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Shake Shack CEO: 'We Want to Be the Anti-Chain Chain'

Can the company achieve global burger domination without becoming a soulless corporation? CEO Randy Garutti explains how he plans to do it.
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The stereotypical New Yorker is hard charging, action oriented... and maybe just a tad (OK, more than a tad) impatient, right?

Yet that same person is willing to stand in incredibly long lines every day... for burgers, hot dogs, fries, and frozen custard.

Sounds hard to believe, but it's true. Shake Shack fans can be die-hards.

This is another in my series where I choose a topic, pick someone smarter than me (finding smarter people is turning out to be way easier than my ego enjoys), pick a topic, and trade emails. To find other articles in the series, go here, here, here, and here.

This time I talked to Randy Garutti, the CEO of Shake Shack, a business that started as a hot dog cart in 2001 and grew to become a global restaurant chain. (Shake Shack is part of Danny Meyer's Union Square Hospitality Group.)

Here's my premise: Once you grow to a certain size, even the most idealistic and principled small business becomes more corporate and, in short, "sells out."

Jeff: It happens all the time in almost every industry. Classic example: The funky guy in the converted warehouse who builds amazing furniture... and then one day his stuff is in every Pier 1. When that happens, some of your most loyal and vocal fans can become your biggest detractors, because they feel you've tossed aside what you once stood for.

Shake Shack has grown from a hot dog cart to one iconic kiosk in Manhattan's Madison Square Park with incredibly long lines to numerous locations in the city, in other states, and even Dubai. From the outside, it could appear you guys sold out and are going for the big bucks.

Randy: Let's start with this: Shake Shack was a complete accident. It all began when Danny Meyer and the Madison Square Park Conservancy decided to raise funds to turn the park around. Keep in mind that 13 years ago, we were fine-dining people who had Union Square Cafe and Gramercy Tavern, and we had just opened two restaurants, Tabla and Eleven Madison Park, situated on an underappreciated park.

With Shake Shack, we had the opportunity to do something different and fun. It started with creating a hot dog cart to support a local art project. Out of the gate, and continuing through three consecutive summers, the cart was a massive success, and lines formed throughout the park all because we took a basic idea, focused on people's experience, and just made it better. So, in 2004, Shake Shack was born.

Jeff: Wait. You had no long-term plan? No long-term vision? No blueprint for success? Heresy. How dare you.

Randy: When we first opened, we had no idea what was about to happen.  We certainly never dreamed there could ever be a second location. But we kept asking the question, "Who wrote that rule?"

We posed that question on everything we did: Why can't burgers be ground fresh every day from the best cuts of beef? Why do ranchers have to use hormones and antibiotics? Why can't milkshakes be handspun from ice cream, or in our case frozen custard, that is made fresh all day long? Why can't a burger joint have a happy team, one that's well taken care of, to provide the same hospitality you expect from our fine-dining restaurants?

And so it went. We asked this question about everything we did, and every year, we just got busier, the lines just got longer, and we kept having more fun.

Jeff: I could argue that opening more locations might have taken the fun out of it--and with the success of all the other Union Square Hospitality Group ventures, it's not like you "needed" to open more locations. Add the fact that many businesses start going backward the day they take a big step forward, and you were taking a pretty big risk, one that wasn't just financial.

Randy: It took us five years to open our second location on Manhattan's Upper West Side; hardly a sellout and hardly a plan for world domination. We simply saw Shake Shack as a fun opportunity as we focused on steadily growing our overall company.

Then something amazing happened. The original Shack actually got busier when we opened the second. Then, in 2009 and 2010, when we opened a few more here in NYC and one in Miami, all of the Shacks got busier.

It was at that point we made the decision to grow, and here we are today with 16 Shacks, some in other states and even other countries.

Now, let me get back to your question.

It's my belief that the term "selling out" is highly misused. Companies that grow, and grow well, deserve it. Who would argue that the world isn't a better place every time Stonyfield Farm produces more yogurt? A dairy farmer can now produce milk the right way, make a living in a tough industry, and their consumers now have healthier options--hardly a sellout, and certainly a great growth story.

Why wouldn't you want to see Timberland sell more boots when they are great stewards of the environment in which their gear is used?

Why wouldn't you want to eat at Chipotle when you know they are striving every day to improve the supply chain, support small and local farms, and change the way the world thinks about fast food?

We want to be the best burger company in the world--for our guests and for our team. We believe we have a unique opportunity to build something truly special.

A picture hangs on my office wall to remind me and everyone who walks in my door that this is our key: "The bigger we get, the smaller we need to act."

Jeff: So how do you deal with the inevitable "systematization" of a business as it grows? Growth means more processes, more procedures, more guidelines... more everything.

At least where revenue is concerned, more is always a good thing. In a lot of other ways, especially in a small business with a cool culture, more is usually a bad thing.

Randy: We want to be the "anti-chain chain." We never talk in terms of "units" or "templates" or "how fast can we go?"

We talk about, "What great community can we be part of? How can our other restaurants get better and busier in the process of opening another Shake Shack? When will we have developed enough great leaders and team members who are ready to lead another Shack?"

Our goal is to grow a successful global business and in the process help more ranchers raise animals without hormones and antibiotics; grow more team members into leaders making good salaries and getting benefits and supporting their families; minimize our impact on the environment by using more reclaimed materials like the old bowling alleys we make into our tables; build safe and fun places for people from every walk of life to come together to eat and celebrate and enjoy each other's company--and to do it in the most responsible way.

That's not selling out. That's smart growth for the right reasons.

It's these ideas that inspire us and lead us to believe growth can be a great thing when done right. That's our goal.

Jeff: So how do you deal with what's normally the bane of the restaurant owner's existence, the employee-turnover factor?

Forget that it's an industrywide issue; your Shacks in particular seem like relatively high-stress places for entry-level employees. There's always a line; sometimes customers wait an hour or more just to order. (Readers: You can view the line in real time on the Madison Square webcam.)

Clearly your customers are happy to wait... but that line has to make your employees feel like they're constantly under the gun. At least it would make me feel that way...

Randy: The nature of the beast is that high turnover still exists. We believe we are thoughtful and caring employers, but we're not immune to the challenge.

For us, it all begins with our concept of enlightened hospitality. Our team comes first. If they feel taken care of, they will do great work caring for our guests, our community, our purveyors, and our investors.

Once that's established, we do a few things to add to their opportunity. We pay up to 1% of total revenue--top line, not bottom line--as a monthly bonus. We pay employees extra bonuses for things like coming to work 30 days straight without any issues and/or for recommending their friends. We also offer medical/dental/flex spending benefits and a 401(k) to any employees working over 25 hours a week.

But most important, we give you the opportunity to grow. "Leaders training future leaders" is how we put it. Nothing matters more than our leaders giving our team a pat on the back. For a lot of our team, this is their first job... or at least it's the first place they've come to work where they've been respected and thanked.

We generally find that when that happens they want to stay, they want to grow... many have gone from hourly employees to managers and even to general managers. This is what it's all about for us.

And really, doesn't a burger just taste better when a kind and happy person served it to you?

Jeff:  I've had one of your burgers. The Soup Nazi could serve them, and they would still taste good. But I get your point.

When I was there, what also came across pretty clearly at the Madison Square Park location was that it's "of the neighborhood," so to speak. (I mean that in a really good way.) How do you pull that off when you go to other New York neighborhoods--each with its own distinct flavor (sorry, couldn't resist)--and then to other cities?

Randy: That's the entire strategy we have of being the anti-chain. Take, for instance, what we did in Philly: When we started construction, instead of doing what everyone else does--put up a big, ugly wall that's an eyesore in the neighborhood during construction--we teamed up with a local Philly designer to turn the plywood siding into a living green wall. It was a little a corner "park," if you will, and our neighbors responded enthusiastically! They loved seeing the beautiful plants and greenery as they passed by during the first days of spring. When the wall came down, we donated the planters and plants to the Rittenhouse Flower Market for Children's Charities.

Then, for our menu, we teamed up with local favorites, La Colombe Coffee, Termini Brothers Bakery, and Federal Donuts--some of the best artisanal producers in the city--and added their best products into our "Concretes" on our Frozen Custard menu. Each one is named for Philly, and each is produced near our Shack. We even sell Yuengling beer!

When we talk about design, menu, team, and everything else that goes into building our Shacks, we always talk about doing it "of its place." That's part of everything we do to make sure we follow our "The bigger we get, the smaller we need to act" philosophy.

Jeff: You're undeniably successful, but it can't have all gone perfectly. Tell me about a major misstep, a miscalculation, or just something you wish you'd done differently.

Randy: We make big mistakes every day. Champions are people who believe the road to success is paved with mistakes well handled.

One big one: Early in our growth, we chose a location, designed, and almost built a Shack in the Nolita area of New York.

It was a great site and would have been an amazing business. But we ultimately let it go after spending a lot of time listening to the concerns of immediate neighbors, who felt our impact on the neighborhood would have been too great.

So, we gave it up and lost a fair amount of money, but we also learned a huge lesson that has continued to guide our decisions today--building our Shacks to fit the place they will be.

That was a painful one, but I think it made us a lot stronger.

Last updated: Jul 16, 2012

JEFF HADEN | Columnist

Jeff Haden learned much of what he knows about business and technology as he worked his way up in the manufacturing industry. Everything else he picks up from ghostwriting books for some of the smartest leaders he knows in business.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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