’m not sure what they teach at HBS – Shaich is talking to his customers. Tiffany Zhong helps people who don’t learn it at school, Harvard or elsewhere. Marcus Lemonis said that customers are your first investors. Jenn Hyman did it with Harvard undergrads while she got her MBA – maybe they do teach this.
Shaich baked, questioned, gave change, questioned, experimented and asked more questions. He told Raz that this cycle is the whole point of business. Don’t do it for the money he cautions young people. Do it because you like it. “I just love the process of figuring it out. I love doing the work. I was working one-hundred hours a week and it never felt like work. It was joy.”
But it wasn’t a business, yet. Shaich had $400 in sales the first day. That’s fine, but it’s a lot of work to sell that much in cookies. Shaich needed something else. But what?
In the ask-questions-then-make-small-bets part of the process, Shaich noticed something. No one came in before noon. People might not want cookies before noon, so what do they want? Baked goods. He approached Au Bon Pain, and “I became their licensee for the one square block around the cookie store.”
Business was good but Au Bon Pain was bad. Well, not bad, disorganized. “To this day I’m sure I still owe them money.” Shaich saw another opportunity. He bought the company and combined the two.
While talking to a customer one day, Shaich got an idea. “I would be in a restaurant and have a customer walk up to me and they’d ask to have their baguette sliced.”
Why? They wanted turkey and cheese on it.
“You didn’t have to be a Harvard MBA to say, the real thing here is that the baguette is not the end, it’s the platform to sell sandwiches. My whole view of business is that if you really focus on listening and seeing you’ll learn amazing things.”
“In their behavior, these customers were showing us the opportunity.” Sometimes customers come to you, sometimes you go to them. Before Patrick Collison started Stripe he talked to people in the Bay Area about a payments service and found, “this pond was actually a much larger ocean.”
Shaich added sandwiches.
Pepsi tried to imitate them. Sara Lee too. Though under funded and less educated, Shaich survived. Why? They talked to customers and gave them what they wanted. Soon Shaich acquired the St. Louis Bread Company. Their nineteen stores were doing more business with larger footprints that cost half as much. What gives?
Their success was because they were the third place. Shaich describes it as “the kind of space where you want to sit and do an interview, a place for a bible study group, for a team meeting.” He rebranded everything as Panera Bread (except the St. Louis market) and begins to expand.
“I’m always looking for the deeper trend. Post World War Two fast food was special.” This was Harry Snyder‘s and Ray Kroc‘s story. The same story played out with Milton Hershey‘s and Coca-Cola after the Civil War.
By 1998 Shaich had one-hundred fifty stores. But there was something more. A great secret to unveil. It was more of Panera. He sold Au Bon Pain. “I wasn’t downsizing. I was focusing. In retrospect it looks brilliant but going through it was horrible. Au Bon Pain was like my first child but sometimes you have to march forward.”
By 2003 Panera had one-billion dollars in sales. “I never do a victory lap. The time to worry about tomorrow is today.” That mindset paid off in 2008.
“Our whole view was to make smart bets and one of those smart bets come from a contrarian perspective. Pre-2008 recession the whole world was in a go-go-go kind of context. Everyone was levering up and taking on debt. At that time we held back. When the recession hit -as Warren Buffett put it, that’s the time you make a fortune – our sales were still strong and we invested in growing even more quickly during the recession. Real estate prices were down twenty percent and construction costs were down twenty percent while our competitors were ripping costs out of their P/L trying to keep their costs down.”
Panera is again a private company. Shaich sold it because there’s too much short-term-ism in public markets. When you have such short-term pressure on CEOs they react and what that means is cost cutting and they avoid the transformative events that drove the success of Panera.”
Thanks for reading. In the spirit of the post, I wrote this in Panera Bread Cafe 4194.