The Challenge Culture

( CHAPTER ONE )

Challenge Starts with a Spark

Questioning the Status Quo

One of my most memorable moments of challenge featured Donald Trump—if indirectly.

In December 2004, I became president and CEO of Papa John’s Pizza, after having spent the previous decade of my career as president and COO of Blockbuster, the video rental chain. My wife, Joanna, and I were living in Dallas at the time, where Blockbuster was headquartered. Joanna was expecting our first child in February, so I made a deal with John Schnatter, the chairman and founder of Papa John’s, that I would work part-time until the baby was born. I’d shuttle between Dallas and Louisville, where Papa John’s was based.

Of course, there really is no such thing as a part-time CEO. So, by the time our son, Ian, was born in February, I was going full steam with my new company. In March, I flew to Orlando to attend my first big convention of Papa John’s franchisees. This was my moment to introduce myself, provide a glimpse of my management style, get to know the Papa John’s people, and set a tone for my tenure as CEO. So, on the morning of the opening day, March 2005, John brought me on stage, and I made my presentation to a packed house. It went well enough. Applause and laughter and attention came at the right places. After the talk, I met a lot of people. Still, I ended the session feeling that something was missing. The status quo felt heavy around me. I felt we needed some kind of spark, an action to rally around, a challenge to the standard way of doing things.

In the afternoon session the audience got a treat. One of my colleagues had said he had learned about a big internal meeting held by our archrival, Domino’s Pizza. One of the Domino’s executives had made a speech to his troops in which he declared that Papa John’s was their enemy number one. That got a big rise—hoots and guffaws—out of our audience. The Papa John’s people are not only competitive by nature but they are also rather fanatical about their own beloved brand.

When the afternoon session concluded, I went back to my room to prepare for another presentation I would be making that evening. I was still thinking about the reaction the story about the Domino’s meeting had gotten from the audience. How could we leverage and build on that? I flipped on the TV as I was getting changed. I was only half listening when I heard the word Domino’s. I glanced at the TV and saw an ad for an upcoming episode of a very popular TV show of the time called The Apprentice, starring none other than our eventual forty-fifth president and sponsored by Domino’s Pizza.

As you may remember, The Apprentice was a kind of Survivor for businesspeople. The contestants, all with business experience but known as apprentices on the show, formed into two competing “corporations.” Each week, Trump, as the host and head judge, presented the teams with a task to carry out, such as managing a Planet Hollywood restaurant or raising money for a charity. At the end of the show, one team was declared the winner, the other the loser. And, in what became the show’s signature moment, one of the individual contestants was identified as the weakest performer. Trump turned to that poor unfortunate soul and uttered, with great relish, the now immortal words, “You’re fired!” The ultimate winner of the season got a one-year contract to lead one of Trump’s companies at a starting salary of $250,000.

As the show gained popularity, it increasingly linked its tasks to specific, real companies that were eager to participate for the publicity, and that’s where Domino’s came in. As I learned from the promo, the task for the contestants on the upcoming March 31 episode, sponsored by Domino’s, would be to come up with a new pizza flavor for the chain. Not only would Domino’s get a ton of exposure from its participation, but the company also planned to use the show as a platform to launch its own, real new pizza specialty, the American Classic Cheeseburger Pizza. Trump himself would appear in the spots, and true to form, he hyped his endorsement well in advance of the airing, saying that the new Domino’s American Classic flavor combined his “two favorite foods—pizza and cheeseburgers.” (Oy.)

The premise was completely absurd to me. Corporate contestants with no expertise developing a specialty pizza? Trump, a known junk food eater, as an expert on taste? Teams competing, rather than collaborating, to create a successful product? It went counter to everything Papa John’s stood for: a company “family,” a passion for pizza, a devotion to quality, and a belief in long-term relationships with customers and partners.

That’s when I had the brainstorm.

What if Papa John’s got in on the act? What if we ran our own ad on that March 31 Apprentice episode, throwing down a challenge to the Domino’s Pizza style and to Trump and his you’re-fired approach? I wasn’t sure how we would do it or if we could get it done in time, but I felt in my bones that it would be the kind of challenge moment that could make a statement to our own franchisees about how we wanted to operate. It might be the spark that could ignite the company.

I called John and caught him in his room.

“John, look,” I said. “I have a crazy idea.”

“OK.” John didn’t know me very well yet, but he had shown he was willing to listen to out-there ideas and would throw his full support behind them if he thought they had merit.

“I just saw on TV that Domino’s is sponsoring an upcoming episode of The Apprentice,” I told him.

“OK.”

“The two competing teams will have to develop a new pizza variety on the show.”

“Hah!”

“And Domino’s will be introducing their own new pizza in the commercials.”

“OK. So what’s the idea?”

“What if we run our own Papa John’s ad right in the middle of the show?” I said. “You’ll be the judge. You’ll make fun of the whole concept. And you’ll fire Domino’s.”

“Ha!” John laughed. “I love it.”

“OK, the show airs March 31,” I said, “so we’ve only got a couple of weeks.”

“Can we pull it off?” John asked. He was already saying “we,” so that was a good sign.

“I don’t know yet,” I said. “I’ll call our advertising people right now and see what they say.”

“Go for it,” John said.

Then I had a flash realization. “Hang on a tick,” I said to John. “You know, this idea will only have the impact on the company that we want if the franchisees are in on the plan from the start. We need them to buy in, to support and approve the idea, before we go ahead.” In a way, the idea was really about challenging us, as a company, even more than it was about challenging Domino’s as a competitor.

“Agreed,” he said.

“So, if the agency people think we can make it happen,” I said to John, “what if I present the idea tonight to the franchisees and see what they think?”

“Great,” John said. “Do it.”

My next call was to Jordan Zimmerman, founder and chairman of Zimmerman Advertising, our ad agency. I ran the Apprentice idea by him.

“What do you think?” I asked.

“It’s brilliant,” Jordan said. (At least that’s how I remember it.)

“But can we get it done to run by March 31?” I asked.

“We can do it,” Jordan assured me.

I hung up and scribbled a few notes for my talk. That evening I got up before the assembled crowd. I was excited and feeling like this could be the spark, the public challenge, the explicit statement of intent that we needed: the challenge to Domino’s and to our own status quo.

“Good evening, everyone!” I began. “Does everybody remember the story we heard this afternoon of the Domino’s meeting?”

Up went a howl and some boos from the audience. They remembered.

“Well, I’m sure we’d all like to respond somehow, wouldn’t we?” I asked. “Am I right?”

A cheer of assent.

“Well, I have a kind of crazy idea to do just that,” I said. “But it’s no good unless you’re all behind it. I want to run the idea by you and see what you think of it. Is that OK? Are you up for that?”

Oh, yeah. They were up for that. I had them now. Leaning forward. Wanting to hear.

“Does everybody know the show The Apprentice?”

“Yes!” Of course they knew it. In its second season, the show was a sensation.

“Does anybody know who’s sponsoring the March 31 episode?”

Somebody yelled out, “Domino’s!?”

“That’s right,” I said. “And do you know what the challenge to the apprentices is going to be?”

Another voice from the back of the room. “To come up with a new pizza style!”

“That’s right,” I said. “So here’s the idea. We create our own TV ad and run it right in the middle of the episode. We put the challenge to Domino’s. Tell them the whole idea of amateurs making pizza is absurd. And tell Domino’s they’re fired!”

Howls of excitement. Laughter. Clapping.

“What do you think?” I asked. “Do you think we should do it?”

Franchisees leaping out of their seats. “Yes! Let’s go for it!”

They were on board.

We gave the go-ahead. Zimmerman zoomed into action. Within two weeks we had shot and cut the ad. We purchased ad time on sixty-four local outlets in our major markets, essentially giving us national coverage.

March 31, the big day came. The ad ran. It featured John sitting in a big leather chair in a boardroom not unlike the one where Trump sat in judgment on his apprentices. John turns to the camera and says, “Why get a pizza made by apprentices when you can order a pizza made by the pros at Papa John’s?” Then, in the dramatic final moment, he looks at the camera. “To our competition, I say,” John pauses: “You’re fired!”

The franchisees loved it. The press ate it up. And it had the desired effect. It was an early statement to the Papa John’s people that we were not going to accept the status quo and that we were willing to put ourselves forward in an assertive way—but with a touch of humor. The following two years we saw good growth and gained advantage over Domino’s.

Three years later, in January of 2009, I left Papa John’s to join Dunkin’ Brands. I found myself in a much larger company, with an iconic brand name, international operations, and tremendous potential. However, just like Papa John’s, I felt that there was a little something missing from Dunkin’ Donuts when I joined: that spark, that sense of willingness to question things and thumb your nose at the status quo. As I would put it now, the company did not have what I would call a robust challenge culture. But I felt that the seeds were there to create one, and I believed that we—corporate staff, franchisees, and the board—could do it together. And I figured we had a couple of advantages on our side, although they might not sound like advantages today. The first was the lousy recession economy. The second was the initial public offering (IPO) planned for Dunkin’ Brands within the next few years.

People often ask me what it was like to join a company right smack in the middle of a recession. Well, it was actually a perfect time because the economy, the business environment, and the company itself were under severe pressure and everyone felt a lot of stress. The Dunkin’ franchisees were struggling with their economics, as was the world at large. It was the very best time to challenge the status quo because the status quo was so clearly unacceptable.

The second factor was that, when I joined Dunkin’, we were privately held, which meant we could take a longer-term view of things and not worry too much about quarterly results. At the same time, we were planning to take the company public within the next few years, so that gave us a kind of deadline and a clear focus. Although Dunkin’ was in decent shape, it was not, as I sensed right away, a red-hot, forward-thinking company, the kind that attracts scads of investors to an IPO. That might have been more acceptable in a strong economy, but a public offering during an economic downturn would be riskier because investors would be looking for companies that were ahead of the pack, with lots of potential for growth and improved profitability.

All these factors meant that bold action was needed and could be taken in a considered way.

Challenge cultures are not created overnight or by executive decree. They have to be modeled, shaped, developed, and refined over time. The incoming leader who wants to build a challenge culture begins by asking questions. This does two things: it sets an example that you want others to follow and it generates vital information that will inform your decisions about changes that might need to be made.

I did not waste any time getting started. I came on board as CEO of Dunkin’ Brands in January 2009 and immediately plunged into conversations with Dunkin’ people. I reached out, in particular, to franchisees, the independent businesspeople who own the Dunkin’ shops around the world. Although these people are the heart and soul of the Dunkin’ business, they are not corporate employees.

In any franchise business, including Dunkin’, the franchisor owns the brand and the franchisees purchase the right to use the brand, typically within a designated territory. The franchisee is responsible for a number of business activities, such as pricing, and each franchisee competes with other franchisees. The franchisor cannot dictate everything the franchisees do but has a number of methods and tools to maintain consistency and vibrancy of the brand—the most important of these is influence.

When you want to effect change in a system like ours, the only really effective way to do so is by creating a challenge culture that enables you to build and leverage influence. You need positive questioning and persuasive pushback to develop new ideas and to gain understanding, buy-in, and support for them. Otherwise, no change will occur.

Now, you may wonder, if the franchise system is so distinct, do the principles of the challenge culture also apply to other types of organizations? The answer is: yes, they do apply. The challenge culture looks essentially the same in any company that comprises multiple groups and disciplines, geographies and units, which must be brought together in strategy and action. So while some of the specific mechanisms of culture development in a franchise operation may be a little different than in other types of organizations, the essentials are the same.

In my conversations with Dunkin’ people in those first few weeks of 2009, I was eager to get to know them, hear what was on their minds, and learn as much as I could about the company.

One of my early calls was with a franchisee, I’ll call him Russ, who owned a number of stores in the South, including Texas. He did not waste any time telling me that he was thinking about selling out and leaving the Dunkin’ system.

This was one of my first opportunities to ask the “why” questions and, by so doing, show him how I intended to manage and also encourage him to participate in improving whatever he thought was lacking at Dunkin’.

“Why would you think about leaving?” I knew that his business was not as profitable as he wanted it to be, but it was hardly on the brink of disaster.

“Many reasons,” he said, uncomfortably. He seemed reluctant to sound negative in his comments. That’s a barrier to challenge: we equate pushback with pessimism and negativity. Nobody likes that. So, sometimes you have to take the first step. Give permission to people to open up.

“Is it the economy?” I ventured. “Or some of the closings?” Recently, a large Dunkin’ franchise operation, with fifty-six stores, had filed for bankruptcy. Others were struggling through the downturn. Maybe Russ was spooked.

“Partly,” he said. “But I think I could probably get through this OK. If…”

“If?” I asked. “If what?”

It was an open question. He could have dodged it, but he didn’t.

“Listen,” he said, “for the past four or five years or so, it’s been all about growth at Dunkin’, right? Lots of new units. New geographies. I opened three new restaurants in Texas.”

“I know. That’s great.”

“Yes, it could be great, but even though corporate wanted to expand geographically, seems to me there was no real strategy for expansion. They just wanted to grow fast. To do that, they brought in a bunch of new owners who had the cash to sign these huge development agreements to open a bunch of stores, but a lot of them didn’t understand the specific market or even have restaurant experience.” In 2009, it was true that Dunkin’ was not doing well in some of the newly expanded regions, particularly Texas.

“What didn’t they understand?” I asked.

Russ chuckled. “Well, for one thing, the goddamn menu. If you don’t have a kolache or an apple fritter on the menu in Texas, forget it.”

“Right.” Russ was getting warmed up now, so I didn’t think he needed any more prompting.

“Plus, cost of goods!” Russ exclaimed. “What about cost of goods? They’re way higher in the South than they are in the Northeast. Even with expansion, we don’t have enough stores to generate the kind of buying power you have in New England. So our supply chain is shakier, costs are higher, and profits are lower than they should be.” This was true. At the time, we operated with a number of regional supply chains, and pricing for supplies and materials varied from region to region. Prices were generally higher for shops in smaller or newer markets. Two years later, we challenged the status quo, nationalized the supply chain, and brought pricing into parity from region to region.

But I’m getting ahead of the story. “OK, Russ, have you discussed these issues?”

Russ paused and cleared his throat. “With management you mean?”

“Yes.”

“No. Not exactly,” Russ admitted. “I didn’t think that would get good results.”

“Why not?”

Russ hesitated again. We were getting into complicated territory.

“Things can get contentious, you know? If corporate doesn’t think you’re on track, they can find all kinds of reasons to penalize or fine you. I mean, the proof is in the fact that there are so many lawsuits pending against Dunkin’ right now.”