Ron Shaich on Building Panera, Long-Term Greed, and Betting the Company

Ron Shaich

My health, actually.

Ron Shaich

I'm 71, and I look at my kids, I look at my relationships, and there's so much to live for and so much to see. I really want to do everything I can to give myself every opportunity to live and see how the world unfolds.

Ron Shaich

I got more serious about it because, in my earlier years, my thirties, forties and fifties, I was probably more focused on work and on relationships and family. As I gained perspective on it, I realised that if I'm ever going to do it, now's the time. So I'm trying to literally work out every day in some serious way, eat well, take the right medication and supplements, anything I can to help myself. But to me that's about an attitude towards life.

That attitude essentially starts with a view that it's our responsibility to figure out what it is we're going to respect in the future. I tell it by way of a story. I watched my mom and dad pass away, now thirty-odd years ago. One of them died very much at peace, the other not so much at peace. They were second-guessing some of the decisions they'd made in their lives. And I began to realise there's a judgment day. I can't tell you it's up there, Shane, that's a personal spiritual decision. But I can tell you that if you have a chronic illness and you have the opportunity, you have a judgment day, a self-judgment, as you go through the end of life.

Watching them die thirty years ago, I concluded that I wanted that opportunity to have that judgment day, not in the ninth inning with two outs, but in the seventh inning, the fifth inning, the third inning, when I could really do something about it. And ever since, on an annual basis, I sit down and ask: what is it in five years and ten years that I'm going to respect, in the context of my relationships with my work, with my family and friends, with my body, and with my own spirituality? Then I codify those initiatives into projects, and I literally sit down with myself once a quarter and ask, how am I doing? Am I actually full of baloney or not? Am I getting done what I signed up to do?

Ron Shaich

We look at time, but it's not so much about time. Time is a means, it's not the end. I'm really looking at what I got done. Did I get done the things I said I needed to do to create the condition I'm trying to attain in three, five and ten years?

I'll give you a specific example, and we'll stay in the health domain. About fifteen years ago I went to my doctor and realised I was on the edge of becoming pre-diabetic. I was also doing work at Panera, and I had a medical adviser helping me deal with how our food manifested itself, because we wanted to really serve people. He put me on a continuous glucose monitor. That whole experience made me realise I needed to manage my own relationship with carbohydrates and my own diet. I was in my mid-fifties, and I said, if I'm ever going to do that, I've got to get to work on it. I put it into projects. One was to move to a more vegan diet. Another was to hire a trainer. I hired a former Ukrainian Olympic track-and-field coach who came to my house at 5:30 in the morning, and did so for twelve years.

Nobody knows where we're going to end up, but I'm trying to create a state, and then the question is, what are the projects, the things I can do, to get there? So now, fifteen years later, I still wear that continuous glucose monitor. My blood sugar is low normal. It's an ongoing project. It's the same now with exercise. I have a different trainer, I've evolved, and I'm really trying hard to push up my VO2 max as opposed to simply my strength.

It's controversial when I talk to people about exercising every day. People say, you're crazy, you need rest. And I'm like, it's easier to exercise every day than it is five days a week, for me anyway. I set an appointment for 8am every day, and I either do it with a trainer or myself, but I'm there at 8am and I get it done before the day begins. If it's really important, then I have to make sure I make time.

Ron Shaich

Yes, but I have to put that in context. I'm 71, I couldn't feel more blessed. I've had an amazing life, great health, and I'm still in the prime of my life. I have an extraordinary family. I've had the chance to do really interesting work and impact hundreds of thousands, if not millions, of people. I've had the opportunity to live a blessed life. There are certainly lessons I've learned and things I might do differently, but taken as a whole, I couldn't be more at peace.

Ron Shaich

I've always come from a place of wanting to make a difference in people's lives. My way of approaching the world was initially in a political context, but I discovered through some experiences at university that business is probably one of the most creative things you can ever do. For a kid who couldn't dance and couldn't sing, I was blown away by the power of business, both the creativity of it and its power as a lever to change. I think I've been involved in more positive change for the world as a business person than I ever could have been in politics or government or as a lawyer.

Take Panera. Panera was one of the two first brands to introduce antibiotic-free chicken in America. As the challenger brand, we actually opened up the market, lowered the prices, and in came everybody from McDonald's to Chick-fil-A. We were among the first to remove trans fats from our menu. In the early 2010s, when the US government wanted to post caloric information, the industry was fighting it intensely. I said publicly, what's the problem with this industry? If people are afraid of posting caloric information, maybe the answer isn't hiding it, maybe the answer is to change what's in your food. We were in the lead and had the opportunity to be one of the first large organisations to remove all artificial colours, flavours, sweeteners and preservatives, to push for what's now called clean food, removing the ultra-processing.

I also think we made a difference in the food culture. When I grew up, the only choices were fast food and fine dining. In the early nineties we developed the ideology that became what's called fast casual. It wasn't very complicated. Around 1992, 1993 we could see that one out of three or four consumers held their noses when they went into fast food.

Ron Shaich

We spent a year or two on the road listening to people. What you heard was that so many of these consumers really sought real food, environments that engaged them, served by people who cared. They actually wanted an experience that elevated their sense of self, not depleted it, which is what they experienced in fast food. We began to say, if we could create that kind of environment, we could create something that actually elevated people, and that this was a powerful opportunity.

In the early nineties nobody thought it would ever work, but that view of the world became the ideology that fuelled what's called fast casual today, which is a $350 billion business. Panera became the poster child for it. Howard Schultz and Starbucks played a similar kind of paradigm, Steve Ells and Chipotle, and together you saw the evolution of food culture. Food was about so much more than what you put in your stomach and how cheap it was. The food industry is the second oldest profession, and it's about hospitality at its core. We could create environments that people actually wanted to sit in, where you'd want to have an interview, gather the soccer moms, have a Bible study group, write the great American novel. To me, that was a beautiful contribution to people's lives.

Ron Shaich

The most powerful skill I have as a business person, and what I'd challenge entrepreneurs to acquire, is the skill of empathy. Empathy is the ability to climb into somebody else's brain, to feel what they're feeling and see what they're feeling, and not sell them but understand and appreciate them.

When you talk about my career, you often talk about the financial results. Cava has been the most successful food service IPO of the last five years, arguably, a company worth $7 billion, worth as much as $15 billion, up three or fourfold from its IPO a year and a half ago. Panera was the best-performing restaurant stock over two decades. Its last two decades produced 25% IRR. Somebody told me we actually beat Warren Buffett and Berkshire Hathaway. People talk about the financial performance, but that's not the part that gets me excited. That's a byproduct of what was really exciting, which is learning and transforming. Over the course of our history, there were maybe four or five key learnings that broke roughly every five years and led to massive transformation. Getting that, figuring it out, seeing it and tasting it, that's what I loved.

I started my career with a single cookie store in downtown Boston. There were 50,000 people a day walking by that store, but nobody bought cookies before noon. So we made a decision to put in French baked goods. We became a licensee of a company called Au Bon Pain. I didn't know it at the time, but Au Bon Pain was really a French bread manufacturer. They'd opened thirteen stores, closed ten of them, had about three million in debt, and were functionally bankrupt. As an operator, I know which of my vendors are any good and which aren't. They were so out of control. Sometimes they billed me, sometimes they didn't. Sometimes they delivered, sometimes they didn't. I probably still owe them money to this day.

But I saw the opportunity to apply what I'd learned in the cookie business to the French bakery business, and it led to a merger. We took 60% of the company and they kept 40%. That company, Au Bon Pain, which was my cookie store and three French bakeries, is the company we ended up selling for $7.8 billion in 2017.

The first thing we really figured out was the possibility of what Au Bon Pain represented. I'd be working the counter and customers would walk in and say, I want that baguette, slice it. I'd start to slice it the normal way, and they'd say, no, slice it from top to bottom. Then they'd pull out a little bag from a supermarket and put some baloney and roast beef, or smoked turkey, on it. You didn't have to be a marketing whiz to realise that the job they wanted was a sandwich. It's not the bread itself they want, it's how that bread forms a platform for something else. We began to say the job the customer wanted to hire us for was to make them the sandwich, make them the salad, use the croissant bread as a platform. We rebuilt the concept around that idea, and very quickly this broken, bankrupt company started taking off. It became a category in malls across North America. Everybody from Pepsi to Sara Lee attempted to take us on or buy us out. By 1991 we went public on this model of a French bakery cafe, as opposed to just a French bakery. That empathetic observation of the power of the product as a platform led to a powerfully successful concept.

Ron Shaich

The same thing happened again by 1993. Au Bon Pain was beginning to run out of organic growth. If you're in a public company, most of its valuation is generated by the possibility of growth, and you have to deliver it. It was clear that Au Bon Pain was limited. It was great in Boston, New York, DC and Chicago, but it didn't work in the malls in LA or Missouri. So we backward-integrated and built a big international business, and a big manufacturing business, including what was then the largest frozen dough plant ever built, in the Midwest. Then I bought a little nineteen-store chain in St. Louis called the St. Louis Bread Company. I saw it as a gateway to the suburban marketplace: Au Bon Pain would be urban, the St. Louis Bread Company could be suburban.

Around 1993 to 1995 I began travelling the country with a guy named Scott Davis and another named Dwight, colleagues I learned from. We kept seeing consumers who wanted something more, a distinct consumer niche that wanted something better. We travelled the West Coast and the East Coast, went up to Vancouver, to see who was best at meeting customer needs and why people were smiling when they came out. I remember sitting in a bar with Scott and Dwight, and Dwight, my researcher, said, you really want to understand today's consumer? Look at their beer bottle. That label is a mirror for who people perceive themselves to be. Our opportunity is for our food to do the same thing, to give people a sense of who they are.

The powerful theme here, Shane, is trying to search for the signal versus the noise. What really matters, because there's all this stuff coming at you, but what are the deeper trends? What became clear as I watched people and their angst around fast food, their need for speed but their need for quality and for an experience that elevated them, was a deeper theme. Post-World War II, all food was local, but by 1990 almost every major consumer category had been commodified into an oligopoly. Beer had all once been local, then it was Anheuser-Busch and Miller. Coffee had once been local roasters, then it was Folgers and Maxwell House. Soft drinks had been local, then it was Coke and Pepsi. Every action draws a reaction. People were waking up and saying, I don't want to be part of a mass market, I want to feel special in a world in which I don't.

You started to see craft breweries. A good friend of mine in Boston, Jim Koch, did Samuel Adams, an answer to what had happened to the marketplace. You saw the same with speciality coffee. Back then, if you came to my house for dinner I'd serve you Folgers. Today, if I don't use an expensive espresso machine, I'm somehow insulting you. That was the deeper trend, people wanting to feel special.

We saw the same opportunity in food. All food had been commoditised into fast food, and the powerful opportunity was for speciality food, food done the way it had been done, with ingredients people respected. Bakery had all once been local, then commodified into three loaves for 99 cents. By the early nineties some consumers were saying, I want it done the way my grandparents did it, no chemicals, no preservatives, stone-deck ovens. There's no more powerful platform to compete on than a speciality bakery. Putting those together became our manifestation of the fast casual concept.

That led to the second transformation. I applied those principles of speciality food to the St. Louis Bread Company. We completely rebuilt it. We took a unit doing about a million dollars a year, added a breakfast business with sourdough bagels, and it popped from a million to $1.25 million. Then we created a whole different environment, a place you wanted to sit. A wonderful designer, Terry Heckler, who did our logo and the original Starbucks logo, was instrumental. I used to call it visual candy: wherever you sat, you saw something. We softened the environment, made it comfortable, a place you wanted to be. Very quickly our volumes popped to $1.75 million. We began to understand we were actually in a gathering-place business, offering a place people could go to connect: soccer moms, Bible groups, pharma reps, folks doing interviews, people doing their taxes. Panera became the poster child for that.

Ron Shaich

That led to a third learning and transformation. By 1998 I was feeling real frustration. I was running a big public company with four divisions: Au Bon Pain, Au Bon Pain Manufacturing, Au Bon Pain International, and this fourth division, the St. Louis Bread Company, which we'd renamed Panera Bread. Everyone was fighting. The Au Bon Pain guys were angry that I was trying to take their capital and shift it to this growth thing, Panera. I was on a beach in the Caribbean with a friend, lamenting all this, and I said, the real shame is that this thing Panera, even though it's the third biggest of our businesses, is not the name on the door. The name on the door was Au Bon Pain, that was the public company. But Panera had the potential to be a nationally dominant company, and we were going to screw it up, because we weren't going to give it the capital or the human resources.

My friend looked at me and said, Ron, what would you do if the name of the company was Panera, if Panera owned everything else? How would that change the way you thought? I said, wow, I'd never thought of it that way. If I had any guts, I would monetise every other asset, take the financial capital and the human capital, the best people, and go down there and make this happen, because the greatest gem in this company was that division, and the greatest risk to its potential was not giving it what it needed.

I'm the kind of guy who, if I say I'm going to do it, I go do it, because I want to live with myself. So I came back two months later and went to my board with a proposal to sell every other business and bet the whole thing on the Panera Bread division. I didn't control the company at that point, so it was a very tough situation, but ultimately they gave me the room to do it. It led to the worst year and a half of my life. These weren't just businesses. Au Bon Pain was my first child. These were people I'd sweated and bled with, and I loved them. The good news is that most of them ultimately came back to work for us when their non-competes were over. By 1999 I ended up with Panera Bread, a whole bunch of cash, and a business with extraordinary potential. We took it from a couple of hundred stores up to nearly 2,000 restaurants by the end of that decade.

Ron Shaich

By 2008, 2009 I personally wanted transformation. I wanted to understand if I could take the lessons I'd learned about long-term thinking and apply them in broader civic society. I'd been involved with the Obama campaign, and there'd been discussion of my joining the administration, but I couldn't give him my commitment because of Panera. I also wanted to test an idea I'd been working on, something called Panera Cares, cafes of shared responsibility where there'd be no set prices, a test of humanity. So in 2008, 2009 I stepped down as CEO. I spent about a year and a half creating Panera Cares and doing political things. I was one of the co-founders of a group called No Labels, meant to reduce the hyper-partisanship in DC and focus us on long-term thinking.

I was still executive chairman and the largest shareholder. I came back from a trip and decided to write a manifesto for how I would compete with Panera if I weren't part of it, how I would best it. I called for complete digital access, which didn't exist in the restaurant industry. I called for loyalty, which had been developed in the UK with Tesco and came through Kroger in the United States, where your best customers were treated differently. I called for clean food, and I called for omni-channel. I handed this vision for a radical transformation to Bill Moreton, who'd become CEO. Bill was my dear friend and twenty-year colleague, and he said, I don't have anybody to work on this, would you go work on it? I said, sure, I'll have some fun with it. And $25 million and a year later, the executive chairman was working eighty hours a week on this vision. I was loving it. I had none of the ceremonial duties of being a CEO. I was just dealing with the product.

Then Bill came to me and said he personally had a problem, something had happened in his family and he couldn't travel. He suggested we swap positions. We debated it, because it wasn't what I wanted, but about a year later we executed it. He became executive vice chairman and I became CEO again. It led to the worst three years I can imagine. I had activist investors attack me. I spent $150 million on technology. I used to refer to technology as the social security of an era: it was only a matter of time until it was 100% of our revenue. We transformed everything, not just technology but how we dealt with the guest, our concept essence, and much of the senior management team. It became one of the largest transformations in the industry. I could see the opportunity for a better Panera that wasn't competing the way it had for twenty years, but was competing against the possibility of what the consumer wanted.

By 2017 it was working. Our AUV was up 35%, our comp-store sales were pushing double digits. A European money manager, JAB, came along and fell in love with Panera. I was never selling it, it wasn't my intention. But when somebody falls in love and is willing to pay for it, who am I to deny them? At that time it was the largest or second-largest US restaurant deal ever done, $7.8 billion, at among the highest multiples. It was an opportunity to harvest everything we'd worked on for a lot of people who'd believed in us.

Ron Shaich

After I left Panera, I was doing a lot of speaking on the pervasive short-termism in the US capital markets, and how that was making us less competitive. If all we want is to pop the stock, it's short-term cost-cutting that drives it, not innovation. One of my associates said, why don't you take your own money and put your money where your mouth is? So I took roughly $200 million of my own money, no LPs, no external folks, just my own money and a bit from some partners, and I created an investment vehicle. It's not a firm, it's called Act III. You can figure out where that comes from: Au Bon Pain, Panera, and now Act III Holdings.

Within eight weeks of leaving Panera, we got involved in our first real deal, which was Cava. I'd been an investor in Cava when it was two restaurants. After I left Panera, they asked me to join their board, and so did another company called Zoe's, which was public. It was clear to me I could see and taste the opportunity. Mediterranean had power. It was the number one diet in America, bold flavours, different but accessible. I began to ask who had the potential to dominate, Zoe's or Cava? Zoe's was five times the size of Cava, but Cava was doing higher volumes and was a better concept. I thought I should buy Zoe's, a three or four hundred million dollar public company, and merge it into Cava.

The one problem was I had to tell that to Cava, who wanted me on their board. I broke the news to Brett Schulman, Cava's wonderful CEO, and he said, before you join the board, maybe you want to tell them about this. So I pitched their board. In their wisdom, they understood the power of building a dominant brand in the Mediterranean category. It helped that I agreed to finance a large part of the acquisition and help lead it. So instead of me buying Zoe's, Cava bought Zoe's, and we'd help them make the transformation. The bet was that by buying a company five times larger, we could apply our discipline and culinary skills to end up with the dominant player in the category.

The thesis behind Act III is this: we bet on categories that have tailwinds, and then we endeavour to build the dominant player in that category. My industry is an industry of winner-take-all. Think McDonald's and Burger King, Panera and Corner Bakery, Chipotle and Qdoba. The value creation tends to happen for those building something of large scale, and if you have that dominant position and you're a better competitive alternative, you win. Cava went almost overnight, in about six months, from 50 restaurants to 300. It led to a very tough 2019, because the company wasn't ready for it.

One thing about Act III Holdings is that of my seven or eight partners, not one is a financial guy, except one, who was actually the activist who attacked me. I couldn't tell anybody at the time that I thought he was smart and liked him, but I did, and he joined us as our CFO. I have another partner who's been with me twenty-odd years who does our deepest research and strategic thinking, the guy who really helped me develop fast casual. I have another who's opened 5,000 retail locations, another who came up through Darden and was president of Dairy Queen and my COO, a serial entrepreneur who's great at food and design, and technology people from Panera. Our model is to bet on a category and then help them build the dominant player.

I remember Brett, our CEO, walking back from breakfast in downtown DC, looking at me wistfully and saying, Ron, I just wish we still had just our fifty stores, not these three hundred we bought. I said, Brett, we don't have that choice anymore. What we need to build is load-bearing people and organisation around you. If we can pull this off, we're going to build an amazing company in a powerful category. Ultimately Cava has been probably the single best IPO in the last half-decade in the restaurant industry.

Ron Shaich

About 400. But more importantly, it's perceived as a brand filling out a category, Mediterranean, and dominating it. Given its market cap, which has gyrated between $7 billion and $15 billion, the market perceives it as something very real, with the potential to be the next Chipotle. That's what they're paying for, that potential.

Ron Shaich

I did a book called Know What Matters, with a chapter on the IPO. I've counselled dozens of people on going public, and I typically start by telling them that 90% of the entrepreneurs who go public live to regret it, because it's a very different enterprise. For me it was phenomenal, I've done it multiple times and it's created great blessings, but there are difficulties that go with it.

I remember the day we went public. My partner at the time, Lou Kane, was on cloud nine, and I had him stop the limousine. I got out and walked through Central Park, and I started thinking about the sense of responsibility I felt to all these folks investing tens, hundreds of millions of dollars in the company. When you're running an enterprise, you have a responsibility to the people who believe in you. I want to deliver for the people buying the stock, not the ones shorting it. Some investors were building something for the long term, others were trading the stock for the short term, and you had all these pressures, playing out in a very public way. You had very limited ability to protect what was going on in your company. You needed to be ready for prime time.

When we decided to take Cava public, in what people consider a very successful IPO, three and a half times the IPO price, what did we do? We helped Brett and the team get ready for a year and a half before we went public. We did simulated quarterly earnings calls, press releases, took questions, worked with great diligence to get their narrative down, so that when they went out they knew what they were selling: the possibility of participating in the growth of the dominant player in Mediterranean.

We didn't let the investment bankers control the distribution, we did. We brought in cornerstone investors like T. Rowe and Capital Group, with whom I had long-standing relationships and for whom I'd helped make billions. We limited the distribution. None of us were selling stock on the IPO. This wasn't an opportunity for existing investors, or the largest ones like me, to get money out. It was an opportunity to fuel the company. We only allowed the investment banker 9% of the shares in distribution. We protected 91% so it ended up in the right hands. To me, an IPO is a little like a wedding celebration. It's the beginning of the marriage, not the end. Having been married, I'd say you want to really contemplate that on your wedding day, because that celebration will fall by the wayside.

Ron Shaich

One of the lessons I've learned is to believe in myself. When I was coming of age professionally, if you're smart, you always ask, what am I not getting, what should I do? One of the lessons I learned looking back is to trust that I actually know what I'm doing, to have the faith to get through the long march, the faith to go through the pain of transformation. That has led to a decision that we generally like to be in a control situation. We're willing to bet our own money, bet on ourselves, but we don't want to be at the effect of somebody else who has a different idea. When you have investment partners, it's a little like having a baby with someone: you take their money, they have legitimate rights, and if you're the kind of person I am, you want to be responsive. I like being in a control position because it lets us take a long-term approach, to do the things that don't drive profitability in the short term but build a far better company.

Ron Shaich

There's one principle we haven't talked about. Everything I believe in about business starts with three words: better competitive alternative. The world doesn't need another business, and it certainly doesn't need another restaurant. The whole objective of everything we do is to build something that, for some target customer, is the best alternative they can find. It sounds like fancy MBA talk, but it isn't. It means your target consumer walks past all your competitors and chooses to come to you because you do it better than anybody else. If you can do that, you can win.

I was in Vegas speaking a couple of years ago, and I walked through the casino at 11:30 and saw folks dumping chips into slot machines. I thought, Ron, the only way I'd ever be in a casino at 11pm is if I owned the casino and had the house vig. It's the same thing in business. If I don't have a better competitive alternative, if I don't have the house vig, this is an ugly business and I don't want to be in it. What matters more than anything else is genuinely having a concept, a vehicle, a business that, in whatever your mini-market is, makes you the best alternative.

Ron Shaich

Totally. Every business we're in today starts with a concept essence document. It's essentially a script for regional theatre. If you're in a multi-unit business, I'm running thousands of regional theatre shows performing eighteen hours a day. What is that script? What's the aesthetic of the environment? What's the food and the food attitude? What's the humanity, what are the people like, how do you experience it from a consumer's perspective when you walk in? We go deep and use words that mean something in writing that script, and it becomes an organising tool. At Panera we had 125,000 people. How do you get them all aligned with what we're trying to create if you can't put it into words?

Ron Shaich

Go fast and fail makes sense in technology, where there's no fixed cost and you can repair completely. I'm in a business I call fashion with fixed assets. You build a restaurant and you'll spend a million, a million and a half, two million dollars, maybe more. You don't want to mess it up, because fixing it is really difficult. So you want to get very clear on what you're doing, what you do first, second and third, and get it in the right order. I'm much more concerned about getting it right in a serious way than about getting out there and grabbing market share first, because the cost of failure is extraordinary, and often once you bounce you can't come back.

Ron Shaich

Rarely. It's really hard, because organisations by their nature don't like to change.

Ron Shaich

I call it the life cycle of a business. It starts with discovery and ends with delivery. When a business starts out, it's so hard to get off the ground and win. You have no capital, no scale, no competitive advantage, and the highest cost you're ever going to have. But some people discover a better way to approach the customer, a better experience, and they get off the ground and start to scale.

Along comes outside capital, which says we can help you grow even further. Pretty soon you have a board meeting of people saying this business could do even better if we bring in some delivery people: financial planning, purchasing, a range of disciplines. And the truth is, bringing in the delivery people makes the place better. The margins get better, the business gets more disciplined. But here's what begins to happen, not over six months but over years and half a decade. The delivery people and the discovery people find they're speaking different languages. The language of discovery is the language of poetry: imagine if, if only we could do this. The language of delivery is prove it to me, show me the numbers, show me the spreadsheet, I don't believe you.

Because delivery does add value, it starts to push out discovery. Discovery doesn't have oxygen if delivery is pushing down on it. Over time, in so many food companies, discovery gets pushed out. Delivery becomes the dominant force. These companies wake up after fifteen or twenty years as billion-dollar companies, really powerful at delivering what was wanted by the consumer five, ten, twenty years ago, and really terrible at discovering what's going to be needed tomorrow. So one of the things I've always focused on is protecting discovery, and viewing my role as CEO as the discoverer and chief innovator, because by the nature of centrifugal force and scale, you'll end up decapitating discovery.

Ron Shaich

I know the pull, I've been there. The marketplace pays for something getting bigger, larger, better. So how do you do that? You add things, you improve things. We're susceptible to that by human nature. And the unfortunate truth is that oftentimes it doesn't make it better, it just makes it worse, more complicated. My view is we don't want to be everything for everybody. We want to be something special for somebody. That's the essence of being a better competitive alternative: actually standing for something and being something better.

Ron Shaich

Marketing is the wrong phrase, in my book. The right phrase is amplification. If I've got something that actually touches people, then I've got to let them know it's available. But the idea that I'll come up with something cute, a better tactic or technique, may work in the very short term, but it doesn't sustain a business. When you're building fixed assets, you want something that lasts for years and decades, something that builds a competitive moat. Marketing is never the end. The end is to build a better business that's sustaining and powerful in its own right, and then to make sure its target customers know about it and it's on their short list.

Ron Shaich

It starts with life. In much of our society we've confused byproducts with ends and means. I have a friend who's a type 1 diabetic. His goal is to stay alive as long as you and me, but that's not something he can control, it's a byproduct. A byproduct of what? Of a simple end: keeping his blood sugar between 80 and 180. His means are diet, exercise and insulin control.

It's the same in business. Do I want value creation? You'd better bet on it. But the way I get value creation is by creating a better competitive alternative, a place people are willing to walk past your competitors to come to. What's the means? Everything I do every day: how I spend my time, focusing on the aesthetics, the operations, the structures, the processes, the way we engage with our team members and our customers. That's the doing of the doing that drives the end, a better alternative, which creates the wherewithal to have the byproduct. Those CEOs and leaders who focus on the byproduct, the outcome, never get there, because they miss the mark on what creates it. It's like saying I want to be happy. You can't create happiness, you can create the conditions in your life that lead to a feeling of happiness. If I were talking to my kids, I'd tell them, do the things that lead to your own self-respect, and your byproduct will be happiness.

Ron Shaich

When you focus on driving the bottom line, you misunderstand that the most important thing is to drive the customer experience and the reason they want to come in. I was involved with a company that will remain nameless. They had a little E. coli scare, and their immediate reaction was to cut labour. I said, you're nuts. If you do that, you'll destroy what you've been working on for years, which is telling your people that what matters most is running great stores. When you run any enterprise, what you do is much more important than what you say. When you focus on very short-term metrics, even though it seems desirable, it actually costs you far more in the long term.

Ron Shaich

It just makes sense to me, it seems logical. If I want to figure out where I'm trying to be in five and ten years and what it's going to take to get there, that's what we mean by future-back thinking. What seems stupid to me is to do what's short-term expedient and long-term stupid. I have an expression: I'm long-term greedy, not short-term stupid. I really want to build something of value, and the way you do that, whether it's a business or a relationship or your own life, is to focus on those things that have meaning and self-respect.

Ron Shaich

Look at the difference between the way Cava went public and the way Sweetgreen went public. Two companies that emerged out of the DC market about the same time. One went out with a ton of press and built-up expectations, that was Sweetgreen. Cava was slower, more disciplined. Sweetgreen went in one direction with its real estate; Cava stayed much more disciplined. In the Sweetgreen IPO a number of investors sold fairly quickly, a lot of instant gratification. In Cava we took a slower, more disciplined approach, and were much more disciplined in the consistency of the brand and the brand integrity. Today Cava has a market cap maybe four or five times what Sweetgreen is worth. That value creation is a byproduct of the very real decisions we made about staying disciplined, building something that delivered for our team members first, our guests second, and then our investors, always taking the long-term approach.

Ron Shaich

When you're doing anything that takes powerful commitment, that commitment owns you, you don't own it. I've never owned a business. The business is on me. It's with me in the shower, it's with me on vacation. Some of my best work is done when I'm on vacation, not consciously thinking about it, but able to extract and understand. Doing anything in the world, whether working out every morning or being in a relationship, requires commitment, and a commitment to the long term, and it requires responsibility. I've been committed to these businesses, to the people who believed in me, to my team members and investors, and I want to give them something worthy, to build something of quality.

There's a very real personal price. I've been married twice. It's not something I'm proud of. I feel like it's a failure. Is it a failure because I was committed to my business? I don't know, but sometimes I think about that. The biggest fallacy of life is that you can have everything, that there are only choices with no cost. You want to make your choices with a clear head and open eyes as to what you value and respect, and then build your life around that. Just as I build a business around what essence we expect, I try to build my life around what I'm going to respect: my relationship with my body, my family, my spouse, my friends, my work, and ultimately my own spirituality and personal integrity. There is no balance. You can't have it all. You make choices, and there are trade-offs. What you don't want to do is wake up one day and say, I wish I had, and miss it.

Ron Shaich

I'm pretty focused, and I work hard. I always have. I love it. I love when we figure things out. I like to think I protected the people around me, and I'm willing to pay the price, willing to do the hard work. Most people aren't willing to pay that price, and they don't understand you're not going to get the byproduct if you don't build something that's a better alternative, and that's hard work.

I was at a Tony Robbins event yesterday, and I said to the folks: if you don't enjoy the people in your business and your life, if you don't enjoy the doing of the doing, you're never going to get there. If you're doing this to make money, you're never going to make money. If you're doing it for the glory, you're never going to get it. If you don't love the doing of it, you're going to fail. For me it was never about the end, it was about the doing. To this day, I'm not doing Act III because it's going to change my life or my kids' lives. I'm doing it because I love the process of having challenges and figuring it out. Don't do it for the outcomes. Do it because you actually love it.

Ron Shaich

There's a concept about entrepreneurship I think is often misunderstood. Entrepreneurs see a better opportunity, and they're not risk-takers, they're actually risk avoiders. They see an opportunity to serve somebody, to make a difference, to do a job better for somebody, and in the context of that they're risk-avoidant. They don't want to take risks that get in the way of getting there. When I can see a better way to do something, a way to make a difference in somebody's life, a guest or a team member, I want to do that with all the energy I can, and I want to protect it. An entrepreneur is somebody who sees opportunity and then seizes it.

You also have to be both strategic and detailed. I can operate at the level of what are we trying to accomplish in five years, but I can also get down into a discussion of whether that floor material is bouncing sound around in the wrong way for the experience we imagine. It's the totality of both sides that's essential. Some people just want to be strategic, others can't get out of the detail. You get a strategy from the detail, and frankly no strategy is worth anything if it can't be executed.

Ron Shaich

I think there's some truth to that. The ability to move between levels, from 30,000 feet to the one-inch level and anything in between, is the sign of somebody really involved in the details, getting firsthand information. That's what creates the pattern recognition that lets you spot these transformations, from Au Bon Pain to Panera to Panera Act 2. If you're not in the weeds, you'll never be able to spot that. You can't have an effective strategy if it's not informed by an understanding of what will touch your customer and how it'll get executed. On the other hand, the most powerful strategy in the world means nothing if it can't be executed.

Ron Shaich

It's thoughtful as opposed to simply obsessive. Being obsessive isn't enough unless you're right, and being right isn't enough unless you can get it done. I'm arguing not for micromanaging, but for being able to use the detail to extract and learn. I go to visit restaurants we own all the time. I'm not going to check out the people who work there, though they all think I am. I'm actually going to check out myself and our senior management, how we're doing at projecting a vision of how we compete and then delivering that down through the organisation.

Ron Shaich

What we're trying to do is build the next generation of great companies, based on an understanding that building better competitive alternatives is everything, in categories that have extraordinary power. We have a few principles. Number one, we believe in founder-friendly capital. When we go in, we hope it's the last investment capital taken before an IPO. We come in as common stock, not preferred, the same place as the management team, and we typically take a right of first refusal on all follow-on rounds. We've never turned one down, so our founding teams feel confident they have unlimited capital behind them.

Second, we practise what we call sharpen management, not venture capital. When we're in the boardroom, we're not looking at the next liquidity event, we're helping solve real problems. Most often we're saying, you need to put more overhead here, not there, what comes first, second and third. Each of my partners is a serious C-suite operations person. Of our twenty-five people, only one is really financially driven.

Ron Shaich

Noah Elbogen. I had 300 people chanting "F you, Noah." Later I ended up respecting the guy, but I couldn't tell anybody I liked him. I made an investment in a hedge fund he had, and ultimately asked him to join me. He says he's now a reformed activist. We don't practise activism, we help people. And third, we only invest where we have competitive advantage, where we know something and know how to build dominant players in very specific categories. Act III is now the largest independent investor in Cava, and I serve as chairman there.

We believe financing should not be seen as a life-cycle event. So many companies raise money annually or more often, as if it should be done every birthday. Running a company is hard enough work without having to continually be out selling. So when we invest, we agree a right of first refusal on all follow-on rounds at a pre-agreed multiple, so we're all in alignment. We've yet to turn down a follow-on round up to an IPO, and our companies have never worried about capital. They pick up the phone and we get there. Similarly, the skills my partners bring, strategy, real estate, technology, are available to the companies we invest in, on a cost-plus basis, so our management teams can focus on building a better company rather than scaling up all these functions.

Ron Shaich

First, the financial statements are a byproduct, not the end. I'm looking at them as a trailing indicator, not a leading one. What we always start with at Act III is: does that category have tailwinds, does it have power? Look at Mediterranean, the number one diet in America. Every time you go to the doctor they give you a commercial for our diet. Bold, ambitious flavours, and yet it feels safe, food you can eat, lamb and chicken. It's cravable wellness. That's a category with power. Where we have another business, plant-forward, we call it positive eating. 3% of Americans are vegetarian, but 40% are eating more plant-forward. Somebody's going to win in that category, and we intend to be those people.

Think about bakery cafes. I was part of building bakery cafes in America, between Au Bon Pain and Panera, the dominant brands. The future is in upscale bakery cafes with real chefs, food worth going out of your way for, because it's part of the experience. You don't just come for food, you come for the totality of that experience, the people who serve you, the environments, how you feel when you're there. We're in immersive entertainment, a powerful category. We're in healthy eating in Europe. So first at Act III we bet on the category, taking a forward look at what categories will be dominant in five or ten years. I don't want to be fighting headwinds, I want to be sailing with tailwinds. Second, I only want to play at that nexus of building the dominant player, because the rewards fall to the dominant players.

We have a playbook. Between me and my partners we've built dozens of companies. The mantra at Act III is that it's tougher to build a nationally dominant company than to climb Mount Everest. Nobody goes up Everest without a guide, because the risk of falling is huge. Why go up and try to build a nationally dominant company without somebody who's done that route three, four, five times? When we're in the boardroom we don't have financial people worrying about the liquidity event. We're in the business of building companies, not selling them, trying to help that management team know what's going to hit them and how to protect themselves.

Ron Shaich

Every one of these businesses is defined by its structure. Structure matters. I can't tell you how many conversations I had with Howard Schultz over the years about Starbucks and their desire to do better food. But they could never, because they have a frozen food system: they manufacture in one place, freeze it, ship it into the store and defrost it. They spent a hundred million dollars acquiring La Boulange, a great little bakery, but could they bring it to Starbucks? No, because the system defines what they're capable of doing. Similarly, Panera was an assembly business. We started as a sandwich place, putting together sandwiches. We didn't have real culinary skills in the stores, our ability was simply to assemble, so we were limited.

That's why our businesses today have chefs in the unit. Take Tatte. I originally bought Tatte for Panera, as a better version of Panera in certain neighbourhoods. I converted one of our stores in Harvard Square and popped the sales volume by more than twofold, and materially changed the EBITDA. When I sold Panera, I negotiated the right to take Panera's interest in Tatte with me as part of my package. That's how it became part of Act III. It's a powerful cafe, fifty restaurants doing about $5 million a unit, with a bakery, artisan third-wave coffee, and real chefs. It brings the attitude and voice of the Levant, the Middle East. The founder, Tzurit Or, is a powerful Israeli chef, and our baked goods are truly third-wave, differentiated, worth eating.

Ron Shaich

It's the single most competitive market we're not yet in, and we'll be in New York next year. We started in Boston, built out substantially there, went to DC and did great. New York City is about as competitive a market as ever, but this is a concept good enough to really compete. People come from Europe all the time, and they all go to New York, but it's the worst market, because it's not representative of the rest of the country.

I remember one of my first discussions with Brett Schulman at Cava. I said, Brett, you and the Sweetgreen guys all started in DC and then went out to LA as your second market. But what really matters is not how you do in LA, in Malibu, in West Hollywood. What matters is how you do in Fredericksburg, Virginia. You make it in Fredericksburg, doing two to three million a unit, and I'll show you a thousand locations in America. If you're building a business of mass scale, it isn't New York City or LA that matters, it's everything in between. Can you offer people something of quality and substance? New York City costs are three to four times higher. If you're really good you can make it, but it's very difficult.

Ron Shaich

It didn't work in the malls, it didn't work in suburbia. It worked in a major office building in downtown LA, because it was about high-density urban quick, where people pay a premium for quality and quickness.

Ron Shaich

So, Act III. We start with Tatte, which has authority in bakery, authority in third-wave coffee, chefs in every store, real food, breakfast, lunch, gathering place, rooted in a powerful aesthetic. Another business, Life Alive, is plant-forward, positive eating. I love this business, we've been in it eight years. Plant-forward is a powerful tailwind, somebody's going to win in it. We've produced stores in Boston and DC with surprisingly high volumes for this kind of food. Another company, Level 99: a guy who came out of MIT and had been in the entertainment business had a vision for a 40,000-square-foot space full of all kinds of activities. We told him to drop a farm-to-table restaurant and a brewery in the middle of it. We opened the first in Natick, Massachusetts, and I've never been involved in a business as powerful as this. We've opened in Providence, we're opening in Tysons Corner in DC, and in Disney World in Orlando.

Last year we invested in a business in Barcelona called Honest Greens, very high volumes, chefs in every restaurant, real vegetables, greens, salmon and chicken put together in a way that lots of young Spaniards find exciting. It's now thirty-odd restaurants in Spain and Portugal, on its way to the UK and France. We think there's a powerful opportunity to bring these disciplines to Europe, done right. We also have involvements with public companies. We can't take a carry with public companies, so we do a deal with the company, with the support of their investors, to take a percentage in warrants. We have an interest in BJ's out on the West Coast, where we provide strategic guidance, and the stock has more than doubled since we got involved, and another with PAR Technology, trying to be the source for unified commerce in restaurants. So what we're really in the business of doing is figuring out where the future is going to be, making sure we arrive before the rest of the world, and helping wonderful management teams build the dominant player in those categories. What started as a $200 million investment is now a nearly $2 billion portfolio, and it's delivered 55% returns. Mostly, we're just having fun.

Ron Shaich

I sit on any number of boards and lead most of these companies. I was on the board at Whole Foods when we sold it to Amazon. One thing people misunderstand about boards is that the job of a board is not to run a company. Our job at Act III is not to run it, it's to ask good questions that make the people running it think. That's where the power comes, in the quality of the question and how it impacts other people's brains. The discipline is not in micromanagement. The detail is in helping drive a powerful, profound understanding that allows you to do a better job.

Take Cava. If Brett Schulman were here, he'd say our relationship has evolved and grown over the six or seven years we've known each other. There were times that were really hard, but he's come to know we're really on his side. Our relationship changed for the better when my role became to challenge his thinking and let him deal with the implications, as opposed to being directive. He's grown immensely. He started as my student, and I learn from him all the time watching him do it. But we share the same value system and a common thought process about what's going to work. The board I chair at Cava understands our role: to ensure financial integrity, risk assessment, and most importantly, to help that company by bringing our experiences to bear and making them think, so they have a better sense of what's going to hit them in the future and are prepared to handle it today.

Ron Shaich

Self-respect. Ironically, to me success is looking at myself and knowing I've built the best life I know how to build, whether in my role as a father, my relationship with my kids, my role as a spouse, the kind of boss I've been, the difference I've made in the lives of people. Very important to me are the lives I've touched all over this country and in many parts of the world, guests who've come up and said, thank you for what you did, I love being in your places, and knowing I was the best version of myself I could be.

People always ask me, what's your legacy? Somebody asked me yesterday at that Tony Robbins event. I realise there is no legacy. Things go on, they change. I don't think fifty years from now people will be talking about me. What matters most is my kids and the things I show them that live on in their lives, in their hearts, in their souls, and in their kids. Those are the things that matter. As I look back at my seventy-one years, I feel so blessed to have had the chance to do work I've loved, to love, to touch people, and I hope in some small way I've done it in a way that's worthy of all those blessings.

Ron Shaich

This was fun.