Supported by Greenhaven Road Capital, finding value off the beaten path.
In a Real Vision interview, Marc Cohodes said he was now friends with Rick Federico of P.F. Chang who called him and said, ‘Whatever your issues, at least reach out to me first.’ Cohodes was impressed by this, by a leader who welcomes good arguments.
Who’s this Federico guy? I wondered. Thanks to the serendipity of search I found his talk with Patrick Doyle, former CEO of Domino’s Pizza and it was fantastic.
Doyle oversaw a revitalization of Domino’s Pizza, with stock market returns that rival any FAANG save Netflix.
Domino’s Pizza is a great story, starting in Michigan in the 1960s and pioneering home delivery. Before we get into the notes on Doyle we should note the half-century build up for food delivery. Christopher Payne, COO of DoorDash, called the switch to convenience from experience is “the biggest shift in commerce.”
The economic of everything is changing. Both ride sharing and meal delivery have affected restaurants said, Dave Chang. What took so long is that food delivery was too early until it wasn’t. Brian McCullough said, “The lesson of the early internet is that sometimes just good enough technology is good enough.”
But that cuts both ways. Domino’s Pizza had to change too. Doyle said in 2011:
“Are you willing to view the dislocation we had in our economy as an opportunity to drive change and innovation in your business, or do you take a very conservative view and say, ‘Times are tough so we’re going to ride this out until things go back to how they were.’ The people who are taking that approach are going to fail.”
After lackluster years of 2006 and 2007, Patrick Doyle and the Domino’s Pizza team needed to transform. Unlike school, there’s more than one way to solve a problem. Domino’s Pizza might have succeeded in any number of ways. What they actually did was these four things.
- Change the culture, remove silos.
- Improve the pizza, but don’t perfect it.
- Use social media, don’t hog the brand.
- Build the future around data and technology.
It wasn’t that Domino’s Pizza was bad so much as badly perceived. “All the research told us that our pizza was as good as our national competitors. The bad news was that once you put our brand on that pizza consumers thought less of it.”
Domino’s had negative brand equity. People liked it less if they knew who made it. In third-party research, they also found out that “We were tied for taste with those fine purveyors of fine dining over at Charles E. Cheese.” As any sane parent knows, nothing good comes from Chuck E. Cheese.
Knowing about the pizza problem was only half the battle. Domino’s had to come up with a solution but they had the to a hammer everything looks like a nail problem.
Doyle’s predecessor, Dave Brandon “inherited perfect silos.” The company needed new ideas. They needed what Greg Lindsay spoke about, “Google started a beekeeping club so that engineers who are interested in beekeeping might meet each other and actually have discussions about unrelated subjects.”
Domino’s Pizza started promoting from within, transferring around, and changing the culture. “We’ve established a program bringing people in early in their careers, starting them in stores learning the basics of the business and then moving them around.”
Some solutions are intellectuizable – I think therefore I get.
Other problems you have to feel to understand. Robert Cialdini told Barry Ritholtz, “I realized that in a laboratory with college students I was missing the power of these (Influence) techniques.” Mike Lombardi wrote, “Blackboard coaching is a killer.”
Domino’s Pizza’s transfers, promotions, and scrambles led to better empathy, stronger teams, and a challenge culture. “We have a lot of really nice people who play well with each other, have a high level of trust, and challenge each other.” That challenge is important. James Mattis said to protect the mavericks in your service, the ones that upset people in the bureaucracy, “because if they are not nurtured in your service, the enemy will bring their contrary ideas to you.”
But good arguments take time and respect, two things Domino’s cultivated as they grew from within. Doyle said, “If you trust the people you work with you can get twice as much work done.”
With the plan for new roles and experiences as well as employees that respect each other, Domino’s Pizza was ready for a decentralized command structure. “Decisions that come to me that have an 80-90% probability of being correct should not have gotten to me, that decision should have been made a long time ago.”
Alex Blumberg was in a similar situation to that of Doyle when he started Gimlet Media and immediately tried to arrange a workable structure. “I don’t have the right information to make every decision so you have to set up a process for who’s making a decision and how they are making it.”
Doyle said about a hypothetical one million dollar investment with a 50/50 chance of working out but a ten million dollar payoff, “We will do that all day long.” He wants the Domino’s employees to be empowered. He needed to provide top-down support. Here’s Kevin Arnovitz of ESPN on this idea:
Chris Douvos got this advice, “But David Salem said to me, ‘I want you to be unafraid of being wrong and alone because if you’re unafraid of being wrong and alone every now and then you’re going to be right and alone and that’s the box where fortune and glory reside.'”
When Domino’s decided to change the Pizza Doyle said, “The folks were told that you can change anything, everything is on the table. And two years they came back with the answer and the answer was that they changed everything.”
And he went with it. That’s what Netflix does too. Ted Sarandos said that they don’t use their data to make shows, they use their data to find directions and director but once something is done they put it on the platform as is.
Domino’s new pizza didn’t have to be great. Taste is not their point of differentiation, service was. The pie had to be good enough.
Quantifying ‘consumer preferences’ makes it seem real, tangible. It’s not. Humans are funky and full of contradictions interpersonally and intrapersonally. Quantifying leads to numbers and numbers lead to mathematics which interacts terribly with psychology.
The Wharton Moneyball often notes the non-transitive nature of sports. If Team A defeats Team B and Team B defeats Team C then Team A must be better than Team C. But based on the labyrinthian tie-breaker systems the different leagues have this can’t be true. Ditto for consumers.
Consumers ‘think fast’ and most decisions are binary, like pass/fail in college rather than graded.
Domino’s Pizza didn’t need to enter the top-quartile of pizzas so much as be more edible. Many cheeses, doughs, and sauces later they had a New and Improved Pizza.
But ‘New and Improved’, “…is wallpaper. People don’t pay any attention when brands say, ‘We’ve got this new product and it’s new and improved.'”
“One of the lessons is that great communication uses tension.”
Domino’s Pizza needed breakthrough (attention) and persuasion (action). “We finally landed on honesty, to accept the criticism and play it right back to consumers.” And this, the most important thing in the Domino’s transition, “What we think about our pizza doesn’t matter. What our customers think about our pizza matters a lot.”
Doyle points out that Domino’s brand is like a Modern Monopoly, it is what the customers say it is. Brian McCullough said this about eBay, “They were the first company who succeeded with the business model of the platform, of whatever the users are doing.”
Domino’s Oh Yes We Did campaign was one of honesty, action, and tension. But the effects went beyond the marketing. “What it did culturally was probably more important than what it did for consumers. If you’re trying to create a culture where people are comfortable taking risks, the most powerful way is to do it publicly, to consumers, and that is who we are (publicly and privately) and that energized the organization.”
With a new pizza and a new plan Domino’s created this ad:
“We put this ad on the air and our sales were up double-digit the first week.” It was much bigger than Doyle and his team expected and it showed them something else. “People trust each other. They don’t trust big institutions.”
Doyle said in the old days they could spend money “and we could tell people what the truth was.” That’s not true anymore. Now, “What consumers say about the brand is the brand.”
Social media now leads the thinking at Domino’s marketing. But they still follow David Ogilvy‘s advice and talk to consumers.
When Domino’s expanded their menu to include artisan pizzas they noticed that it was a healthier offering. Could they sell that? Nope. “As we tested the different ways of marketing it, the taste as the primary focus was the most compelling.” People want pizza that’s easy to get, doesn’t cost too much and tastes good – whatever that means to them.
Part of ease means tech and Domino’s is looking more like a technology company. “Over half the people working in our headquarters work in technology.” Doyle also said, “We now base our decisions around customer behavior and we test everything.” That’s something Andrew Ng would be proud of, who noted that being a technology company means acting like a technology company.
Chris Dixon and Fred Wilson talked about the difficulty of finding the next killer app but with examples like Domino’s we get a glimpse of what it kinda-sorta looks like. It’s native and does things in a new way. Like ordering, “We will look back in ten years and say that thumbing things into a tiny screen is the most absurd interface.”
So Domino’s is invested in voice. So Domino’s has Hot Spots. So Domino’s will A/B test new ideas. They removed the internal silos and the company flourished by getting feedback, pushing ideas up, and embracing social.
Thanks for reading.