This course focuses on challenges faced by existing private businesses when they attempt to grow substantially.
Workshop: Part 1 Feller's Gourmet - Ready for Growth?
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En provenance du cours de University of Virginia
Grow to Greatness: Smart Growth for Private Businesses, Part I
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Feller's Gourmet Workshop
This module presents an series of questions to discover if you are ready
for growth. The required reading is by Edward D. Hess, 3 Fellers
Bakery, Case Study.
Rencontrer les enseignants
Edward D. HessProfessor of Business Administration
Darden School of Business
Welcome back. Week 2, Grow to Greatness.
Today, we're going to do something a little bit
different than we did on Week one. You notice the title on the slide,
it's Are You Ready for Growth? Workshop.
Workshop means we're going to work together,
alright? This is not going to be a case story,
just discussion because you had your homework and you have basically gone
through the growth alternatives, you've met listed pros and cons, and
we're going to discuss that. But as we go along, we're going to learn
as we go. And I want to try something different
today in this workshop, alright?
I'd like to have a conversation with each one of you, and you're saying, wait a
minute. How in the world can you have a
conversation with me? You can't see me.
You can't hear me. Well, let's try some things,
alright? Let's be entrepreneurial.
Let's experiment. Let's learn a little bit.
How about I'm going to basically ask some questions as we go along.
And in your head, you answer. Now, if you find it easier, it's okay to
get a piece of paper and pencil and you can stop any time on the computer.
Stop it, get a piece of paper and pencil because
you're going to need it, and you write down your answer.
Well, if you don't even want to do that, how about talk to me,
okay? Talk to me.
Now, if you're around the house or in the office, people may think you're a little
wacky talking to yourself, but that's okay.
So, what I'd like to do today is have a conversation, relate to everyone of you
and get you engaged in being Susan Feller's strategy consultant.
Now, that sounds big and it is big. Because what I want you to think is Susan
Feller, this nice woman, this retired guidance councellor, okay,
who's built this little business and now is sort of overwhelmed with all her
growth choices has come to you, John, Bob, Jane, Sue, all of you and said, I
need your help. Help me figure out what to do.
And that's what this workshop is about today.
Helping figure out what Susan Feller should do.
Now, the fun about today is we're going to work real hard together.
It's probably going to be a shorter class than normal,
alright? And we're going to come up, you're going
to come up with your answers. And then at the end, I'm going to tell you what Susan
did, and it's fascinating, okay?
Now, what Susan did doesn't mean if you came up with a different answer, it's
wrong, okay?
because there's lots of answers. It ultimately comes down to what Susan is
comfortable doing, alright?
Because when you get into a situation like Susan, what is she facing?
She's facing the unknown. The unknown is scary,
alright? Many times when you're building a
business, you don't have all the answers. Things are uncertain, okay?
And the first thing you do when you do that is, is what do I know?
Then, the second question you ask yourself is, what do I really know?
That's different than what you think you know,
okay? What do I know?
What are my key unknowns that I need to find out to make my decisions? Okay.
Now, as we stated at the end of Class 1, I
want, I asked you to use the Growth Risk Assessment Tool, okay?
The tool. All these tools are part of your
repertoire, alright? And what you should have learned during
this process is that growth decisions, how to grow a business,
entrepreneurs have lots of touch choices to make.
And we're going to focus on, okay, how do I make those choices?
Now, I like the Susan Feller story.
As you read it, you should have said, wow, Susan in a lot of ways is like Julie
Allinson from Eyebobs. And she is and she isn't.
Who was Susan Feller? Now, I'm being quiet so you can answer in
your head verbally or whatever, okay? Wwhat was her background?
Yeah, you're right. She was a retired school guidance
counselor. She was not a business person, she had
never been to a business class. She was an Art major in college, she
loved art. Married, children.
In fact, her son was one of my MBA students.
Mike, Mike was a superstar, okay?
Susan was a guidance counselor, a helper, but she loved cooking.
And she loved making desserts. In the end, later in life, she contracted
Celiac desease, which made it, made it impossible for her, without getting sick,
to eat certain types of grains and flours.
And she missed her desserts, didn't she? And what did she do?
She solved her personal problem. because she enjoyed baking cakes and
desserts at holidays, birthdays, she tried to solve her personal problem.
And as you read, it took her one year of experimentation before she could get a
good flour mix. Different ingredients put together that
basically could make gluten-free food taste as good or better than what she
could have in a fine restaurant or a bakery.
She was on a mission. A personal mission, okay?
For taste.taste excellence because that's what she wanted for herself and her
family. Now, her journey in trying to figure out
that flour mixture, I'm going to come back to that.
Now, you read the case. Let's stop here and have a little
conversation. Why is that flour mixture so important?
I'm stopping so you can talk to me. Why is that flour mixture so important?
Because that's what she's got that's truly unique.
That's what differentiates, she thinks her cakes and pastries and cookies from
other gluten-free products. because she bought all those in the
stores and said, this is not as good as stuff I used to make.
Her goal was to make the best gluten-free tasty desserts, pastries, cookies, etc.
Alright. She made it. She took a year developing her flour, she
didn't even have an idea of starting the business then, what she'd do?
She tested it out with friends, they loved it.
Then she went to her gluten-free support group.
They loved it. Wow.
Everyone sort of encouraged her. This is good, Susan.
You should help more people, and she started a business in her home in the
spring of 2007. Now, the reason I'm going into to the
details about Susan's story, ladies and gentlemen, it is a classic best practices
of how one starts a business. You don't quit your day job, in most
cases to start a business. You start your business small and you
know what's the most important thing to do?
Is to try and find customers who like what you're selling and then figure out
where there's enough of them. She started baking in her home and Susan
went out and went to grocery stores, natural foods grocery stores in the
beginning. And said here, taste my cake, try my
cake, try my cookies. You want to try and sell them because
there's lots of people that need gluten-free.
And my gluten-free has all natural products.
It's baked in a gluten-free environment. I meet all the standards.
And she said, try it. And you know what?
The amazing thing from the story, she got big grocery stores.
And then, in July, okay? In July of one year, she basically then
said, wow, I'm going to go to Whole Foods.
And she came to Whole Foods in Charlottesville, right down the street
from here, from where I'm standing, and wasn't it great in the story?
You weren't surprised, were you? It took her almost a year to get approval
to get into Whole Foods. But think about it.
Susan, entrepreneur baking in her house is in
grocery stores in Richmond, Virginia and gets into Whole Foods, and then she says,
I'm outgrowing, I can't do this all in my kitchen.
Then, she makes the move to basically, why don't I go get a small space and she
rented 2,400 square feet and she grew. She grew in order to meet the demand in
the grocery store and she opened up a little retail bakery.
When I was interviewing Susan and writing the case, I went down to the retail
bakery. It's really cool, okay?
And the back is the kitchen. Looks like a standard kitchen, but she's
got big commercial mixers and blenders and all that kind of stuff.
But out front, it's basically a renovated house.
Where the living room was, she's got nice little tables and frilly tablecloths and
then, she's got the pastry. And I was down there one morning about
10:00 and I'll tell you, ladies and gentlemen, everything looked so pretty.
And Susan goes through and she picks up the German chocolate cake, the carrot
cake, the cookies, okay, the lemon tart and everything.
Brings them over and she looks at me like, you know, the good mother, and she
says, eat. I said, Susan, it's 10:0000 in the
morning. She says, you can't write my case if you
don't like my stuff. And she, and I tasted everything and you
know what? I asked her, could I take some home.
It was so good. Now,
all that's the pretty good part. Now, let's go back to the case.
As you know yesterday, we talked about the question, are you ready to grow?
Are you ready to grow? Was Susan ready?
And I hope you picked up in the case some key points,
okay? Think about it.
What did Susan do in her business? I'm going to stop.
Think about that. Talk to me.
What did Susan do? Did anybody out there say almost
everything? because if you did, you're right.
She was what we used to call in the business the chief cook, bottle washer,
and everything. She did all the accounts payable.
She did all the accounts receivable. She bought all the products.
She had part-time workers, okay? She built up to where, in the case, when
we got to the end of the case, she had seven part-time bakers, okay, and
helpers. She did the delivery.
She was the salesperson. She's the one that went to each grocery
to get customers. She delivered.
She did everything. And did you notice how she basically did her accounts
payable and her accounts receivable? Did it ring a bell?
Did it remind you of anyone? Yeah?
You should have just said Julie because Susan believed in paying my bills with
cash. Don't borrow money.
When my bills come in, pay them very soon.
But notice in her business when she started selling to the grocery stores,
the grocery stores would pay her 45 days after she delivered the product.
But she's paying everything out up front. That should have raised a red bell or red
light to you, okay? A bell should have gone off or a red
light. Wait a minute.
How can she grow if she's paying everything with cash up front, but she
doesn't get paid until 45 days after she delivers the product.
There's a mismatch. There's a mismatch, okay?
Mismatch between cash in and cash out, she's paying lots of cash out and then 45
days later, getting cash in. That's a long time if you're going to
grow a business. What does that mean?
Well, it's not necessarily bad if you're wealthy.
If you got a lot of cash, right?
Most entrepreneurs are not. Now,
wasn't it fascinating? Isn't it fascinating how she set her
prices? When she decided hm, I'm going to bake
this, what do I sell my little carrot cake for?
What do I sell my big carrot cake for? How did she do that?
How would you do it? If you wanted to open up a deli, how
would you go set prices? Think about that, talk to me.
I'd bet most of you said, I'd do the same thing Susan did.
I'm going to go out and visit bakeries or delis and see what they're selling
chicken salad sandwiches for. What they're selling hotdogs for.
And I'm going to go to five, six places, and I'm sitting there figuring, they must
be making a profit because they're still in business.
Now, that's not necessarily true, right? because somebody could be a trust fund
baby and not care about profit, just love hotdogs.
But it's a good assumption. So, you could figure out sort of what or
how do you price something. But how do you know if you're making a
profit? How do you know if you are making a
profit? Well,
how do you know if you are making a profit?
Price minus costs equal profit. Now, I know that you, some entrepreneurs
are taking this course, some people that have built businesses and you're saying
to yourself, man, he's getting real elementary.
Yes, I am, because it's going to make the point as to how you as a strategy
consultant working with Susan have got in to get into the granular details because
Susan didn't know what the real cost, per-unit cost were.
What does that mean? What does per-unit cost mean?
She didn't know whether that little lemon cake, which sells for 3.50, she didn't
know whether it cost her $1.00 to make, $1.50 to make or $4.00 to make.
She didn't know. All she knew at the end of the day, she
had money left every month after paying her costs but she didn't know which of
her products we're profitable. And that's a big problem, isn't it?
Why is it a big problem? Why was it a big problem for Susan?
because she had lots of products. Lots of different types of cakes,
cookies, pies, different sizes. And then, she had her specialty business
where you could come in, okay? My friend, Kyle, the cameraman, he could
come in and say, Susan, it's my birthday comin up, and I want a eight layer cake.
The first four layers, carrot cake. The next four layers, double fudge
chocolate on top of the carrot. It would be unique.
And he's rubbing his tummy just like this right now as we're filming.
Yeah. A great cake.
But Susan, she could bake that and she could give Kyle a price but she wouldn't
know if she was making a profit on that cake.
Why is that important? Because as you evaluate her growth
alternatives, you're going to focus also on the rule we learned in Week 1.
Two inches wide, two miles deep, strategic focus.
See, ladies and gentlemen, all this stuff builds upon each other.
What you learned in Week 1, you apply in it Week 2.
What you learned in those weeks, you add to what we're going to talk about in Week
3 and it builds upon each other and hopefully, you walk away with a
framework, a framework, a way of thinking about how do I grow?
How do I make these judgments? How do I make the hard calls?
Now, the Whole Foods' situation, basically,
got her into the big leagues. And the case told you, she was operating
currently at 70% capacity. What does that mean?
With the current building, the current equipment, the current cash flow,
okay, and the current number of people, part-time people,
she'd basically could only make 30% more product.
Then, she had to either expand bigger place, more equipment, full-time people,
more part-time people. Now, she made a couple of different kinds
of products, didn't she? She made frozen cookie doughs,
okay? She made, if you will, real-life
pastries, cakes, and everything that have shelf lives.
And then, you read that she made lots of different types of cookies.
Let me get the case here for a moment. And let's just use the cake, use the case
for a moment and talk about that, okay?
She sold frozen chocolate chip, oatmeal raisin, sugar cookie dough,
frozen buttermilk, slice-and-bake biscuits,
baked cornbread, 6-inch chocolate, vanilla, carrot, coconut cakes,
okay? And then, she made individual sized cakes
and she wanted to add cinnamon raisin cakes, mini cupcakes, baking biscuit
dough. She had lots of products, okay?
Lots of products. Brownies, scones, tarts, seven varieties
of cupcakes, eight varieties of pies, four types of muffins.
Goodness gracious. Now, why is this important?
Let's put two things together here, because what we're doing now, you and me
together, we're the strategy team. We're trying to assess Susan's current
reality because we cannot advise her on her future reality until we understand
her current reality. And so, I'm drilling down deep
intentionally on her current reality, okay?
And I'm talking about all the products she's got.
But now, let's move to a discussion about Susan.
Susan, the entrepreneur. What are her strengths and weaknesses?
What is she good at? What are her personal and business goals?
What are her priorities? Why do we need to know all this?
Why, when you're making your growth decision for your business, do you need
to sit back and do the same? What am I good at?
What am I not good at? What do I enjoy doing?
What do I not enjoy doing? What's my end-game?
End-game, gain, what do I mean by that? This is conversation time now.
This is we're talking, we're talking here.
What do I mean by end-game? Is it your ultimate goal?
Do you want to be a large public company? Or do you want to earn so much money to
live on? Do you want to have 50 employees?
Do you want to be the number one provider of your product in your community in
which you live? What's the end-game, why are you doing
this? Now, most people want to grow a business
because they think they have to. Yeah.
I know, I know what you're saying.
You're thinking, well, we learned in Week 1, you don't have to grow your business.
You just have to continually improve your business so you stay ahead of the
competition. It's the Bayer story again.
All you got to do is outcompete the competition.
And you learned you don't have to grow, unless you want to grow.
And understanding why you want to grow is critical to this whole analysis as what
she should do. It's interesting.
I was doing consulting with a, with a client, it was a very successful company.
They had grown, had 25 employees, four partners in the business, and they
decided do we take it to the next level? And see these decisions and these tools
which we're using here, this way of analysis, this way of thinking, it will
apply throughout your entrepreneurial business.
It's not just the first growth phase because every growth phase will plateau,
will plateau. Let's draw a picture of a plateau.
You are going to go like that. That's the plateau.
P, L, A, T, E, A, U, that's the plateau.
Then, you got another decision. Do I try again or am I happy like that?
In all of things, you got to prevent growing like that,
okay? That's the no, no,
alright? So, this group of five, we sit down.
I asked them a question. Why do you want to grow?
Well, they were paying me lots of money to be a
strategy consultant and the first thing someone says, I can't believe you're even
asking that question. Why is that important?
That says, because if you don't understand why you want to grow, you
can't determine what you're willing to do to grow, how much you want to grow, and
the alternative way to grow. And so, they went around the table.
I asked them, person number one, I'm not going to use real names here, for
obvious. Person number one, why do you want to
grow? And I loved it, I loved it, why do you
think I loved it? because he said exactly what most people
say, well, you've got to grow or die, okay?
Well, you learned in Week 1, okay, that's a bunch of malarkey.
You've got to grow or die. Another person says, well if we don't
grow, we won't have opportunities for our employees.
Well, you know, that sounded real good, okay?
But generally speaking, when someone says that, there is another reason, okay? I
asked a third person, why do you want to grow?
And she said well, if we don't grow, we can't afford to
promote people. I said, why is that?
Well, if we promote people, we have to pay them more and if we don't grow and we
have to pay them more, then I take home less.
So, we have to grow in order to pay our people more and for me to stay even.
That person had been putting some thought into it.
Now, I'm not saying any of those, the first reason is the wrong reason,
grow or die. But the other reasons,
I'm not saying they're wrong, but that person had figured out the real
reason in that business to grow was I want to keep my good people, and give
them a path upwards. Which means, I'm going to have to give
them raises. In order for them to give them raises, I
got to grow to make more profits. Otherwise, I got to decrease the amount
that I'm living on, that I'm taking home as my profit.
Now, that's just a sidelight story as, why grow,
okay? Now, let's talk about Susan.
What were her goals? What were her goals?
Now, I asked you to have some paper and
pencil. I want to take a 3-minute break here,
no more than three minutes. Write on your pencil and paper.
I'm not going anywhere, you don't go anywhere because I'm comin back to you,
and we're going to talk about why does Susan want to grow?
What are Susan's reasons for growing? We will come back in two, three minutes
and talk about that.
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