Supported by Greenhaven Road Capital, finding value off the beaten path.
Once again, How I Built this with Guy Raz delivers a compelling and concrete startup story, this time with Jerry Murrell, founder of Five Guys burgers.
Patrick Doyle of Domino’s and Dave Chang embody and execute the barbelling of dining. Domino’s optimizes while Chang innovates and both demonstrate there’s more than one way to succeed in the restaurant business.
Five Guys is fast, easy, and inexpensive, all relative terms. The burger joint succeeds in a niche because it knows what job the customer hires it for. Let’s see how.
Murrell didn’t like school. “I was a terrible student. I didn’t like school. The nuns used to say, ‘You’re gonna end up selling hamburgers someday.'”
Entrepreneurship is for the odd duck. Marc Andreessen said about the startup founders he sees, “The kinds of people who start these companies are not normal.” Schools are linear, traditional, and mass market systems optimized for average like broadcast television at 8 p.m. on a Thursday. Murrell wanted something different.
But it took time. He sold insurance. He was a consultant. He was a financial planner. He dabbled in real estate. “My wife and I were experts at buying real high then waiting till it crashed and trying to get rid of it…I really didn’t know what I was doing. I’m just lucky that I got in the hamburger business.”
Life, wrote Scott Adams, is like a slot machine:
“I find it helpful to see the world as a slot machine that doesn’t ask you to put money in. All it asks is your time, focus, and energy to pull the handle over and over. A normal slot machine that requires money will bankrupt any player in the long run. But the machine that has rare yet certain payoffs, and asks for no money up front, is a guaranteed winner if you have what it takes to keep yanking until you get lucky.”
Murrell got lucky. His hometown had a great hamburger place. “Then in Ocean City Maryland, there was a place called Thrashers selling boardwalk fries. There must have been 20 places selling boardwalk fries but only one place had a long line.”
If he kept it simple this might work.
Murrell’s wife thought he was nuts. She was right. The base rates for restaurants are terrible, but then, base rates depend on what you’re optimizing for. As financial investments they’re not great, but what about experiential ones? Murrell asked his kids if they wanted to go to college with the money he’d saved for them, “They pretty much said they’d rather do something else.”
This was Dave Chang’s motive too, whose first restaurant cost $250,000, “this will be my business school,” Chang reflected. This experiential learning held for Mike Ovitz too, who wrote, “Collaborating with Pete (Peterson) and Steve (Schwarzman) and Herb Allen beat going to Harvard Business School; they taught me how to be an investment banker.” Ted Sarandos, Michael Lombardi, and Alice Waters are XMBA alumni too, choosing the curriculum of experiences.
“We said, ‘Let’s not put a lot of money into it, let’s find a place where the rent is really low, out of the way. We thought if we put it somewhere it was hard to find but if people got there we’d know we had something.” In 1986 Murrell validated his idea.
That first restaurant had a handful of part-time employees and was mostly operated by Murrell and his kids. They tinkered and kept it simple. For the fries,
“We went to Thrashers in Ocean City and looked at the potato bags. We found out they came from Rigby Idaho, a guy named Rick Miles, a small potato dealer out there and asked him.”
For the toppings, “We would not tell the kids how much we were paying for the product. We said, ‘Whatever pickles you want to put on the hamburgers.’…We were paying seven times what McDonald’s was for a hamburger bun, we were selling for four times what McDonald’s was…the thinking was the kids would pick the best product…at the end of the month, we’d look at sales, look at what we paid for the food, and raise prices to cover food costs at 30%.”
Word of mouth brought people in. Quality ingredients brought people back. Decades later RXBar would operate similarly; keeping costs low to validate an idea and then expanding selectively and limiting the stakeholders.
As the business grew, the children and Jerry’s wife all stepped up. “If it wasn’t for my wife and kids there would be no Five Guys, I didn’t build Five Guys.” Murrell had to hire for his weaknesses. One of Doyle’s lessons at Domino’s was the importance of culture and promoting from within. That doesn’t come up in Murrell’s interview but the same may be true for Five Guys. Was it better as a family business? Probably.
The company gradually grew. With time to focus, profitability from day one, and a family-business culture they were ready when it came time to sell franchises. “We had figured out the nuts and bolts of the business by then. Most franchisers start off to franchise. We started off to build a family business and we figured out how to do it right so when it came time to franchise we had a perfect system.”
Murrell and his family own approximately 75% of the business. “We took a fairly big investor when we first started franchising. They don’t interfere in our business at all. They gave us a big chunk of money. They’re entrepreneurs too and they saw something in Five Guys.” It sounds like they’re a family member, with aligned incentives. They were great stakeholders.
And of course, Murrell was lucky. “I couldn’t have done this on my own. Without my kids and wife, I’d have done nothing. We were lucky, real real lucky.”