Scaling A Franchise Business With Robert Rosenberg

Adaptation and change are a natural part of our culture and our being. Everywhere you look, the competition, consumer, and technology are changing. As a result, businesses have to create new plans and strategies to change along with them, one of them being a franchise business. Joining Dr. Diane Hamilton on today’s podcast is Robert Rosenberg, who served as the Chief Executive Officer of Dunkin’ Donuts from 1963 until 1998. Robert relays the story of how Dunkin’ Donuts started and its longstanding competition with another donut brand. He also shares the four primary functions of a leader, the importance of apprenticeship, the value of a brand and the great benefits franchising provides.

TTL 785 | Franchise Business

 

I’m glad you joined us because we have Robert Rosenberg. Robert served as the Chief Executive Officer of Dunkin’ Donuts from 1963 until 1998. He has an MBA from Harvard. He is an interesting guy. I’m excited because he’s got a new book out and I can’t wait to know about it.

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Scaling A Franchise Business With Robert Rosenberg

I am here with Robert Rosenberg who served as Chief Executive Officer of Dunkin’ Donuts from 1963 until his retirement in 1998. He has a new book. I am excited to find out about that. Welcome to the show, Robert.

Thank you, Diane. It’s my pleasure. It’s good to be with you and your audience.

I was looking forward to it. I’m thinking 1963, when I was a kid, the time to make the donuts were such a huge ad. Did you have anything to do with that?

Yes, I did. Michael Vale was a memorable character who represented us for seventeen years. Brilliantly, we won three Clios during that time period of that campaign and that’s comparable to the Academy Awards for advertising. It was a successful campaign. It became a byword for people around the country that had tough jobs to do. It’s time for them to get back to work to make the donuts.

It’s fun to see the transformation of Dunkin’ Donuts throughout the years. It hasn’t remained static with the advent of coffee shops and different things. What do you think of how it’s changed since Starbucks and all of that?

It’s been a hallmark of the business from its inception from my dad. It started in his industrial feet in the business. It has evolved, migrated, changed and adapted. Its conditions change. In my book, I talk about six different areas that could last anywhere from, say, short as 3 years to as long as 9 years because the competition, consumer and technology are changing. As a result of that, you have to create new plans and new strategies for the business in order to change along with them. Adaptation and change are a natural part of our culture and our being.

The name of your book is Around the Corner to Around the World: A Dozen Lessons I Learned Running Dunkin Donuts. I get hungry looking at the cover just so you know. I like chocolate and sprinkles. I am such a donut fan though. I’m curious because we started by talking about your work. Let’s get a backstory. I know you received your MBA from Harvard. I know you’ve got an amazing backstory. You don’t just end up as the CEO of Dunkin’ Donuts. Can you give me that little story?

As brief as I can. After the Second World War, my father was in eighth grade and dropped out of school, and my uncle was a CPA. They were brothers-in-law. They started a business called Industrial Luncheon Services that had these trucks that went around to different construction sites and serve coffee and an egg. That business grew rather substantially after the war. They had 150 route trucks and they had depots around doing that. As vending machines started to play a role in coming to more efficiently service those customers that you’d have to stand outside the rain, the business started to falter in a way to try to keep their business hopes alive.

They diversified as someone in the commissary that made bakery products for the trucks. There’s a donut shop down the street that makes more money out of its one retail store out of the 6 or 7 trucks that go around Boston selling donuts wholesale. That seemed to be enough of an incentive for them to open a store. I won’t go through all the details, but that was the genesis of Dunkin’ Donuts. Myself personally, I virtually grew up over the store. I have worked in all different kinds of jobs as a kid in the commissary driving group trucks, running retail stores through college, and subbing for managers when they were on vacation.

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Around the Corner to Around the World: A Dozen Lessons I Learned Running Dunkin Donuts

I went into the army and then went on to graduate school. I fully expected to join the family business. My father and my uncle didn’t get along. My father bought my uncle out and my uncle took the then book value of the company, which was his share of his take, and started a competitive donut shop chain. At age 25, my uncle was overtaking my father, but the industrial feeding business faltered. My father had spun out a number of different businesses and his business is called Universal Food Systems, but his earnings had stagnated. He had too much on his plate. He then turned day-to-day operations over to an executive vice president. The business was faltering.

Mister Donut, my uncle, my father’s archrival that was rivaling for the township of who was going to be the inventor and the champion of this new way to go to market in the fast-food business. It was against that backdrop that my dad turned to this cocky, 25-year-old, fresh MBA. He asked me if I would take over and see if I could sort things out to beat the competition. My dad was frustrated by the fact that he was losing the battle and his earnings weren’t growing. His dream was always to have at least enough money to be able to live out his life comfortably. He had tried to sell the business in my secondary business school unsuccessfully. It didn’t warrant the kind of money he was asking for. On the one hand, I had to keep him from trying to sell the business and on the other hand, I had to get back Mister Donut to the competition. That’s the back story.

You grew the company from $10 million to over $2 billion with more than 3,000 outlets. What did your dad think of that?

He was pleased. Generally speaking, I’ve come to find out that founders are as invaluable and essential as they are because, without them, there would be no business. They’re always due their respect, but they rarely think of themselves even when they move on, leave and are not engaged in the day-to-day operations. The business is still their baby and they’re still actively engaged. That was the case with my dad. As it started to grow, he was always there on the sidelines saying, “More. I want to be bigger and better.” That was always an impetus to push us forward.

I grew up next door to the guy who created U-Haul. He started as a gas station. If you want to move something, here’s a trailer kind of thing. His family ended up growing it to the billions that it is now, but there were a lot of infighting family things. Was it hard to not have the family conflict when you’re taking over a business like that?

We had the conflict. My uncle, for a long time broke the family apart, and family dinners were no longer the same as they once were before that conflict broke out. There was tension. As the business started to grow, as I grew more in love with the job, and we were becoming more successful, the first five years were phenomenally successful, my dad had kept trying to sell the business. There was tension in that regard. He and I had different styles. I didn’t live through the same experiences he did. He was a kid that had lived through the Depression. He watched his own dad leave his own market during the Great Depression.

He had to hustle to help support his family when he was a child. I didn’t have any of those kinds of pressures so I was sympathetic to his needs. By the same token, we had to work out a way we could satisfy both of our needs to grow the business. We had a tiger by the tail, which finally straightened out. I closed down 6 or 7 of those other businesses to focus on the diamond in the rough that was within our midst. That was what we went to market with. There was tension, but over the long haul, we worked it out.

Did you have siblings?

I had a younger brother and a younger sister.

If you can keep growing the company, don't sell it because once you sell it, it's gone, and it's hard to start again. Click To Tweet

Did they participate in the business at all?

At one point in time, later on, my brother joined and was a marketing vice president in one of the divisions of the company before it got sold.

That’s where the challenge was with the U-Haul family. There are twelve kids. It was a crazy story. It’s interesting to look at family businesses and what they can grow into. I know you were not only working at Dunkin’ Donuts, but you’ve also served on many boards, including Domino’s Pizza and Sonic. Do you continue to serve on boards? What did you think of the success Domino’s had? Their stock is one of the ones that I’ve been told, did better, if you followed it than Apple? Is that true?

Yeah. Domino’s was or still is among one of the top at least 5 or 6 best performers over the last decade or so of the New York Stock Exchange. I did have a ringside seat to that. I was on the board as we migrated through what I would call the third era of the food service or the QSR industry, the Quick-Service Restaurant industry. First was operations. Second was people kept good strong operations that met consumers needs and built on top of that first-rate consumer packaged goods marketing. The third era was the ability to be able to keep the first two skills and the competence and build on top of that a real understanding of digitization. Domino’s was successful at being able to build a company that is as much a technology company as it is a restaurant company.

I talked about that in a lot of the courses I teach to multiple universities, and one of them is the technology school. We go into the technology behind it. You don’t even think about that when you’re hearing Domino’s Pizza of how much technology played such a huge role. When you look at some of your successes, you write about a lot of things in your book, and one of the things you deal with are the functions of a leader. You say there are four primary functions of a leader. What do you think those are?

We all know in day-to-day life, things come in over the transom in massive numbers, demanding our attention. Over the years, I had to fundamentally design what are the must-haves, what must go on my calendar, what functions cannot be delegated to other people in the organization, and which are the ones that you have to ride herd on. I came to the conclusion that there are four. The first one is strategy, deciding what the company wishes to be, which is to achieve the goals that it’s going to achieve. The 4 or 5 strategic levers that you have to pull to bridge scarce resources to the achievement of those objectives.

That’s part and parcel job of the CEO and his key team, senior managers that have to do that. It continually has to be revisited. It’s a living, breathing activity based on what is reality and what’s going on in the marketplace. It’s a whole host of things that applies. The second major function, and it requires the attention of the leader, is to be able to recruit, retain and motivate a highly effective organization that can implement the strategy. That’s another major activity that requires the attention of the leader.

The third is communications. As CEO or leader, you are a communicator-in-chief and that’s an ongoing, continuous activity required to align people behind the strategy. The last one is crisis occurs in all lives and in all businesses, and you have to be prepared to handle a crisis when it occurs. Those are the four that I synthesize and those would be the first things that would go on my calendar in the course of a year in terms of where I would be devoting my time primarily.

I had written my doctoral dissertation on emotional intelligence and its impact on performance. I dealt a lot with communications types of issues in some of my research, but what was interesting to me is when I talk to trained leaders in companies. My focus is on developing curiosity to get them out of status quo thinking. We often do things without asking why or why not because they’ve always been done that way. It killed Kodak and Blockbuster. How do you look at curiosity? Some leaders look at it as sometimes it could be distracting from what they want to achieve. Others think they promote curiosity. Yet, if you look at the research from Francesca Gino at Harvard and others, you’ll see that the employees don’t agree with what employees think that they’re encouraging. Where does curiosity play a role in the successes of companies?

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Franchise Business: Founders are as invaluable and essential as they are because there would be no business without them.

 

It’s hugely, massively important. One of the major personality traits is openness. I was probably thrown that way from the beginning along with being a collaborative person to start with. I tend not to be authoritarian. I never viewed myself as a guy in a white horse coming in. I did have a transformational moment. I wouldn’t want to lead your audience to believe that at 25 when I walked in the door that I had what’s now commonly called emotional intelligence. I didn’t.

In fact, the first five years were incredibly successful. The second five years when I changed the strategy of the business to a franchise business from the focus coffee and donut shop business, I ran into huge trouble and got fired. I had a transformational moment. I came to understand the importance of listening and the wisdom that exists within and all over, but within my own organization by my own franchisees, among people on the front lines. I read a book called The Best and the Brightest by David Halberstam. He talked about the role of hubris and the defeat of America in the Vietnamese war. I said, “Halberstam could be talking about me.”

There was a grow-up moment. At 25, I came cocky. At 35, I gained a little bit of wisdom and that wisdom is to listen and seek out. I became more open to this notion. I can’t tell you exactly when it occurred to me, but I read something about Niels Bohr who is a famous physicist and philosopher. He talked about two kinds of truths. It always stuck with me. The first truth is the simple truth and that’s easy to see because the other side of it is a lie. There’s the profound truth and that’s a lot harder to see because on the other side of it is another truth.

I believe that. I’m always open to that other truth. What we’re doing isn’t necessarily always the last. There may well be a better way. It was through getting fired and having to come to that realization that I began to grow in emotional intelligence. One of the ways I grew in emotional intelligence was the willingness to listen carefully to everybody around you, particularly to people on the front line, the last three feet closest to the customer.

That’s important. Everything you’re saying is fascinating because my research in curiosity led to my research in perception. Some of this, the truth behind the truth, there’s more than one truth, is a huge issue in the workplace. You also mentioned openness and the big five. We are assuming you’re referring to that openness to experience as a big part of curiosity. What I found was fascinating is when I studied curiosity, there was openness to experience in some of these other cache, assessment and a few others.

They all told you if you had higher low levels, but they didn’t tell you what to do if you had low levels. That’s what I wanted to fix. I wanted to get people to be more curious. I found that four things hold people back from being curious. They’re fear, assumptions, that voice in your head, technology, over and underutilization of it and environment. It’s that willingness to listen which you found helped you with your emotional intelligence. All of that is asking questions, exploring, and being open to these things. Those are critical. In your book, you have twelve lessons. You mentioned these four primary functions, but can you give me a little bit more on these twelve lessons?

There are a lot more than twelve in the book because I view the book as a 35-year journey. It’s more of a buffet of ideas and experiences. There are things in there that apply to entrepreneurs starting in terms of the importance of apprenticeship and the role of franchising, which most people don’t understand in terms of its role in entrepreneurship. Most people don’t understand the great benefits franchising provides. You could be someone who is scaling your business in its adolescent phase and the work in the talk that we do in the book about the planning functions, how to be able to recruit, retain, and motivate an organization, and maybe things that you might find of interest.

For a larger company, it could well be how we organized our board and its functions around that. Last, I would say, in my own case, I found that I use the processes that we developed in the business to plan my own life as I moved from phase to phase. As I moved from CEO to teacher and board member, and ultimately, to author, I use the same planning process and found it to be extraordinarily useful. It worked in my own case, in my own life, as well as it did in my business life. I offer that to readers as well.

It’s a story of setbacks and successes. It takes you on a 35-year journey. In the end there, those twelve lessons relate to the things that were happening in each of those areas. There are two or so lessons for each of the six areas that we live through and what did I walk away with in terms of things that I would pass along. Even in the pages within that, there are all kinds of lessons that I learned about the use of consultants and mistakes I’ve made, and on and on. The difference between a trend and a fad. There are a number of different processes.

A brand is a shorthand for the goods and services on offer. It saves the consumer their most precious resource, time. Click To Tweet

I’m sure you’ve seen many things in all the time running that. I’m thinking about what you said about how your dad tried to sell. I’m curious about what you think about serial entrepreneurs who want to take a company public and then sell, or they want to keep developing something and going on. It sounds like you stayed with it. How do you know when it’s time to sell or when it’s time to hang in there?

Let me go back to serial entrepreneurs. I generally believe in the 80/20 rule, 20% of the activities generally result in 80% of the results. I find from my teaching entrepreneurship when I was in Babson, my belief was that 80% of successful entrepreneurs spend at least 4 or 5 years apprenticing in their industry. They knew the metrics and they knew the opening thing or where they could build a sustainable competitive advantage against the competition. There are 20% maybe of people who could go from one business to another, but the vast majority grow up in their industry as I did and practice in their industry.

As far as when you sell a business, and I had to answer this question in order to hold my dad and it was one of the reasons we have to go public, a franchising business generally doesn’t need an awful lot of capital once it gets started. We didn’t go public for that reason. I had to go public to monetize my dad’s earnings to keep the business from being sold. Why not sell the whole business at one time? My feeling was as long as you could consistently achieve your objectives, if you had both the energy and the wherewithal to do that, there would be no reason to sell the business.

Let’s assume for the moment that early as we were growing at 50% earnings, which were unsustainable, but we ultimately throttle that back to 50%. We were able to achieve that year in and year out rarely did we ever miss. My feeling was we had the wherewithal, creativity, and energy to be able to drive the business forward. If your health fails or you don’t have the inspiration for how you can continue to grow at that objective rate, then it’s probably time for you to consider turning the business over to someone else who may have the vision and the energy to run it. That was my decision rule. That was the thing that I offered to my dad as a way to explain it.

I have no regrets because the company he couldn’t sell in 1963 for $1.5 million, when I was 30 years old in 1968, five years later, was worth $120 million to $150 million in the market. It was sold to a British company for $325 million twenty years later, and then $2.6 billion, and it got sold again for $11 billion including debt. If I needed to underscore that model that I created for my dad when you hold on and when you sell, I would offer that rate of growth as ample evidence that if you can keep growing it, don’t sell it because once you sell it, it’s gone and it’s hard to start again. It takes years. You have to know another industry, in my judgment, to get the odds in your favor. You precluded from competing in the industry for five years when you sell a business. My preference would be to hold if you can achieve your objectives.

I’m thinking if you had stayed and you were still in there because you didn’t have this crisis to deal with, all these retail, franchise, and every company is dealing with. What do you think would have been your response to how to lead in this time?

Crisis was one of the four functions that we had to manage. We did manage 3 or 4 existential crises during the 35 years I was at the helm. The first thing that I would offer is pre-preparation. I was on the board of a number of public companies and we would take at least one day a year to do a risk assessment, what could befall us. For example, in the foodservice business, we weren’t concerned necessarily with the pandemic. That wasn’t on my screen, but health scares, God forbid, you shouldn’t make someone sick in your store. That can have a ripple effect that is an existential threat to the business.

You could get hacked in terms of data processing and your consumer information could be taken. It could be a massive murder or problems in a business. In a retail store, people could walk in and hold it up. There are crisis that occurred and get national publicity could roll-affect the brand. We would talk about who would be the team? Who would talk to the press? Who’d go to the scene? Where does the CEO go? What steps? Who did it well? Who did it poorly? Pre-preparation is critical. The second thing, handling a crisis, including a pandemic, you take a small group of people who are competent to deal with that specific issue.

For example, let’s assume it’s a health scare. Not only have they had quality control and the people who are doing the supplying, but you might also have a nurse or a doctor on staff that could travel with you to the community to talk to the health officials. In other words, you would think that through all the way based on jack in the boxes, terrible problems they had way back in the ‘80s. You would have learned from that. The third thing that I would do would be to communicate like crazy to the rest of the teammates.

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The Best and the Brightest

Even though the small team that’s dealing with it, you have to leave the rest of the organization to run the day-to-day business. Coffee has to get sold, doughnuts have to get made. You need an organization to implement day in and day out. They need to be communicated with authentically, realistically and transparently because their lives, livelihood and future are tied up in how well you handle the crisis and what’s going on in the crisis. Those would be the three things I would offer in terms of crisis management.

It’s such a crazy time. There’s so much that we’re learning. I teach a lot of entrepreneurship, brand awareness and different marketing courses. In a lot of these things, I’ll put these clips from shows like this in the class to help students. You’ve touched on many areas that we deal with in the business courses. We know the brand of Dunkin’ Donuts has been successful. I don’t even want to know what’s in the vanilla cream-filled donuts because they’re my favorite, but they’re amazing. There’s a value of a brand. I wrote a brand publishing course for Forbes before. I was an MBA program chair at Forbes School of Business and part of what I did before I left was to write this brand publishing course. It’s challenging for people to recognize how to promote a product, how to get their name recognition, and how to use all this technology to promote a brand. What is the value of a brand?

The value of a brand is immense, tremendous value. In my interpretation, a brand is a shorthand for the goods and services on offering. It saves the consumer their most precious resource, time. They don’t have to paste thousands of alternatives to find out how to meet a need that they have. We built our business in different geographic regions. That was one of the key elements we did away back in the early ‘60s when I first arrived on the scene. We were going to take our franchises. We weren’t going to sell them where anybody wanted to buy one. We’re going to try to focus on, at the time, 300 of statistical marketing sales areas in the United States, SMS ads.

We would only grow maybe 20 or 30 of them at a time where we could build enough distribution so we could have ad weight. We needed both distribution and megaphone to be able to reach the consumer with new offers all the time to keep the brand exciting and to build brand value. To give you some sense of the value of a brand because most people can’t evaluate it. In 1990, we bought my competitor, my uncle’s business, which had long since he left his family ownership, Mister Donut. We had something on the order of 1,500 locations and they had 500. We began to rebadge those stores to Dunkin’ Donuts stores.

The results were astronomical and the great majority of markets in the northeast, where Dunkin’s brand was much better known than Mister Donut’s brand. Same store, same owner, same location, $25,000 slight remodeling, take the Mister Donut sign down, put a Dunkin’ Donuts sign up, and sales went up 40%. That’s the value of a brand. In Toronto, Mister had some stores and we had none. We tried 1 or 2 and we found out sales went down 10%. I could say based upon my experience, the value of our brand at that time was at least a 50% delta. The average store in those years did $600,000, that’s $300,000 worth of business. That’s dramatic.

As you say that, it brings to mind some of the changes. I remember when I was in college when they changed to New Coke, or later, Kentucky Fried Chicken went to the Colonel, and then back to KFC. Did you ever think of changing the name or anything like that? What do you think of those two decisions, the Coke and the KFC?

Coke didn’t change the name. They changed the formula.

That was even worse.

When it comes to people’s tastes, this becomes habitual. Coffee is a habitual product that’s a caffeinated product business as is a Coca-Cola. That was the old time. I’m not as familiar with KFC. I do know that they wanted to move from Kentucky Fried Chicken to KFC. It gave the word fried out. In 1992, we did a positioning study because we had changed the way we’ve gone to market. We changed the configuration of our stores and the way we distributed the product. A whole host of things that changed. We had found that our business had migrated to a coffee company, a beverage business. Sixty percent in some markets as high as 2/3 of the sales were beverages.

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At that time, we thought of dropping the name Donuts and calling ourselves Dunkin’. That company had been bought by a large English company. I called my boss in London and he said, “I paid $325 million for you. Another $25 million for Mister Donut. Do you think you could defer the decision for a while?” We did. The management made the change and I’m sure it caused some anxiety on behalf of customers. The change, as far as I know, has gone phenomenally well. It was the right thing to do. The business had changed. The name Dunkin’ is a broader platform within which to serve both beverages as well as snack products throughout the day, which is more the strategy of the business. We did change and it’s been successful.

You brought up the study that you did. Do you remember the Pepsi challenge? I’m going off at memory here. Pepsi tastes good if you had a tiny bit of it but then if you had more of it, it didn’t taste as great. It’s interesting how studies can sometimes send you in a certain direction. I know they came back and brought Coke back and were able to recoup. There’s a lot of day marketing blunders, or maybe not even blunders because they cause a lot of debate. Gillette had that campaign to say, “Men can do better,” and it caused a big uproar. A lot of men felt like they were attacking them where it was maybe not their intention. Their intention was, “Let’s do better.” Do you think that all publicity is good publicity?

No.

What do you think of Twitter and some of the social media that take off with something like that? How hard is it to run a business with that going on?

It’s hard and you’ve got to be much on top of it. Dunkin’ has signed up Charli D’Amelio. She’s a star on TikTok. It’s an and, not an either/or, so they have to manage all consumer-packaged goods marketing know-how that I grafted onto the business when we were in charge of it back many years ago. They have to add on to that the whole notion of what the digital age is provided and manage all of that communications. It’s an additive function. It doesn’t delete. It’s still on broadcast. It’s still doing mass media, but they’re also doing all digitalization. They have consumer relationship marketing, loyalty clubs, and a big platform in terms of their Facebook contact with 100,000 people. It’s a full-court press in every element of the touch between the consumer and the brand. It’s more challenging.

It’s tough. You get these reviews. I can’t think of exactly what the review was on Yelp. I saw the meme going around, “Come in and have the worst cup of coffee you can ever have,” according to Yelp. They embraced the negativity and put the sign outside their retail space.

It could have well been put in there by a competitor. I don’t rely on Yelp.

Themselves either. You don’t know how much is real. When you say that, how much of the reviews are real? How much is this all a game of who can outdo the next person? How good is the product after a while? Is it more about the branding and the game playing? Do you think that maybe?

No. Advertising can’t build a business by itself. The purpose of every business is to meet the consumer’s needs better than the competition. That’s what it’s about every day. In my experience, the more light you bring to a bad operation. Say for the sake of example, we had some bad owners and bad operations in a market. Let’s say, Pheonix. The more we advertised and shone a light on that, the faster the sales decreased. If it didn’t meet the promise, you can’t make it better just by talking about it, in my experience, even ad weights.

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80% of successful entrepreneurs spend at least 4 or 5 years apprenticing in their industry.

 

If it doesn’t deliver on what the consumer needs, then it’s not going to be viable. I don’t think over the long haul, you can either build or destroy. You may be able to in the short-term. For example, a health scare kind of thing, if it gets around, people are getting sick, which takes 2 or 3 years for it to recover. That can hurt, but that was true. They were having quality control problems in that company and their desire to keep everything organic and fresh, and they were dealing with small people. I personally never thought that was the reason for their success anyway. I thought it was a service delivery system, the ability to help the cafeteria line. That can hurt. On a normal basis, if the business delivers day in and day out on what the customer needs better than the competition, then you will survive and flourish.

When you’re dealing with the franchise like that, that’s the thing. You may have done a great job on your own and then somebody else has had an issue maybe and they get attention. Dunkin’ Donuts was ranked number one in Entrepreneur magazine Franchise 500 list, which is a huge honor. What are the biggest things you can give for people who want to run franchises or be part of franchising? What’s the upside and downside?

Franchising is a phenomenal system. It allows someone who has a good or service that they’ve developed and formats it to be able to license to another individual in the local market. When it gets going and it’s done well, the franchise owner provides wonderful frontline management if people have skin in the game to execute on a day-to-day basis the last three feet of the sale. It may also provide capital to help you grow through real estate is an issue. It helps you grow your brand better than maybe having to wait out training individual store managers, which may not be as effective as franchisees in terms of execution.

The franchisee dramatically reduces the likelihood of failure. Statistics vary, some of it is as high as 80%, some of it is 50% that all small startups failed in the first five years. For franchising where people have gone through 10,000 hours. Malcolm Gladwell talks about an apprenticeship. They’ve already gone through all of that learning and worked out those kinds of things. I talked about, for entrepreneurs, the need to have to know your business and spend 3 to 5 years in apprenticeship in your industry. That’s been done for you by virtue of a system in pre-existence.

It telescopes, all of that is learning and trial and error. There are huge benefits in terms of advertising. The average Dunkin’ Donuts shop does $1 million a year and each franchisee puts in 4%, that’s $40,000 a year, but they get $150 million or $200 million worth of advertising for that $40,000 or $50,000. The buying system, when we bought the Mister Donut chain, the average Mister Donut franchisee saves 10% on all of these food purchases because of the cooperative buying system that we had. There are huge benefits to the franchisee and the consumer.

The consumer thinks they’re not dealing with a large company. They’re dealing with lots of independent businessmen in their community and they get goods and services delivered at a fair price in a better way than they would have in most cases through an independent dealer. The example of Domino’s. Why did Domino’s do well for over ten years? The pizza business was 50% between four companies, Pizza Hut, Papa John’s, Domino’s, and maybe Little Caesars. The other 50% were local barrooms. When the computer came online and we began to do ordering online, the convenience of being able to order online ultimately started to take its toll on the local barroom and the local pizza place.

Everybody had their favorite pizza. “You can’t beat the pizza in my town.” We never could have cracked the code. Technology cracked the code. Each consumer migrated immediately to what was more convenient, which couldn’t be replicated by the local entrepreneur, local business, local barroom, or the local pizza place. That’s the basis of why Domino’s has done well. It’s done on the basis of the touch between digitization and having that relationship with a consumer online, which an independent couldn’t do. It goes back to all of the questions you asked me before. In the marketplace, if you’re delivering the goods, you’re going to get the business.

If you opened a franchise and if you wanted to be a franchisee, what would be the thing that would make you not succeed then if all this is successful?

Not all franchises are equal.

In the marketplace, if you're delivering the goods, you're going to get the business. Click To Tweet

Let’s say they wanted to be in a Dunkin’ Donuts during the time you were in. What would a guy in Phoenix maybe have done wrong that could have gone wrong?

He might have been ill-suited for the business. He might not be service-oriented or suitable for business ownership. When we cluster a lot of stores together, what happens in that situation is, generally speaking, a successful franchisee will buy out the less successful one and they’ll continue to grow. Those that are well-suited for the business will grow and therefore, the original one is less likely to lose a little or any of his money in terms of his start in business. There are already buyers all around him if you’re building a marketplace out that are qualified and competent to run the business.

My test for what franchise to buy and which ones not to look out for has usually been unit economics. You’re as good or as strong as the average return on investment of an average unit. My test was if it was at 15% including the cost of advantages salary, but that was enough of a scale because you’re going to open businesses on a bell-shaped curve. If the average was 15%, your likelihood for success is high and the business is scalable both for the franchise and the franchisee.

The answer to the first question, which is what franchises look desirable and how do you determine desirability? It should be something you like as a prospective franchisee, but it also should provide an ROI, Return On Investment, at the unit level that’s efficient. That if you open an average store, then there will be a fair return and will provide you with all that you needed. If you open a below-average one, you still will have enough to be able to get by.

How much of this is real estate owned that’s causing so much of the value and location? Dunkin’ Donuts, the main company, would own the actual buildings and everything?

No, we only did that at the beginning to prime the pump because when we were young back in the ‘60s, the landlord wouldn’t give a license to a franchisee to build and suit or to lease his property because he didn’t know who the brand was. As the pump was primed and the brand became known, we stopped doing that in the early ‘70s, maybe ten years after I came. We encourage it because the return on investment for the company in real estate isn’t that great.

It was from McDonald’s, and that’s why they say that McDonald’s was real estate. Those answers became more complicated as to why they did what they did in terms of real estate. For us and for most franchise owners, they would prefer to have franchisees on real estate, not the company. We’re not in the real estate business. We are in the business of designing a franchise system that sells donuts and coffee.

You mentioned this was in the ‘70s and all that. You and I were both in the business world when it was more of a madman time. I get a lot of people on the show who were focused on changing the boards. I mentioned you serve on Domino’s, Sonic and some of these boards. What have you seen his term in terms of women on boards in where’s that going in and how are you seeing them trying to get more women on board?

My Sonic board that I was on for 23 to 24 years was more women than men. It was extraordinarily skillful and a great board of directors. Kate Lavelle was a former CFO at Dunkin’ that’s on the Sonic board. Kathy Taylor was a former mayor of Tulsa and her family started a car rental franchise business. We had Lauren Hobart who was the COO of DICK’S Sporting Goods. It’s a great board. I was on the governance committee. When we would interview people for board openings, we would take as many candidates as whatever search firm we were using, and the best candidates for us were women. I would say out of maybe 5 or 6 board seats, we added probably 4 women and 2 men. No regrets, none whatsoever. It brings diversity, breadth of thinking and competence on a par with anything that I’ve ever encountered.

TTL 785 | Franchise Business
Franchise Business: The franchisee dramatically reduces the likelihood of failure.

 

I had Dennis Chookaszian on with the CNA Insurance CEO for a long time. He was saying the boards he serves on, he advises them to go on 100% with women to get it up to the 50/50 level until they get to that level because otherwise, they’re keeping it a low level. It’s interesting to see the changes. The last thing I wanted to ask you was with COVID and everything that’s going on, there are problems with mood, morale and people are working in different ways. What advice do you have to establish or improve all that in the climate?

I studied some linguistics with a guy named Fernando Flores. He’s an interesting guy. His definition was one that I adopted myself. Mood is an interpretation of the future. Mood comes and goes. If you’re fearful and anxiety-ridden, your moods stink. If you’re optimistic, hopeful and joyful, your mood is going to be terrific. The whole notion was to try to create a mood of hopefulness and success. Even during the term of a pandemic, if your job is to communicate to the team, you tell them the firm assessment of what’s going on. You also indicate to them if you’re a team that’s used to winning if that’s your culture, which was our culture, how we’re going to get back to winning, and what we’re going to do.

In the case of Dunkin’, Dave Hoffmann, the CEO, had no layoffs. He kept the team together. He kept his family culture together and he communicated effectively. People were up and knew that it would pass and they’d get through it. They know not only they’ll survive, but they thrive on the other side, which I truly believe. A lot of restaurants are going to close, but those that have invested heavily in digitization and are well-positioned when 150,000 to 200,000 restaurants close, there’s going to be a lot of room for those chains that remain.

I would get detailing that tale in terms of where we’re at and painting a picture of the future. Not willy-nilly, not pie in the sky, but grounded in what to be true to my core that we will get through it and there will be a better day on the other side. People watch every motion of the CEO, every body language in terms of whether you’re authentic. If you believe it to your core, ultimately, you’ll be able to have the people behind you to keep morale high and keep it up.

That’s such great advice. I could see why your book got five-star ratings and unbelievable reviews. Around the Corner to Around the World: A Dozen Lessons I Learned Running Dunkin Donuts by Robert Rosenberg is on Amazon. I’m imagining other locations. How can people find your book and find you or find out more?

It’s available from all booksellers. You can go to the site Around the Corner to Around the World or you can go to Amazon and find the book.

Thank you. Dunkin’ has always been my favorite. I try to avoid that vanilla cream because I’ll eat about 100 of them, but they’re awesome. What you did with the company is amazing. Thank you for being on the show.

Thank you for your attention. I enjoyed being with you.

You’re welcome.

I’d like to thank Robert or Bob, as he likes to be called, for being my guest. He was fascinating. I learned so much and I’ve always been a big Dunkin’ Donuts fan. It’s fun to know the story behind everything he’s done. We get many great guests on this show. If you’ve missed any past episodes, you can go to DrDianeHamilton.com. There are more than 1,000 people who I’ve interviewed and they’re all listed there. It’s great to be able to have it in multiple formats. I hope that you take some time to look through it. Some of them have tweetable moments and you can tweet what you find interesting. I love to hear from people what they like. If you’re interested in finding out more about the Curiosity Code Index or the Perception Power Index and all the assessments, everything is available on the site. Pay attention to the top menus because you can get to this curiosity and perception information there.

Also, if you scroll down to the bottom of the website, you can find out more testimonials, free courses that I offer, and different things that you may not see at the top menu. We can’t put it all at the top because we’ve run out of space. Take some time to explore the site and you can find out more about speaking and any media or information. It’s all available there. We get so much content that I even go back and read the shows again because when you’re asking questions, sometimes you don’t have time to pull in all that you’ve learned from every one of these shows.

Robert is an example of somebody who gives so much great content. I love that it’s transcribed because sometimes, I can go back and I can scan through some of the shows and pick up little bits and pieces here and there. Anyway, I hope you take some time to go to Amazon or any of the booksellers to check out Bob’s book. I’m sure that it’s an amazing read because his story is amazing. I enjoyed this episode. I hope you join us for the next episode of Take The Lead Radio.

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About Robert Rosenberg

TTL 785 | Franchise BusinessRobert Rosenberg served as chief executive officer of Dunkin Donuts from 1963 until his retirement in 1998. Under his leadership, the company grew from a regional family business to one of America’s best known and loved brands. Rosenberg received his MBA from Harvard Business School, and in just weeks after graduating at the age of 25, assumed the position of chief executive officer. After retiring from Dunkin, Rosenberg taught in the Graduate School at Babson College and served many years on the boards of directors of other leading food service companies, including Domino‘s Pizza and Sonic Restaurants.

 

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