Robert Rosenberg, Former CEO of Dunkin Donuts

Guy Kawasaki:
I'm Guy Kawasaki, and this is Remarkable People. Today's remarkable guest is the former CEO of Dunkin' Donuts, Robert Rosenberg.
Shortly after his graduation from the Harvard MBA program in 1963, he took over a family business. He was twenty-five at the time. This small organization morphed it to Dunkin' Donuts. He ran Dunkin' Donuts from 1963 to 1998.
At the time of his retirement, Dunkin' brands represented 6,500 locations, including Baskin Robbins, and Togo's. After his retirement, he became an adjunct professor at the F.W Olin Graduate School of Business at Babson, and he served on the board of directors of Domino's Pizza, approximately 1500 locations at the time and Sonic Corporation, approximately 1700 locations at the time.
He has a new book coming out called Around the Corner to Around the World: A Dozen Lessons I Learned Running Dunkin' Donuts. In this interview, he covers topics such as the challenges of a family business, focus versus diversity in product offerings, the role of a CEO, the role of a board of directors and the process of planning and budgeting.

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I'm Guy Kawasaki, and this is Remarkable People, and now, here's Robert Rosenberg; he starts off by explaining the humble beginnings of Dunkin' Donuts.

Robert Rosenberg:
They actually started - it was an outgrowth of an industrial feeding business. A business that had trucks that went around into different construction sites, small office sites, serving coffee and sandwiches and, occasionally, donuts and pastries. It was started by my dad right after the war and it was called Industrial Luncheon Service. My perception of that business was that his vending machine started to become popular in the early 1950s. They put a dent in the success of that business, and the diversification move in order to try to help flagging the business and help my dad, and his partner, who was my uncle, to achieve my dad's dream of being a millionaire after taxes. They started to innovate other businesses.
One of those was a donut shop at a place called Quinsy, Massachusetts. That was the Genesis of the business. It didn't start as Dunkin' Donuts, however, it started under a different name and a much more modest start.
Guy Kawasaki:
There's this constant tension where there's diversification versus concentration. You have your father's business with multiple lines of businesses, and then you decide to go all into coffee and donuts. So can you address the issue of diversification versus concentration?
Robert Rosenberg:
Yeah, it's a great question. There is always tension. It really gets at the heart of the art of management. There's the tension between what I would call - I'm actually borrowing something from a Harvard professor between experimentation which was this desire to keep springing out new things and exploitation, which is basically taking a business that's already in your midst and spent burnishing it up, paying a lot of attention to it and exploiting it.
One of the reasons why I ended up at age twenty-five, getting the nod to take over a family business was because it was in a lot of extremists. It was in trouble. One of the key reasons it was in trouble was just because of the fact that it was far too much experimentation. In 1963, there were eight little businesses and a small, not very deep, management team - more than they could handle, and they overlooked and actually abused the diamond in the rough that was in their midst.
You're absolutely right. The first five years of when I took over from the time I was twenty-five to thirty, and then lo and behold, what did I do in the next five years, but actually fall prey to the very same seduction in terms of expanding and exploring far more than I could handle, the organization can handle and then nearly took the whole business off a cliff. I was luckily able to survive that and learn a lesson that I will never forget.
Oftentimes liken it to a kid putting his hand on a stove and it burns it, and take it out. I'm not likely to do that again, but it took that very vivid lesson to groove in my mind and in the mind of our organization the fact that we had to be very careful about how far we would experiment. There was always a balance and there's always tension going on in any business, isn't just our business, it's any business has that issue they have to deal with. That’s the art of a leader.
Guy Kawasaki:
Now you are specifically referring to product innovation and experimentation, but what about the issue of going international?
Robert Rosenberg:
That's an issue as well. It's not as difficult in my view as diversifying by business line, but when you move geographically, it takes on a whole new set of challenges and requires an immense amount of planning and care. As you need, sometimes, more distribution and you think you have a product or a brand that has national or international implications, sometimes you're forced into that need to move.
I don't think it's as risky, quite truthfully, as taking on a brand-new business. So in other words, when I joined the firm was called Universal Food Services. We had pancake houses, hamburger stands, delicatessens, vending company, industrial feeding business, all different kinds of businesses. That's a far more risky diversification, in my view, than growing geographically, diversifying geographically.
Guy Kawasaki:
How do you balance when you're diversifying geographically? For example, saying that, “With this kind of coffee, this kind of donuts, they do well in the United States so they're going to do well in Japan and England and Canada”? So do you have centralized decision-making or do you leave it to the local market to decide and have a different product offering?
Robert Rosenberg:
You need to leave it to the local market and you have to customize the offering to the locations. For example, when we diversify geographically into Japan, the customers at the time were as tall as they were in the U.S so the stools had to be lower, a different palette, different tastes, different products. A little of that was through trial and error experimentation, but you do have to adapt the business side, and unquestionably, to the local market. That requires people on the ground, in the market who understand the market.
Guy Kawasaki:
What are the challenges of a family business?
Robert Rosenberg:
To have a business to go into as a young person is a big advantage. If you find yourself in a leadership role, it comes with its own challenges. Those challenges often come when change is required. Oftentimes you have to sometimes change strategy, organization, menu. In our case, even the name of the business itself had to change from Universal Food Systems to Dunkin' Donuts. It was a major change.
We changed strategy, organization, even menu. I inherited Dunkin' Donuts twenty-six stores that opened the year that I joined the company in 1963, ranged in size from eighteen seats to eighty-nine seats and add full breakfast menus and add lunch menus and hamburgers, hot dogs, scrambled egg breakfast menus.
So basically a lot of things had to change. That can create some tension between the founder and the subsequent generation people who join a family business. It requires a lot of delicate handling and perseverance. Our business was probably not unlike a lot of family businesses that aspire to grow bigger and to succeed. It requires change and adaptation and that sometimes creates some conflict.
Guy Kawasaki:
Let's say you're not going into a family business or inheriting a family business, but instead you are considering starting, from scratch, a new business. Would you say that it's a good or bad idea to start with a relative, spouse, kids, whatever, or if you can, avoid that situation?
Robert Rosenberg:
No, I wouldn't have a prohibition against, it's more talent. The one thing for a burgeoning entrepreneur, one of the things that I taught at Babson when I was teaching entrepreneurship was just one of the key elements along with knowing you trade and apprenticing. You also have to surround yourself with a complimentary group of people because it's a team sport, and if the trust and competence exists among a family member - I wouldn't preclude someone just because they're a family member from that activity but I would be sure to make sure that there were clear lines of demarcation where responsibility started and stop.
It's delicate, but talent is talent. Talent could come from within the family or it could come from outside of the family. The key element though is to get a complimentary set of skills as a team and among the first hires of the business.
So I would say there's two real critical elements of any entrepreneur that starting, one is, I believe in an 80/20 rule, that eighty percent of most successful entrepreneur has been anywhere from three to five years in the industry, within which they start their business. So they know the opportunities, the challenges, the metrics, the gaps and where they can build a sustainable advantage.
The second is to make sure that they have - maybe three things. The second thing is to make sure they have a team of people, even if it's a small team that really fill the needs of the organization, complement each other.
The third thing I'd say they need enough capital because oftentimes your first strategy doesn't work out and you've got to be flexible enough to pivot and learn from your areas and you get rolling. So I would say those are the three things you need to successfully launch a business, whether it's with a family member and not a family member.
Guy Kawasaki:
Do you think that a Harvard MBA, or an MBA, really prepared you for entrepreneurship?
Robert Rosenberg:
In my case, I have worked, so I virtually grew up figuratively over the stores. So I worked in the business. I went to hotel school and I knew I was going to be joining the family business. Quite truthfully, I had no idea that I was going to be asked to assume the CEO role within days of me graduating.
I honestly don't think I could have done the job had I not had my MBA training. Basically, in my second year of business school, I took courses in what was called strategy Bruce Doolin Henderson who was one of the founders of BCG, Boston Consulting Group.
That gave me the perspective and the understanding of how important strategy really was. I also took courses from a professor by name of Walter Salmon who taught retailing. I did papers and naturally I was gravitated to the family business, which I wrote my papers on.
So I had an inkling when I got to the company and I understood what I thought were the problems inherent in it and why it was in such turmoil. So I would have to say unquestionably, that education helped me start off as a cocky kid, had a running start, to have a sense of what to do, where to pay attention and what the difference could be in terms of success or failure.
Guy Kawasaki:
For those of us who are not really insiders, could you explain the gist of franchising?
Robert Rosenberg:
Franchising is a wonderful, and not too well understood, business model. It basically combines aspects of a large corporate holder that has a style, a business style, format of business, and it licenses the rights to utilize that to an individual entrepreneur at the local level. It combines potential sophistication of a large brand holder or service holder, so someone who has a business format, it combines it with local execution at the unit level close within the community. So it combines the best of both worlds.
Oftentimes understood it's not only a way for an individual to obtain and reduce risks and obtain an opportunity to enjoy greater earnings than might otherwise be available, but also today in some of these enterprises, these franchise businesses have grown to become the pillars of many communities and have turned into large enterprises worth tens of millions of dollars. So it has been a method of wealth creation.
They were probably in the United States, 750, 000 business format franchisees, and between that and dealerships, I would estimate that you could be accounting for as much as twenty-five percent of the goods and services in the United States are distributed through either dealers and, or franchisees. It is a wonderful business format. As I say, it reduces risk dramatically for an individual who's considering entrepreneurship as an alternative.
Oftentimes people don't think of a franchise as an entrepreneur, but you are in business, but you're not in business by yourself. You have the advantage of someone who's been there, done that, and put in the apprenticeship that, I often say, is required of an entrepreneur going into business. That's three to five years of learning the trade or that business, oftentimes that's what a franchise helps an individual bridge that gap.
Guy Kawasaki:
But as a franchisor, isn't it hard enough to make good coffee and donuts and then you have to add herding the cats of selling franchises. Didn't you just make your life twice as hard?
Robert Rosenberg:
Not actually. Basically, you start with a school and you help train and inculcate people. You create a culture, you have field supervisors who help coach individual owners to maintain standards. We believe that our success is really dependent upon our ability to consistently deliver high-quality products and services day in and day out. You may give up an element of control by virtue of having a third party, but you gain so much more by virtue of having someone who's got skin in the game, on the front line, dealing directly with staff and customers in the community in which they're doing business.
Most times you find that most franchisees understand the importance of a standardized execution of the product and the quality of the product. You spend a lot of time and you start early with a school. In our case, it was Dunkin' Donut University, which was a six-week training program and then our ongoing basis and opening crew, and then ongoing district managers, that one to every twenty stores that they're responsible for coaching and helping.
Guy Kawasaki:
Do you think that back then the Dunkin' Donut employee, the central employee, do you think they get up in the morning or got up in the morning and thought, “I work for a great retailer of donuts and coffee,” or they got up in the morning thinking, “I work for a franchising company,” or did they have to think of both?
Robert Rosenberg:
I think they thought of both - success in a distributed system when you got lots of outlets. Then you rise and fall, staff rises and falls on how good the unit manager is. So they wake up and say, "I not only am part of hopefully, an enterprise that brings a smile to all my customers faces every day by starting their day off with a great cup of coffee and a baked product or fried product being a donut, but I also work for a great man, woman, husband, wife, team,” whatever the ownership is, “who care about me and take good care of me who are nice people who appreciate me." So it's a combination of both.
So hopefully it's both for the brand as well as the unit manager and the unit manager could well be an owner, a franchise owner and staff, but I think relate directly to who the manager is of that unit.
Guy Kawasaki:
Now in the franchising business, one of the key tenants is geographic exclusivity, right? So you don't put two Dunkin' Donuts in the same shopping center, but what happens in a digital economy or is franchising just... because there's no geographic boundaries in a digital economy. So it was franchising just off the table for anything digital?
Robert Rosenberg:
No. I don't think so. As a matter of fact, basically, the successful ones have started as operating companies, just like ours did where the founders start with a concept that provides goods and services in a superior way.
The second generation of those that succeeded and made it big with those that kept that strong operating basis and grafted onto it, a strong marketing orientation, but really all the package goods orientation. Now we're going through the third stage of those that are going to flourish in the future - those that not only maintain great operations and great marketing, but also understand the whole element of technology.
So you were saying the ones that are going to survive the pandemic, for example, are the ones that understand digitization and the ones that already have consumer relationship, marketing doubt pad who have relationships, Apple Pay or pre-ordering and phone ordering, a customization. So digitization is brought to bear as a big enabler, I think, of some of these concepts and they're utilizing them. I was on the board of Domino's and, basically, we gravitated to become a technology company that spelled a difference and that particular company, we're thriving this result of the ability to be a technology.
Guy Kawasaki:
There are many point in the book where you say that you were always in the field, you are looking at every site that you required, I think, top management to visit at least a hundred stores a year. What happens in a pandemic when nobody gets on an airplane?
Robert Rosenberg:
It's hard, it gets hard. You basically have to rely on Zoom in a lot of communication. I touched it. Hopefully this won't last forever, but it is a limiting factor. This is a business that is very much a social business. It's a lot of relationships when you're dealing with franchisees, the franchisee leadership. So you have to employ technology as an intermediary to help you maintain that high touch.
Guy Kawasaki:
What's the state of the art of how you assess a new location. How do you decide to put it on this corner or not?
Robert Rosenberg:
Basically a lot of regression analysis, a lot of data. We buy information on every community. We map out all the competition and we take a look at all the demographics within one to three miles. Most retail businesses, in my experience, generate eighty percent of their business within a ten-minute driving time, or walking time, and be it an in-town location or a suburban location. All of that data is generally systematized and evaluated.
In our case, we basically looked more importantly at developing our brand and advertisable markets, as opposed to going wherever anybody wanted to buy a franchise. So we're very disciplined in terms of how we grew. We were big believers, that brand had extraordinary value and as a result of that, we spent a lot of time deciding where we put new distribution. So we would take a city and we would basically map out where all the competition was, where the most desirable locations would be based upon the data that we had on our computers.
Then we also did regression analysis to determine those considerations that most impacted sales. So we had models that could give us estimates of sales plus or minus ten percent, ninety percent of the time, and then we also did it by virtual visual observation. So the senior development manager of the company or in the region would give a thumbs up or thumbs down, but armed with all of that data and all of that information. It's pretty scientific. It's not a hit and miss activity.
A lot of the key of it in my view is to build brand in a market. To get both add weight and distribution. You need both, you can't just rely on add weight without distribution. A lot of it is wasted. You need both.
Guy Kawasaki:
Speaking of advertising, where are you now on advertising because before it was obvious you advertise in newspaper magazine, TV, radio. Now with social media, has your emphasis switched to targeting via Facebook people in a certain region of a certain age who might want coffee and donuts?
Robert Rosenberg:
In my days I take you back a bit. It was basically add weight. So the more that we're on-air, the better we were. So at twenty-six weeks, we had a certain growth in same store sales of thirty-eight weeks, even more at 150 gross rating points, and then even more significantly when we're already at fifty-two weeks, at least 150 gross rating points.
Clearly, social media plays an important role. A lot of it is within the systems themselves that they have a loyalty clubs and track followers based online in terms of adding on to the media way. Adding as opposed to subtractive in terms of the budget, I am sure. So they're keeping up mass media as well as very pinpointed individual contact, consumer relationship marketing based on loyalty, based on award characteristics where customers follow a brand and take advantage of all of the benefits that they get through social media.
Guy Kawasaki:
I had no idea that Dunkin' coffee would never be older than eighteen minutes and Dunkin' Donuts would never be older than four hours. So can you discuss this emphasis on quality and how you came to these kinds of decisions?
Robert Rosenberg:
It really started way back. The business was always founded on an uncompromising commitment to quality products. When I assumed responsibility for the businesses, as I said earlier, a lot of the more recent stores at the prior management had opened where diverse menus of all kinds of food products are undifferentiated.
So we committed ourselves to make sure that we were going to focus on at the time two products, coffee and donuts, and we were going to make sure that those products were the very best in the world. I also had the opportunity to run into a fellow by the name of Charlie Lubin, who was the founder of Sara Lee, and visited with him at his club - he had already sold his business, consolidated choice - but I asked him over lunch to tell me what he thought the secret to his success was and he turned to me and he said, “Butter" I was taken back, like, "Do you mind repeating it?"
And, he said, "What do you think about pound cake?" I said, "I have no idea." He said, "A pound cake is a pound of flour, a pound of sugar and a pound of butter," and that's goes the stuck in my head.
When you really think about those long live food products, what they have in common is the real deal. It was buttercream, real fruit fillings, and coffee, really made rich with real pure cream. That really spells the difference in terms of a food product.
We made a commitment then that any product we would have would always be utmost of quality. So we use Madagascar Vanilla and Saigon cinnamon before the Vietnamese war. We tried to use the very best ingredients we could find. The Dunkin' Donut specifications for coffee run twenty-seven pages. Most dairies in the United States do not make eighteen percent light cream.
I believe that coffee tastes absolutely more delicious when you have real eighteen percent, like creating the difference in mouth-feel and taste is totally different. We had to go around the country and convince dairies who continually refine all the way down to skim milk, to no butterfat from forty percent whipping cream butterfat. We had to convince them to make eighteen percent cream for us. We were very fastidious about all those kinds of products and how we deliver them.
Same thing with our donut mixes and our shortening and fillings with pure fruit fillings, and jelly to us was apple and raspberry fruit, and that was a jelly filling. Apple filling was real apple. If we're going to be in that business, we were going to have the best product, the best tasting and the most delicious product almost always made with real ingredients in order to be able to provide a competitive advantage.
Guy Kawasaki:
If a pot of coffee was older than eighteen minutes, it was thrown away and donuts older than four hours were thrown away?
Robert Rosenberg:
So now they have larger units in terms of how they sell coffee, but in those times, we had a sixty-ounce pot of coffee and we would make a continuous and we would grind the beans, fresh on premise, in front of the customer. The beans were delivered and nitrogen flush packs every week fresh from the roaster. So the product never deteriorated.
I think coffee begins to deteriorate after ten days or so. We never allowed the coffee bean to deteriorate, it was always packaged properly and we grounded fresh in front of people. We ground it more richly than any of our competitors significantly most so that sixty ounces of water coming out 200 degrees when it brewed, it didn't pick up as many of the tannins because we had a richer base in terms of the amount of coffee that we put in the pot.
All of those steps and then, and including the cream that we used when we finally served that, we were committed. Champions of product quality, always - that was always a hallmark of the business, still is.
Guy Kawasaki:
I found your discussion of the number of objectives a company should have quite interesting. So can you provide your perspective on how many objectives a company should have? What objectives should they be? Are they all quantifiable?
Robert Rosenberg:
It's all part of a planning process that run throughout the whole width and breadth of the company. Everybody, really. It was either a profit center or a cost center. So everybody operated any program of management by objectives.
So the first element of the planning process really was most important. It was a mission. What did the company want to be? And if you couldn't define yourself with those words to be, it was hard to describe what your purpose and what your mission was. After that, you had to define, in my view, not more than five would probably best three critical metrics of what you want the business to have, or as a profit center, what profits that it has to achieve.
I use objectives, achievements as one word and goals, they all mean the same thing. I have found that no organization can really put itself to achieve. There is an infinite number of things that a business or that an individual can measure, an infinite number, but there are some that are absolutely more critical than others.
In our case, we basically had an earnings per share goal. We had a return on investment goal for our franchisees, and we had a certain debt capacity that we wouldn't exceed and those are the three metrics that we measured the business against.
Following that, we would generally select five or so key levers that you could pull because our belief is that no organization, be it the United States government or a small entrepreneurial company, can't really effectively put its time and attention to anything more than four to six leavers or strategic initiatives at a time. Then we had individual more granular tactics to support each of those individual strategic initiatives. That was our planning model but the objectives generally, whether it be a department, an individual or a company, had to be those that you felt most reflected success and you generally get what you measure, and don't measure too many things because you end up confusing everyone, and they were in conflict with each other oftentimes. They have to pick the ones that are most critical to how would you know when you see it, what success mean to you.
Guy Kawasaki:
Now, tell me about budgeting.
Robert Rosenberg:
Same thing, it would start, basically, at the beginning of the cycle. We would start at the operating committee level, which would be the group of senior managers, sit together. We had a model that we would take a look out five years in advance in terms of the key elements of our business, new distribution, same store sales, profit margins at the unit level, SG&A sales general and administrative expenses, and we would model our behavior and to see whether or not we had gaps in terms of achieving our fifteen-growth rate and whether we could do it comfortably or whether we really had to stretch or whether we had to begin to plant some new saplings for future growth.
We were running out of geography or we were running out of room, or something was going on. In our case, as baby boomers started to age, the same store sales had gone from what had historically been about six percent compounded per year down to about three percent starting to put a strain on our growth rate. So we had to begin to start to look to change the business and adjust and adapt. That was the planning process.
Every year before the planning cycles start, I would issue, with the advice and consent of the senior managers of the company, a statement of goals and objectives and strategies and outline them in terms of what we had hoped to achieve, not to be prescriptive, but as a guideline to people in terms of where we were heading, and then, individually, every department would sit down with a supervisor and go over the goals for the year.
In addition to that, there would also be... We only had one budget for the whole company and we didn't change the budget during the course of the year, but we would identify potential gaps where we could miss, where we could go off-budget and would generally require each department head, the company as a whole, to have a plan of attack in the event that there were gaps starting to create during the course of the year.
So for example, if we really thought it was going to be tight, we might defer some of the spending on new hires to later in the year to ensure that we were off to the right start and that might have been our caution in order to be able to achieve our budget. So it was a top to bottom - all people on deck planning cycle; everybody was involved. So even if you were an accounts payable supervisor, you basically had no revenue, but you had expenses and you were involved in the process as well and you were evaluated based upon your ability to achieve your objectives through the period and through the year.
Guy Kawasaki:
Let's say that the budget for 2020 was established, and three months later, you're in the midst of a pandemic, stores are all closed, whatever, this is the perfect storm of difficulty for a business. You do not recast your budget, at the end of this year, you'll just say, “We reached ten percent of our budget because of the pandemic”? Or do you recast at all?
Robert Rosenberg:
No. In a one hundred-year event… no one would’ve faced that kind of event, you'd have to recast that and kind of see change and the community was going to happen. That would not be wise. Now you'd have to pivot and you'd have to make a lot of adjustments and adaptations.
We would do that even without a pandemic, but we never had to face anything of that magnitude. So for example, as I suggested, it was going to be a tie year, we might defer a certain hires and certain things to later in the year to make sure that we had a healthy margin and that we were well on our way to achieve our budget before we would spend. So it would be those adjustments that we would have in our back pocket as we move through the course of the year. That is just good for management, not to over promise, and you don't want to over promise and under deliver.
Guy Kawasaki:
But just to be clear, so let's say you set a budget and a pandemic doesn't happen, but whatever, for whatever reason, it's clear that you're not going to make that budget. Now, you talk about the variables you can change to reduce costs and stuff, but you would not recalculate the budget so that it looked like you came closer to the budget of...
Robert Rosenberg:
No.
Guy Kawasaki:
You would not? You just take it, you just let it be?
Robert Rosenberg:
Yeah. You're talking about like a once in a millennial kind of thing, a pandemic, but under normal circumstances, basically, hopefully our planning was smart enough and well enough. The fact of matter is that we always delivered on our promise. After the second five-year era, in which case we had a miscast strategy and the wrong set of objectives, I was still trying to grow it a 100% percent of fifty percent a year, which was crazy. Once we learned the error of my ways and never recreated that and reduced ourselves down a much more manageable fifteen percent growth rate, we were always close.
I think there was only one year we didn't make our annual. The twenty-five years after that, I think there was only one year senior management didn't get its bonus based on the achievement of its annual budget, in which case, we forsook our bonuses and made sure that the rest of the team did get it, because we took the hit. It was our plans but I think that was one out of twenty-five years where we really missed.
Guy Kawasaki:
Let's now talk about boards of directors. So who do you want on a board? And what should it do?
Robert Rosenberg:
A board of directors? Who do I want? I want basically the same thing I would do in terms of trying to select an organization: I would define the assignment. A lot of what you might need is based upon what the needs of the enterprise are, as best you can define them. So if you were going to grow international, you'd want someone that would be savvy in that regard. If you had financing issues, you'd probably want someone with those kinds of financial skills. If you had legal issues, you probably want a lawyer.
In my view, I think some of the best board members are retired or existing practitioners who are in the field. In my experience, that has been my own experience on my little - got a little tunnel vision - but I basically served on companies that either had the boards of companies that either were in the restaurant business or franchising companies where I could add some value.
I found that that operating experience was helpful to the board in addition to the other skills and requirements we had. Some companies, governance may be an issue, and you might want to bring in someone who really has had some experience in creating the right kind of governance issues and the right governance within the board.
So a lot of it depends upon what the needs of the business are, which is the same way I had the same lesson I would use in terms of hiring staff. I would basically do it as best job as I could at defining the assignment to be filled.
They have a function to oversee strategy in terms of what you want to be, what you want to have and what those four or five leavers you're going to pull. Are they on target? Then most importantly, alongside that is the insurance that you have the right CEO running the company where their primary function is to replace that CEO if he or she is incompetent and unable to deliver the objectives they promised.
Guy Kawasaki:
I read this, and I hope I got it right, but did you say in the book that there are four board meetings and there are four topics decided in advance and there's that structure that each of those four board meetings had a specific theme? Because most boards that I'm affiliated with, or have been affiliated with, they sought of like go over the operating results for the past, between the last two board meetings and they bring up new issues, but it's never as thematic as what you discussed.
Robert Rosenberg:
Whatever the particular topic is of the moment, each of the four meetings had a theme. It would start with what we'd call as SWOT: strengths, weaknesses, opportunities, and threat analysis of the company and the environment in which it operated so that the board would have some idea of what the industry was doing, what the competitors were doing, where the opportunities lie, where the threats lie. That would start the whole planning cycle off. Every board member would be involved in what was happening within the business, in the industry.
In addition to other activities, we might also at that meeting, have a threat analysis where you would basically think through what disaster could befall the business and how would you respond to it? For example, if there were a pandemic, what steps would we take in advance? Not in real time, but in advance. In our case, oftentimes the greatest threat we faced as a health issue.
What if someone, God forbid, got sick and we started having E. coli now in a fried product? That's less likely, but at other boards I served on the food business, we would identify the three or four major threats and how we would respond. So that would be done in addition to let's say the SWOT analysis that would start the planning cycle or some other activity. Plus, the CFO would give us a quarterly results of the things that you'll be more noticeably comfortable with on a board meeting - what's going on? What's the latest numbers? But we would start way in advance of that in a big picture.
The next meeting, we might have an individual activity where we might be looking at quality control or some other issue or department head would report. We would also look at the numbers, but then we would have a five-year plan and that would provide the board the opportunity, given the SWOT analysis, they've already been armed with three months earlier, to now come in and say, “Does this make sense to me? Is this the right mission? Is this the right set of objectives? Do we have the right kind of management to do that?”
Had I had that in place in the second era of my career, I might not have decided to change from focused donut and coffee company to a franchising company and almost drove the company off a cliff. That's when we to start to put that formalized thinking and planning in place to protect the CEO, me, from making those kinds of errors again. To have forum to say, “Have thought about this? Does this really make sense? Do you really have the resources to do that?”
This is where they're engaged and where they provide value. So that would be a five-year plan. The next meeting, the third meeting in the cycle, would be the annual plan, which would come off the five-year plan. That already now been inculcated with the SWOT analysis in terms of positioning of the brand, the strengths and weaknesses, the five-year plan in terms of what we want to accomplish, whether or not we're falling on the annual plan.
The fourth meeting would be TOA, I was in the military, so it's a table of organization and equipment. You basically would list every single senior manager on the company based upon promotability. So they'd be green - promotable within two years. Yellow -need more of the environment. Red - they have really identified, they have to leave the company. So you would go through every one of the senior managers.
Everybody would identify everybody within the organization so that the board knew how deep the organization was and who would be the successor to the CEO. That was the rhythm of the board. Quite truthfully, I was able to bring that same rhythm to the other boards that I served on that same rhythm and it served us well, at least on some of the major publicly owned boards that I served though.
Guy Kawasaki:
Until I read that in your book, I had never heard of four different themes, for four board meetings ever. My eyes were opened by that discussion.
Robert Rosenberg:
Right.
Guy Kawasaki:
Now let's talk about what makes a good CEO.
Robert Rosenberg:
A number of things. I think a good CEO, in my view, has to have a passion for the job and passion for the business. You've got to really love the business and you really have to have a passion for the job, because it's a taxing one.
A good CEO has to understand what are the major functions that have to be fulfilled as a CEO, and in my view, if the strategy and the organization aren't spot on, there's a little else you can do to make it a successful enterprise. So you've got to get those two things right.
A lot of time and energy goes into shepherding the planning process, some of which we've already covered and manning the organization with the appropriate people to fulfill that plan, that strategy. The third function, and I think is critical from my experience has been, you also have to communicate or achieve. It's part of your responsibility to align all constituents behind the strategy of the company. That is a continuing task.
Most people think that they say it once and everybody gets it. Not true. People are so preoccupied with their daily lives. You very much have to repeat over and over again, work very hard in the field, wherever you go, and every form to ensure people are buying into understand the strategy and the objectives of the company. The last function that a good CEO has to be, is someone willing to jump in, in times of crisis, the world is an unpredictable place, as we know, and there are going to be crises that occur like a pandemic and as CEO has to be able to jump in.
My experience what works best in times of crisis is putting together a small team of people who really can handle the task and make sure the other parts of the organization, and separate them away from the day-to-day operation of the business, have them focus particularly on that crisis and that activity while the rest of the organization executes on a day-to-day basis, the execution of the business. Those are the functions I see in terms of strategy organization, communication and crisis management.
The other part of being a good CEO is the values that you stand for in your characteristics. I do think that the best CEOs I've found have been extremely trustworthy people of high integrity, passion for the business, humble, basically open to input from others, continuing to grow. It's a long journey and the world is changing so quickly. So many new activities, many new things happening that you really have to continue to grow and expose yourself to all kinds of seminars, colleagues, learnings and books. Some of those combination of both also the personal characteristics, as well as functions make, in my opinion, in my experience, a good CEO.
Guy Kawasaki:
Starbucks started in 1971. So from 1971 to when you retired, Dunkin' and Starbucks were both in the world. What's your analysis of Starbucks?
Robert Rosenberg:
I don't see Starbucks starting in '71. I see it starting in '91 when Howard Schultz got there and he bought it. It might've been before that, but it really didn't come onto my screen until then. Initially not so much today, but initially during my era, I basically saw it as a different business. It was a lifestyle brand and it could go anywhere in the world. It wasn't so much selling a product. It was as a lifestyle, a third place, a place there between home and the office, and it was an environment.
It had a kind of... maybe not so much today, but in those days back twenty-five years ago, it had a panache - the macchiatos and latte were different to Dunkin' - small, medium, large coffee to go. It was a different business. I learned things from it. I watched carefully what they did, but I didn't see them so much as direct competitors.
We were a QSR business and they were what I would call a lifestyle brand. It was a different customer. Oftentimes there's a lot of exchange between them. Now increasingly I see them coming up against each other more as they edge out each of them, where their daily brew in order to appeal to the Dunkin' customer on the go, and Dunkin's moving into nitrogen flushing, cold brew, lattes, cappuccinos and other things. I was already beginning to do that when I took over Baskin Robbins.
In answer to your questions, for the last eight years, they were very much on my screen, but I saw them, someone to learn from in terms of what they were doing. Particularly with Frappuccino, a lot of cream-based products. I thought people love things that taste delicious and that's was a way forward for us and we began to introduce.
When I took over Baskin and I found we had great flavor people there, we began to start to migrate the first product we introduced. I took the marketing head from Dunkin' and made him in charge of Baskin-Robbins, was a Cappuccino Blast. That then moved to Colada at Dunkin', and it was a coffee based, cold beverage, very creamy.
It was best and first beverage and Dunkin' started to have an offer in the mid-day afternoon part, which we hadn't had before. A lot of that was inspired by my observation of Starbucks, but I didn't see them as direct competitors. We are increasingly coming up to bumping against each other, but not so much during my era.
Guy Kawasaki:
Out of ignorance, what is a QSR?
Robert Rosenberg:
Quick service restaurant. That's what they call it. That's a McDonald's, Dunkin', Kentucky Fried Chicken, yum brands. It's all QSR.
Guy Kawasaki:
My last question - a couple weeks ago, I interviewed a New York Times reporter and she had the Central and West Africa Bureau when Boko Haram had just kidnapped the 250 girls. So this is a hardcore investigative reporter in Nigeria and Cameroon and asked her what makes a great interview, and she told me something that I have now incorporated into my interview, which is the question: what have I not asked you that I should have asked you?
Robert Rosenberg:
I think that you have been the most incisive interviewer that I have... this is my seventh podcast and I found that you are deeper into the book, more understanding of it, asked me harder questions so I'd be hard pressed to find out what you might have asked me that you could have or that you didn't. You touched on most of the critical elements, I think. There might be value to your listener. So I don't... I'll have to think more about it but I don't have an initial reaction other than the fact that you ask good questions.
Guy Kawasaki:
That's very flattering, unless you told it to the other six people too. Host is only as good as his guest.
Robert Rosenberg:
Sweet.
Guy Kawasaki:
Oh, okay. No, I thought of one more! So changing from Dunkin' Donuts to Dunkin', thumbs up, thumbs down?
Robert Rosenberg:
When we hired the guy from Reebok, he came in and said, “You should do a positioning study.” The guy comes in and says, "We've looked at it; your business has changed. It's a sleeper to switch,” me, “and you become from a bakery business. You become a beverage business. You've got sixty percent of your business in beverages and so I want to change the advertising, get rid of the guy that represents you, who does the advertising, Fred, the baker guy, to make the donuts coffee plus one equals three." And I said, "Oh my God. I said, “What the hell is that, man? I just spent $250,000 on a positioning study?!"
He explained to me how, basically, we were a beverage business, and that started us down a long road of saying, “If that be true, then why would we call ourselves Dunkin' Donuts?” Donuts are now represented at that time, maybe fifteen or twenty percent of the sales. Now it's probably closer to ten or fifteen percent of sales, and we were clearly a lot bigger and better than that.
We had just been purchased by a large English company and they said, "Look, what? We just spent $320 million about a visit. We prefer you not to change the name that we've spent $320 million dollars for.” So when the time came now that this new generation management decided, they called me wisely and they said, "Oh, I think basically don't throw us under the bus." I said, "Far from it." I think it's a wise, a wholly supported, I think it's smart.
Guy Kawasaki:
Well for your next interview, which I think anybody who has his or her act together at all should ask you that question about the name change. I'll give you something that you can cite, which would just shut them up forever. Which is to say that Apple Computer Inc. is no longer Apple Computer, Inc. It's Apple.
Robert Rosenberg:
Yeah.
Guy Kawasaki:
Probably for the same reason that they make phones and tablets and pads and web services so they're not Apple Computer they're Apple. So same thing, right?
Robert Rosenberg:
I always use that when they happen, because people do ask occasionally particularly back when they did, it was big news and change is hard. It's amazing how hard it is for customers.
I remember when I went away from porcelain cups in the '80s and went to paper cups and self-service. I was on a talk show and wanted to talk about franchising and the customers were calling in and swearing at me and the upset about paper cups! Change can be very hard particularly when it's somebody's routine, day in and day out. They take it very personal.
Guy Kawasaki:
I hope you enjoyed this interview of someone who ran a large analog operation for quite a few decades, not just clicks and bits and AB testing, but real stuff, donuts and coffee. Donuts, no older than four hours and coffee, no older than eighteen minutes.
I'm Guy Kawasaki and this is Remarkable People. My thanks to Jeff C and thanks to Patrick for making this podcast a slam Dunkin'. I can hear the groans already.
Remember: wash your hands, wear a mask, don't go into crowded restaurants and bars and listen to Tony Fauci.
Mahalo and aloha.
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This is Remarkable People.