How one CEO improved his treatment of employees to create a more successful company.
All Keith Dunn wanted was to prove you didn't have to mistreat employees to be successful
You don't like how you've been treated as an employee, so you start a company to show that there is a better way. Your new business is an overnight sensation, but before you can even spell S-U-C-C-E-S-S, you're treating your people shabbily.
Keith Dunn's struggle to build an "excellent" company is a vivid illustration of the difference between a management concept as it appears in a book and the way it really works in the chapters of a company's operations. -- J.H.
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Keith Dunn knew exactly what to expect. He knew how his employees felt about him.
That's why he had sent them the questionnaire in the first place. He needed a shot of confidence, a feeling that employees were behind him as he struggled to build McGuffey's Restaurants Inc. beyond two restaurants and $4 million in annual sales.
Gathering up the anonymous questionnaires, Dunn returned to his tiny corporate office in Asheville, N.C. With one of his partners by his side, he ripped open the first envelope as eagerly as a Broadway producer checking the reviews on opening night. His eyes zoomed directly to the question where employees were asked to rate the three owners' performance on a scale of one to 10.
A zero. The employee had scrawled in a big, fat zero. "Find out whose handwriting this is," he told his partner, Richard Laibson.
He ripped open another: zero again. And another. A two. "We'll fire these people," Dunn said to Laibson coldly.
Another zero.
A one.
"Oh, go work for somebody else, you jerk!" Dunn shouted.
Soon he had vowed to fire 10% of his 230 employees. "Plenty of people seemed to hate my guts," he says.
Over the next day, though, Dunn's anger subsided. "You think, 'God, I've done all this for these people and they think I'm a total jerk who doesn't care about them,' " he says. "Finally, you have to look in the mirror and think, 'Maybe they're right.' "
For Dunn, that realization was absolutely shattering. He had started the company three years earlier, in 1983, out of frustration over all the abuse he had suffered while working at big restaurant chains. If Dunn had one overriding mission at McGuffey's, it was to prove that restaurants didn't have to mistreat their employees.
He thought he had succeeded. Until he opened those surveys, he had believed McGuffey's was a place where employees felt valued, involved, and appreciated. "I had no idea we were treating people so badly," he says. Somewhere along the way, in the day-to-day running of the business, he had lost his connection with them, and left behind the employee-oriented company he thought he was running.
Everyone acts a little nervous as Keith Dunn sits down. Dressed in black, he looks every bit the amateur magician that he is. The 13 recruits are sitting around a table in a dining room at McGuffey's in Charlotte, N.C. "So," he says, "tell me why you are here."
The trainees have asked for asylum at McGuffey's after fleeing oppressive regimes at other restaurants. "New management came in," says one. "They were supposed to know what they were doing." He rolls his eyes, and a few others offer nods of recognition. "Yeah," adds another, "I heard this place was real employee oriented."
Dunn smiles; orientation at the fourth McGuffey's is off to a good start. Clearly he has turned his concern for employees into a competitive advantage.
He begins by reeling off his own résumé, a 13-year odyssey through some big restaurant chains that left him feeling as limp as a cheeseburger after a day under the heat lamps. Ponderosa in Georgia. Bennigan's in Florida and Tennessee. TGI Friday's in Texas, Tennessee, and Indiana. Within one six-month period at Friday's, he got two promotions, two bonuses, and two raises -- then his boss left, and he got fired. That did it. Dunn was fed up with big chains.
At meetings, managers talked about landscaping, they pondered whether to hang canoes from the walls, they considered expensive uniforms and custom-made chairs -- but they rarely uttered a word about employees. One chain, he says, gave more thought to caring for the 17 kinds of light bulbs in each restaurant than it did to being concerned with its employees.
Maybe I'm just in the wrong business, Dunn thought. In 1982, at 29, he returned to Atlanta, where he had attended Emory University as an undergraduate, and began waiting tables at a local restaurant.
There he met David Lynn, the general manager of the restaurant, a similarly jaded 29-year-old who, by his own admission, had "begun to lose faith." Lynn and Dunn started hatching plans to open their own place, where employees would enjoy working as much as customers enjoyed eating. They planned to target smaller markets that the chains ignored.
They toyed with calling it The Good Old Days, and Dunn ran the idea past his father, a college professor. Oh, I see, said the elder Dunn, a place that evokes the era of 5 meals, 2 newspapers, and the McGuffey's Reader. What reader? Dunn asked. His father explained that it was the standard primer used in one-room schoolhouses during the 1800s. Hence the name McGuffey's was born; the logo includes a pencil, and each restaurant has a private dining room called the Classroom, with pencils, textbooks, and a blackboard.
All the two needed was a hefty helping of money. They got it from the night janitor's cousin at the Atlanta restaurant where Dunn was waiting tables. The investor helped them obtain a $162,000 line of credit in return for a 51% equity stake. The investor's parents leased them property in Asheville, N.C. Dunn and Lynn soon brought in one more partner; Michael Brandson was another chain-restaurant veteran whom Lynn had worked with. Brandson took 9% of the remaining equity, while Dunn and Lynn claimed 20% apiece.
All three managers had extensive backgrounds as corporate trainers, so they set up an elaborate hiring and training program. They spent about $20,000 on two weeks of training. The first week included three days of intense classroom learning, then a couple of days of role-playing. They devoted the second week to dry runs. The owners invited local businesspeople to sample McGuffey's for free.
