Dunkinҳ Bob Rosenberg: ӓuccess Can Be The Greatest Impediment To Future Success

Few CEOs can claim the kind of longevity that Bob Rosenberg can. In 1963, William Rosenberg, who opened the first Dunkin’ Donuts shop in 1950 on the Southern Artery in Quincy, Massachu­setts, tapped his son, Robert, at the tender age of 25, to lead the family business, which comprised a portfolio of eight small food service divisions, including Dunkin’ Donuts, and had annual revenues of $6 million and earnings of $93,000.

“Up until that point in my life, the only thing I had managed were a couple of donut shops—replacing managers for their summer vacations—and a short stint supervising a cafeteria,” the octogenarian recalls in his new book, Around the Corner to Around the World: A Dozen Lessons I Learned Running Dunkin’ Donuts (HarperCollins Leadership, October 13, 2020.

It was a crash course in leadership and, with some not insignificant bumps along the way—including nearly getting fired by his board for poor performance—Rosenberg managed to lead the franchise from 100 shops and $10 million in sales when he took over to 6,500 outlets, including Baskin Robbins Ice Cream Shops, and nearly $2.5 billion in sales in 1998 the year he retired.

During the early days of his tenure, the most important lesson he gleaned was “the para­mount role leadership plays in the success of any entity,” he writes. “Be it the United States government, a company, or even a family unit, influ­ence flows from the top down. If the leadership shows itself incom­petent or of poor character, it cannot be fixed from the middle or the bottom. It can only be remedied with a replacement at the top.”

Rosenberg shares this and a host of other lessons in management and governance—he served on the boards of SONIC Drive-In and Domino’s Pizza—in his memoir chronicling 50 years of a 70-year-old brand. In the following interview with Chief Executive, Rosenberg explains how leaders can evaluate their own trustworthiness, why they should stay mum about innovation until it’s ready for prime time and why short-term pressure from investors often puts CEOs in “the most excruciating place.”

Over the course of your career, you had to manage your way through plenty of crises. Does anything you went through compare to what CEOs are coping with now? What lessons might be applicable?

I would say that in the 35 years I ran the business, there were three or four what I would call near-death experiences. They weren’t pandemics, but they were close. And I did come away with a view as to how to best deal with it.

The first thing I learned about crisis is to be prepared. Every board I’ve served on, we would have at least one meeting a year where we would do risk assessment and we would sit with the management of the company, including Dunkin’, and we would look at what could possibly go wrong, what could befall the company, and we’d get prepared. For example, for a food service business, a health scare can be cataclysmic, so we would talk about that — or someone hacking your consumer data, or huge problems with weather if it affected a large portion of the chain. So we would decide in advance who would be in charge of handling that particular problem, who would talk to the press, who would talk to the health official if it was a health issue, etc. So we were prepared.

The second lesson I learned is that you put together a very small select team of experts — could be insiders or outsiders — who have experience with and could add value to identifying the nature of the problem and its response. Then you lead the rest of the organization on a day-to-day basis to run the business—because the business has to be run, customers have to be served, product has to be delivered. You can’t have everybody engaged in the crisis.

And the third thing I learned was about communication. As the CEO, for anything that’s an existential threat to the business, you’re going to be involved in the task force that’s engaged in solving that problem. You also have to be able to continuously communicate to all constituencies, particularly your own staff because their lives might be at stake. They may not be engaged in the day to day business of fixing the problem, but their lives are up in the air in terms of its outcome and you have to be authentic, you have to communicate continuously and you have to be really caring about your followership.

Let me give you an example. In 1989, the company got struck with a hostile takeover attempt that, as it turned out, could have very much threatened the existence of the business. It was the ’80s, when there were a lot of hostile takeovers and a creditor from Canada came in and bought up a portion of the company. We formed a team of four people and left the rest of the organization to run the business. We had always utilized the system of what I call management by walking around and basically that’s what we did. We walked around and we kept the team apprised of where we were at, what was going on, how we were managing through the crisis. Ultimately we found a white knight—at one minute to midnight—to buy the company and save it from the hostile predator, this Canadian guy who then lost his empire in the banking crisis of 1990, by the way, and was forced into retirement. Had we lost to them, I suspect the whole chain and all the franchisees and all their futures and their families would have gone along with it. By the way, I am absolutely astounded to hear people say [about the pandemic], “Oh, we never expected this.” I mean, if companies like Domino’s, Sonic had Dunkin’ Donuts are doing risk assessments, I would suspect that the United States government would have been prepared and done risk assessments as well.

I wish that had always been the case instead of the primacy of only being interested in shareholder return. I’m a great believer in the new movement by the 187 Business Roundtable members and what they’re trying to do—it’s delicate, it’s hard to do, but I think it’s essential now that the world is so interconnected and business is so much a part of people’s lives. I think we do bear responsibility.

I would say that trust is really the same [today], and I have four tests to evaluate trustworthiness: First, are your public and private conversations the same? If they are, then fundamentally, you should be prepared to go on to six o’clock news and talk about it. I may sound naive, but I believe that.

The second is competence, which is not the same thing as never making a mistake because as a CEO, you’re going to make mistakes, but you’re really held to the standard of being able to live up to the standards of your job. You’ve made certain promises about goals and how you’re going to run the business and if you deliver consistently against those promises, you’re competent. I often use the example of Ted Williams, he was the best hitter in baseball, but he only batted .400. You can make some mistakes as you go in business, but you have to deliver on the real things that people are counting on you for—that’s competence. I made a lot of mistakes, but basically over the years, we did deliver on a major promises to all of our constituents.

The third thing is reliability. You have the ability to make promises and deliver on those promises, but when you can’t, because existential things occur, you don’t ignore it, you go back, you make new offers, you try to get new conditions of satisfaction.

The last element is care. Care means not treating people in a transactional sense of what can you do for me. It’s fundamentally that you care for people’s well-being, and you really sincerely come from that position. So I guess my answer is to be authentic and to be able to stand in front of people. If you utilize those standards then I think it applies even with all the social media.

You talk a bit about investor pressure in the book—CEOs are definitely feeling caught between that rock and hard place today, trying to balance the demand for quarterly numbers with the need to invest for the long term. What would your advice be?

That is the most excruciating place to be—and I understand it very well. I think of Clay Christensen’s language about planting saplings for the future and you’ve got to water them and then eliminate those that don’t grow. It is a balancing act.

I think a lot of it has to do with how aggressive you set your earnings per share goals. If you don’t leave enough room to do some planting early on, you’re in trouble. I had great success in the first year of my first five years of the business, taking a small family business and going public and not making mistakes. But the second era was cataclysmic. I ran into a sophomore slump, set the wrong objective, tried to keep growing us at 50% compounded, which was madness, changed the mission of the business from a focus on coffee and donuts to a franchise business, and I really had to get my comeuppance and throttle back those objectives to something much more realistic. I did a lot more planning and set my goals on growing at 10%–15%, which allowed me to keep experimenting and putting the hooks in the water for the future. Not everything worked, in fact, a lot of things didn’t work, but enough did so that we kept our rate of growth up. So picking that objective, not being so stringent that the promise is unachievable is it is one of the ways that we did that. So we had enough ability in the core business to grow and still invest rather substantially.

For example, when we were growing new distribution, we didn’t go wherever a franchisee wanted us to put a store. We were very much intent on building our brand, we thought that had tremendous value and benefit. So we would put 75% of our new stores in markets where we could have, or were soon to have, at least at 26 weeks, 150 gross rating points, because our business was very responsive to mass media advertising. But 25% would be put in other markets that could grow within three to five years to that standard. And sometimes we’d have to help out and advertise before we got there and we’d have to expense that. One of the tricks I found is to try not to capitalize an awful lot of R&D because, number one, if you keep capitalizing it, when it comes time to admit that it didn’t work, you’ve got a massive write-off and it’s embarrassing.

The second thing is, and I’ve tried to do this in the companies where I was on the board, do not talk about a lot of the experimentation to the public until you’re ready to go prime time and roll it out because it has a life of its own. Before you know, it, every analyst in the world is asking you about something that’s speculative that you may have to pull the plug on. So if you can help it, if it’s not transformational, try to keep it inside the company. And wherever possible, try to expense R&D rather than capitalize it, because it makes it easier to pick the winners and cut the losers faster.

Speaking of loss, how did you feel about losing the “Donuts” from the brand?

[Dave Hoffmann, CEO of Dunkin’ Brands] called me as they were about to do it. And I totally wholeheartedly subscribed to it. In fact, I told him that we had considered the very same thing in 1992, and we did a position study, but the company had been sold to a large English company, and they had just spent $325 million to buy us and then another almost $30 million to buy 500 Mr. Donut shops—so we decided not to change it right then. But it was an idea that we had been kicking around for a while and they pulled the trigger, I think it was exactly the right move. It’s really what the brand represents and they can do a lot more with that over time.

What’s the best way for a CEO to determine if a company is franchiseable?

Not every business is. The first way to tell if a business is scalable is to look at return on investment at the unit level. When you open up a chain and you’re bringing other people into the system, if the return on investment isn’t high enough, businesses will open in a bell shaped curve. And the tail, if it’s too long and too heavy, will threaten the whole existence of the business. So I propose a 15% minimum ROI at the unit level, and that is my cardinal metric. So, after fees, after you develop it and test it awhile, does it have that capability to deliver a strong enough ROI?

You talk about the mistakes you made and lessons learned – if you could go back and do one thing differently in you career, what would it be?

I understood from business school the importance of strategy, and I understood the importance of execution and the need for a team. what I didn’t understand at 25 that I learned at 35, that success can sometimes bet the greatest impediment to future success. And that you really have to stay open, humble, listen twice as much as you talk and gain advice from other people and be thoughtful. So what they were now calling in today’s lexicon, emotional intelligence, that came over a lifetime of errors and kicking stones. And it’s still going on for me to this very day. So I didn’t come to the job with that at age 25, unfortunately, but as I made mistakes and slowly but surely learned, I hopefully became less arrogant.

In David Halberstam’s Best and the Brightest, he talks about the countries waging the Vietnamese war, and how we, the U.S., weren’t going into the towns, the hamlets, talking to the community leaders, getting the facts. The Viet Cong, they were winning the hearts and minds of people and our “best and brightest” were relying on body counts and third-hand data sent to them from far away. They were suffering from hubris. I sat in that chair and I thought, Oh my God, Halberstam is talking about me. That was a transformational moment. It’s something I never forgot.

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