Thirty Minute Mentors Podcast Transcript: Interview with Former Dunkin’ Donuts CEO Robert Rosenberg

I recently interviewed Robert Rosenberg on my podcast, Thirty Minute Mentors. Here is a transcript of our interview:

Adam: Our guest today built one of America's favorite brands. Robert Rosenberg spent 35 years as CEO of Dunkin Donuts, transforming his family business from 100 stores and $10 million in sales to 6,500 locations and nearly $2.5 billion in sales when he retired. Bob is also the author of a new book, Around the Corner to Around the World. Bob, thank you for joining us.

Robert: Thank you for the invitation.

Adam: Millions of people around the world live off of Dunkin Donuts and Dunkin Donuts coffee. My mom was a Dunkin Donuts addict in college until she discovered health and nutrition and I'm pretty sure my aunt is still addicted to Dunkin Donuts coffee. What is the magic behind Dunkin Donuts and Dunkin Donuts coffee?

Robert: It started very early, basically my dad when he started committed the company and the products that were in use way back before they even the creation of Dunkin Donuts, to ensure that whatever we saw were the finest possible ingredients sold in the best environment possible. And it's been a seventy year quest. That's how long the Dunkin Donut brands have been around to make sure they continue to hold true to those principles. So for example, the cup of Dunkin Donuts coffee that 5 million customers buy around the world start their day with and really reflects a 27 page booklet of standards all the way from how we source it, to roast it, to taste it, to serve it with the cream that we use, every element of the product is very carefully thought about. And we set the very highest standards. And the same thing was true about our donut products, we use the finest ingredients we could find fresh fruit fillings, and we try to ensure that the product that we deliver to the customer day in and day out is of the highest quality. And my experience is, I look back over other businesses when you're dealing particularly with food, but I'm really hard pressed to find any long lived successful product that doesn't have at its core, the fact particularly food and it's made with great ingredients and it tastes absolutely delicious. And I have to say that's true but Dunkin Donuts and coffee- the product tastes absolutely delicious. And over the years thankfully, other people agree.

Adam: Bob, can you go back to your early days when you graduated from business school? You go into the family business. How did this all come together?

Robert: My career is very unusual. It's pretty unique. Very few people have the opportunity to assume responsibility for a business that was doing at the time, at least in that system. $10 million worth of sales system wide. That's an unusual situation. But basically, I figuratively grew up above the store from the time I was a young kid. My father had been industrial feeding because we had trucks that went around to construction sites and small offices off the side of those trucks. They had five gallon containers of coffee and they sold coffee and donuts and sandwiches. Even as a nine year old after school, I would watch the coffee stands and in subsequent years I worked in the cafeteria, preparing food for the truck boots. And then I worked in the bakery and then I ran stores while I was in college, and filled in for managers who are on vacation. And my father had a partner and he and the partner didn't get along. And they traveled in the same social circles. The partner was my uncle, my father's brother in law. And that partnership broke up after they had five Dunkin Donuts shops, which were just one entity among eight small businesses. And they went into competition and my uncle was making some significant headway. And our business was not called Dunkin Donuts. It was called Universal Food System. So eight small food businesses that were cafeterias of vending companies, pancakes, a McDonald's look alike called Howdy Beef and Burger. He made a small investment and a pizza company called Leaning Tower Pizza. And he wasn't faring all that well. He was a healthy, 47 year old guy, but worried about the inroads and the story about who really was the founder of this empire. And he had tried to sell the business while I was in my second year of business school. And we went with him on a trip to New York City, where he was asking for a million and a half dollars for the business because he wanted to be a millionaire after taxes. He was an eighth grade educated, up from the streets kid, smart, savvy, but not particularly well educated and tended to look toward people like my uncle who was a certified accountant, as a mentor, and he actually was actually running the day to day business in 1963. And when he was unable to find a buyer, because the profits of the company were worn on a half dollar purchase price, he had turned to me and asked if I wouldn't assume responsibility for the business as president and CEO. It was a breathtaking request. I had always thought I'd go into the family business all the way through when I went to the hotel school and then subsequently to business school, but I never expected to be asked to take on that assignment, that responsibility at age 25. But the configuration of family conflict, competition and complexity of the eight little businesses that comprised what was then called Universal Food Systems really warranted a makeover and a change. And after thinking about it some weeks, I basically told my dad that I would assume that responsibility. So on June 15th, 1963, at age 25, I became CEO of Universal Food Systems.

Adam: Bob, can you talk about how you ultimately were able to turn Dunkin Donuts into what it became? Clearly having the opportunity to take over a successful business is something that few people have that ability to do coming right out of school, but very few of us who have opportunities are able to then take them and do what you are able to do with it. Taking a $10 million company and turning it into a $2.5 billion business that is literally one of the most beloved popular brands companies across the United States. What were the keys to growing and scaling Dunkin Donuts? And what lessons do you have for listeners who are trying to understand how they can successfully grow and scale their businesses?

Robert: There are a number of factors. One was that while I was in business school, I had some exceptional teachers that helped me prepare for what one might do if they were in senior management. Typically areas of strategy and organization and also I went to a very good school, I was very fortunate. And I was able to lure other classmates out to help me. So- and it was also fortunate that my father was smart enough to start in an industry when the wind was at our back. But women entering the workforce from the beginning of World War Two to the year 2000 went from one out of three women in the workforce, to two out of three women in the workforce. So 66% or 70% of women are now in the workforce, needing food that was more convenient and a good value, because they were no longer in the home preparing it. So there was a massive side with wind at our back. That helped sort of put wind in our sails and allowed us to move forward. But the secret really fundamentally comes down to three things; we really focused as a team on planning, and there's a good deal of talk about mad people, and products. And those are the three P's that we built our business on. And we were a team of people who liked and respected each other and complemented each other. And we had stayed together as a team for almost 20 some odd years, 25 years out of the 35. And that was, I think, the key ingredients that sort of set the stage for our success. So we were in the right industry, we had a commitment, I think, to the right activities. And the team that was implementing it were exceptional. Each of us brought to the task, a lot of the business and I have to say, not to be too corny, but a love of each other, and respect for each other. There was no backbiting. There was no politicking, there was no internal strife. Each relied on the other for their strengths. And so I, in retrospect, think that those were the kind of ingredients I think that really set the stage for the reason for us growing and for us becoming successful. And when to fully back at night in the early 1960s. They were literally scores of other donut companies with similar menus and similar aspirations. In each region of the country, there was a real competitor that could have emerged. And I think it was our commitment to those three pieces; the planning, the people, and the products that really set us apart from our competitive set and allowed us to find competitive advantages and grow the business.

Adam: Bob, love everything you just said in the beginning of our conversation, you really gave listeners understanding as to why Dunkin’ Donuts has this great competitive advantage on the product side. Can you go into a little bit more depth in terms of the other two piece planning and people? What advice do you have for listeners number one, on how to hire who to look for when it comes to the kind of people to bring into your organization and, number two, any advice on the topic of planning?

Robert: Let's start with people. I was heavily guided by teachings from Peter Drucker, a very famous, now past demographer who wrote on management and the principle that I learned from reading his books, and I also had the privilege of meeting him spending three days with him once was very carefully defined the assignment that you are looking to fulfill when hiring. So if you did a good job at the fire assignment, you could then start to hire against the elements standards for that task that you're looking to fulfill. Secondly, I was also guided by teachings that I had learned from Gallup, which is basically a management consulting arm as well as their research part of their business. And they practiced then a concept that I found to be true in my own business career. And that was, we all have strengths and weaknesses as individuals. And it's very, very hard oftentimes to remediate the weaknesses. So in a team, what you try to do is to build upon the strengths and to ensure that those strengths are complimentary. And then each member of the team takes no umbrage at the fact that they may not have answers for all of it. That you really fundamentally are surrounding yourself with people that are more capable and smarter in many situations and are more elements than you are and that you're willing to share the credit, and the money and the rewards that go along with success. And that it's a mindset of understanding. Over time, I have to say. I didn't come to the job at 25 with this full understanding. These were elements that came to me and as we continue to grow together, and as I continue sometimes to mix up some terrible mistakes, but fundamentally, I very quickly came to the conclusion that not only is it an appropriate strategy, absolutely essential, but you really need great people and I'm not sure one is more important than the other. You really need both in order to be able to succeed, but those would be the three legs upon which I think guided me to build on people's strengths, don't spend a lot of time trying to remediate their weaknesses, do that with other other teammates, and have us all understand that we all have strengths and weaknesses, and we can rely on each other as a team. Business success is very much a team sport, and share- share credit, and share the rewards and compensation with an enlightened compensation program where people really stand to benefit if you do well, they do well.

Adam: I think that's phenomenal advice. And I agree with literally every word you said. It's very, very much in line with everything that I believe as a leader and everything that just about every one of my guests has shared with our audience on their philosophy about leadership. So I’d love to hear your thoughts on how we can think about planning and what we should understand about it.

Robert: Planning was a process that we used continuously and kept revisiting. And it started for me with creating what I call a very clear and precise language, and that many other many consulting firms like McKinsey and Boston Consulting Group and others, and their own approaches to planning, but this was one that sort of stood me in good stead over time. And fundamentally, it started with clear language about what is a vision, what is a mission? What are the objectives, what are strategic initiatives and what tactics are the languages that we use? And we involved every element of the organization from top to bottom in that process, and it started and was continuous and it would set guidelines each year. So fundamentally it’s sort of my language. A vision is something that you aspirationally want generationally. A mission is something you want to be as an enterprise and what you won't be, which is just as important in the next three to five years. Objectives. The three to five quantitative benchmark things you want to have. If admission is what you want to be an objective, it’s what you want to have quantitatively. And the strategy are the four to six strategic levers that you will pull as an organization in order to achieve those objectives and fulfill that mission. My belief was, as it was, for my whole team, there were only really four or five things that any enterprise, whether it be the United States government or a family or a business for that matter can really effectively implement in the course of a period of time and no more than four or five things. So you got to be very careful about those things you selected to put your time and attention to and tactics and nothing more than granular action steps to fulfill each of those four to six strategic leavers that you're going to call it. I call it strategic initiatives. So within that language, we would start with our planning group, our board, our management team here, our operating committee guidelines each year to the entire organization- not prescriptions about what we wanted them to achieve, but general guidelines of what we were about. And then through our compensation system, our management by objective system, everyone in the organization was either a profit or a cost center, everyone budgeted. Everyone had budget meetings during the budget process. And we compensated heavily, much more at the top by virtue of overall achievement of those objectives, but throughout the organization based on individuals’ objectives that they've set for that period of time. And it was a continuing process of planning. We were very crisp, and part of the planning process about what you want to be and what you won't be, is a very clear idea of reality. There was a friend of mine who wrote a wonderful little book called The Art of Leadership. And he really defined the job of a CEO as two things; one, defining reality. Number two, make sure to say thank you for joining me and for useful guidelines throughout my career, and that they seem to work. Defining reality is a critical part of planning; not what you know, what you think you want to be, and not what you hope you are. But really what you are, what your competition is, what the world holds, and how you're going to win your way through a competitive advantage. And no advantage is competitive and sustainable forever. It requires constant attention, constant monitoring, and each of us in the company had a role to play in doing that. We practice a lot of that by what I call management by walking around. My job was to belong outside organizations. We all visited at least 100 to 200 stores a year talking directly to our frontline managers, our franchise owners, and we brought all that back to our planning sessions.

Adam: A key theme of this show is leadership: how to become a better leader, the core principles of effective leadership and in your book you discuss, in your view the primary functions of a leader, and how to lead and build a team and build trust in a team in a moment of crisis. Can you share with listeners your thoughts on what it takes to become a great leader and how to effectively lead teams in good times or bad?

Robert: My career was 35 years and during that I didn’t want to lead listeners to believe that it was all beer and Skittles, because it wasn't. There were times that were close to near death experiences. It's real severe setbacks, and crises. So it was a long journey. But I would suggest that it's not only the functions of a CEO that are critical, which is strategy, organization, communication, and handling the business in moments of crisis, but also the character that goes along with them. I had learned over a lifetime of working that in order to be a good leader, you have to have passion for the business, passion for all the people. And you have to be trusting yourself and understand how to trust others to build a trusting environment. I think humility is extraordinarily important. The fact is that after our initial success, when I first took over, I ran into some significant problems and setbacks, and was in fact fired after taking a couple of company problems, but based upon our ability to be able to write the ship, and the fact that I was able to build trust, I'm able to work my way back. And it's not only what the senior executive does, but also the qualities and the values that they hold dear. And those are, you know, I would say passion, being trusted. humility, integrity. And those are the ones I sort of put at the top of my list of things to do. And they don't just come at a time of crisis. It's the kind of thing that you have to build throughout your career and during all the time that you're there and I came luckily to study with for a short period of time with a Chilean engineer who was involved in the Chilean government. And he really taught me the sort of the elements of trust, whether you yourself can be trusted, or whether or not you can trust someone else. And he provided for standards that I used, which was it might be helpful to you to listen- trust given too soon, you're naive, and withheld too long, you run the risk of becoming a cynic. Trust him by the first test and with sincerity your public and your private conversation are one in the same. Second is competence. Competence is not the same as not ever making a mistake, but it is the ability to be able to perform consistently up to the standards of the job expected. So as a CEO, believe me, I made some errors and some blunders along the way. But fundamentally over time, I was able to lead the company and my team to be able to achieve the objectives that we promised. consistently, and if not, I would have been replaced. The third test is reliability, which is, you know, your ability to make promises and keep them for the most part. And because the world is so hectic, things occur, sometimes you can't keep them but you go back and you try to make new offers for new promises. And the last is care. In other words, treating people responsibly not transactionally, but really concerned about their well being so that most interactions really revolve around a win win, listening carefully to what people want out of their careers, what they want out of their lives, and how those interactions can work together to make sure you achieve them to really care about somebody or all all the people under your responsibility. So those were the tests that I use to build trust and it doesn't come in a moment. It's built over a long period of time and at times of crisis, you know, when people's economic well being is at stake, their identities are at stake. They're anxious, fearful. And it's times like that if you put money in the bank of trust over a long period of time that you're much more able to be able to talk authentically to the organization about what issues you face, transparently, openly, to take responsibility and together we will solve them. If you really believe that, you have to believe it to your core, you have to be authentic, then you're much more likely to be able to lead the team through a crisis. But it's money in the bank that has that kind of action of being a trustworthy person yourself, and how to build trust and others and how others whether or not they are trustful, trustworthy, that really determines that. So it's not something you come to immediately. The other thing I learned from Fernando is about mood. Every organization has a mood and the mood of joyfulness that you'll succeed with a winning attitude, trust, and you're heading in the right direction, trust that what you do is meaningful to society. Even if it's just providing coffee and donuts and giving a lift to people as they start their day around the world- that's a meaningful contribution to society in my view and if you feel that you're going to outperform an organization that's fearful, sad, losing, your mood is critically important. Their mood was nothing more than interpretation of the future. And if you saw that the future is winning, successful, trusting fair, that's going to permeate not only your own personal being, but that of your organization. And as a leader, you have the ability to design a future, to design a mood. And that's what I attempted to do when and oftentimes was successful. And I think the mood of our team was joyful, hopeful, winning.

Adam: That's great advice. And that's advice that leaders of all organizations, regardless of what type of organization, regardless of the size of organization- it could be a startup company, it could be a large business, it could be an organization that's not a business, a nonprofit, someone in the military, in sports. I am with a family community as a leader, in an informal setting with you, Bob, 100%. Having a winning mindset is where it all starts. I want to ask you about something that we touched on a little bit earlier in our conversation, which is branding. Dunkin Donuts, when you took over was a small regional brand and when you retired, a national brand that has been honored and admired. I want to get your advice on how any one of us can either build a successful brand, or enhance the brand that we already have?

Robert: To me a brand is nothing more than a shorthand of the values and products that it represents. It basically defines for the consumer, sort of a bundle of attributes. And by virtue of that, from my experience, those attributes are time savers, so that the consumer doesn't have to page through literally hundreds of objectives, 100 different options, before lighting on where they're going to frequent, where they're going to spend their money with, what or who they're going to support. And so first of all, the brand has to deliver at its core basis on having something that you feel is superior to the competition. In other words, you can't make it up, you can't advertise it. If it doesn't deliver the goods, in my view, it doesn't survive. You can't. All advertising does is aid in hastening your demise if the product doesn't live up to the promise. So the first is to make sure that the promise is being executed, well, consistently. And then, in the case of our retail business, it required both distribution, which meant new stores, and required adding weight. So rather than open a Dunkin Donuts store, and one of the things that we did when I first arrived, was rather than open up wherever anybody wanted to buy a franchise, we looked at this 200 and that and those years, that's how many. Maybe it's 300 or the 300 statistical marketing areas in the United States and we decided that we couldn't be everywhere, but we could be in some of them. And those ones that we would earmark for development and be intentional about putting distribution in and putting weight in. And that over time, we got to see that what we can advertise and had distribution, you could advertise 150 gross rating points, which is ad speak for one and a half impressions per week per consumer. My sales initially did better and continued in terms of growth better when we were on our, you know, after 38 weeks we did even better still. And when we were on our 52 weeks, we did even better still. And it was a direct correlation between the ability to reach a megaphone, to reach the consumer, to tell them about our offers where we had both distribution and add weight, so that we were very disciplined as we went along and matured, to make sure that our distribution was to very clear markets. And so we may have only opened stores as we roll across the country and 20 or 30 stores at a time, it was very well planned out where 75% of our distribution was going to established markets where we already were six months of the year, and the other 25 to 35% of distribution were in markets where we could be on air within three to five years in that time period. So it was a function of both distribution and added weight that helped build the brand. But the brand was built upon delivering the best possible product imaginable that we could create. And we had a chance to see the benefit of that brand. Years later, when, as I told you, my father and my uncle were competitors, my uncle started a company called Mr. Donut. My cousin was the CEO of that company, and he and I sort of had the donut war battles for five or six years until 1968 in which case they sold out to International MultiFoods, a large miller in Minneapolis in 1990. I had the opportunity to buy that company back and started to rebadge the donut shops to Dunkin Donut stores and in markets where Dunkin’s brand was much stronger than the Mr. Donut brand, same location, same franchise owners, with a minimal amount of rehabbing and rebadging from Mr. To Dunkin, sales went up 40% in those markets where the store distribution was pretty similar. In some places in the Mid Atlantic states, around Pennsylvania, Pittsburgh, particularly, sales went up 10 to 20%. In a market like Toronto, where Dunkin had no distribution at Mr. Donut had a handful of stores. When we experimented and rebadged one store, sales went down 10%. So it to me highlighted a very graphic term and to the best of my knowledge, one of the best test tubes to prove the power of a brand was in that rebadging exercise that we did in the early ‘90’s. And that's the power of a brand; you can transform it; same location, same owner, just a change in brand, and sales go up like 40%. It was a huge success in terms of our acquisition.

Adam: That's incredible. Bob, I want to ask you one last question. And I know that this is a question that we could spend an entire episode on, and we could probably spend an entire series on. I know, it's a big focus of your book and a big focus of your entire career. And that's franchising. What are your best tips for franchise owners? And what are your best tips for people thinking about potentially becoming franchise owners?

Robert: There's a real hunger for a lot of people to be entrepreneurs. And I think an underappreciated fact of life is the fact that franchising provides you an opportunity to really shortcut the risk of starting a business. You can be potentially a phenomenal avenue for success. It brings huge benefits to the franchisor and the franchisee and to the consumer and to the public. For the prospective person wanting to go into business, it provides an opportunity to be able to short circuit that. Malcolm Gladwell said that to be a success in anything, in his book Outliers, it said that it takes approximately 10,000 hours of apprentices. And I find that’s true. When I taught entrepreneurship and at Babson when I was an adjunct professor, that's about three to five years of apprenticing in your field before you think of starting a business. I believe in that strongly. There are serial entrepreneurs but I'm a believer in the 80/20 rule that probably 80% of the people who are successful entrepreneurs start in an industry where they know the language, they know the niches, and know when they can build a sustainable, competitive advantage. Franchising has a way of short circuiting bad apprenticeship time because someone's already done that. And so it lowers the risk if 80% of small businesses fail within five years. I'm not sure exactly what the failure rate is now for franchising, but in my experience, it was below 10%. So it hugely puts the odds in the favor of the franchisee by joining it. And an underappreciated fact about franchising, which most people don't realize, is that it's not necessarily just an opportunity to own a small mom and pop store. As these systems have grown, including the Dunkin Donuts system, people have grown to hundreds of stores. There are Dunkin Donuts franchisees today that started with one store that I would say could be worth as much as 50 or 100 million dollars in terms of personal network. If you look behind most communities in the United States you'll find where I live, part of the time is in Florida, you'll find Brayman automobile dealerships and that's it. Almost like a franchise, it's a dealership that you can find in many communities throughout the Midwest; the John Deere dealerships, they're the pillars of a lot of communities and societies and hugely successful franchisees or dealers, which is a terrific opportunity for the franchisor and provides an opportunity to grow with people who have skin in the game and who work in their individual sites and to the consumer it provides better product more consistently. And it's a huge business. There are 750,000 franchisees now in the United States and may account between franchisees and dealerships and licensees. So it's an underappreciated fact, with huge benefits, one that should be looked at carefully. And in my view, not all franchises are the same. Some are more successful than others. The benchmark that I use and I propose in my book is the key test for scalability. Not only do I like the business, I have a passion for it and a purpose. But the one thing I would look at and measure is the return on investment. The unit economics determines scalability for both franchisee, and franchisor. And I would contend that if it doesn't show a 15% return on full investment in the first year, then there's a reason for caution. Businesses open at a sort of bell shaped curve a third below the average, a third at the average, and a third above. And if the ROI, the return on investment, is too low at the midpoint, the tail will be too large and ultimately drag down the business. So if I had one bit of advice for people who are evaluating franchises, make sure it's a business that you love and relate to and you think and have a passion for. But make sure you also take a very keen look at and talk to existing owners and systems about what their return on investment is. Make sure that it's sufficient to enhance your chances of success.

Adam: Bob, thanks for all the great advice and thanks for joining us.

Robert: Thanks for the opportunity to talk to you.