COMPANY:Noodles & Company
2013 INC. 5000 RANK: 4329
HEADQUARTERS: Broomfield, CO
YEAR FOUNDED: 1995
2012 REVENUE: $300.4 million
Most national restaurant chains with hundreds or thousands of units are the result of franchising, the typical path to explosive growth.
Unless you're Noodles & Company, the privately held fast-casual pasta chain with over 300 U.S. locations.
Here's another in my series where I pick a topic and connect with someone a lot smarter than me. (There's a list of previous installments at the end of the article.)
This time I talked about franchising with Noodles CEO Kevin Reddy. Before joining Noodles in 2006 he was the Chipotle COO, helping grow that business from 13 to 420 units in seven years.
Many restaurant owners, especially those who hope to build an empire, take a "franchise or die" approach. But the majority of your restaurants are company owned.
Generally speaking, companies that take their brand to market through franchising can go a lot faster because they leverage other peoples' money and resources. That's basically the point of franchising.
Seven years ago we took a huge risk when we decided to place a strategic pause on franchising. But we knew we had an exciting brand that connected and we felt it was a risk worth taking.
Why? When a brand is connecting I would think speeding, not slowing, the rate of franchising would be the way to go.
We decided the best way to create a long-term franchise plan was to build an extremely strong company base. Plus we just really enjoy running restaurants: hiring teams, training teams, watching them enjoy their success... and we like being close to our customers. Constant feedback from our guests and team help us tweak our model at a very rapid pace.
Well-run restaurants can be very profitable. Needing less capital to support growth is good, but when you execute well, receiving 100% of the cash flow instead of 5% is great--and you can pour that cash flow into growth.
So then why would you ever offer franchises?
We're growing at one of the fastest rates in the restaurant industry and we're doing it largely under the company model. That allows us to grow in a very disciplined fashion. Still, franchising does create opportunities.
Our growth is disciplined and rigorous on the company side, and disciplined and opportunistic on the franchise side.
A lot of business owners get their start by owning a franchise. Since you offer relatively few franchises you can set stringent requirements. Take me: I have zero restaurant experience. Would I make it through your selection process?
Restaurant experience isn't the primary consideration.
Most successful entrepreneurs have certain cultural attributes: They're competitive and have high standards. They're passionate, genuine, and value their teams. They have an infectious positive energy that influences others. Those attributes all clearly apply across industries.
We're strong operators. We provide rigorous training, great operations manuals... we can teach smart people the restaurant business. Those skills will allow you to run a restaurant well from a technical point of view, but in our business technical skill alone doesn't lead to brand loyalty.
Brand loyalty comes from the intangibles of the dining experience. Do you enjoy the concept of serving? Do you appreciate food? So much of life happens around a meal.
A lack of restaurant experience isn't a barrier to entry, but you clearly have to appreciate food, to value serving others, and to be willing to genuinely engage with people.
Entrepreneurs love to do things their way; that's why they're entrepreneurs. I have friends who are great businesspeople but would be terrible franchise owners because they can't stand being "controlled."
During the due diligence process we talk a lot about that. We talk not as a boss but as a partner, with both partners having roles and responsibilities they expect from each other.
If we're both going to thrive we have to know where the guardrails are: Here are aspects of the brand that as the franchisor we are deeply passionate about and must be followed, and on the flip side here are areas where we really want you to influence the brand to make it better.
We don't have to fill a franchise quota. We don't have to chase a number. We can deliver growth by executing well under our company model, and that lets us choose the right people instead of having to sell a franchise.
Speaking of execution, years ago I was in a Noodles and to be honest was really confused by the menu. I remember staring at the board wondering where to start.
Seven years ago a major strength of the brand--and it's still a major strength--was our global flavors. The problem was we offered a number of different dishes not particularly well organized and all priced separately. So we went to a line pricing model: Asian, Mediterranean, and American. We cleaned up the menu and put the focus on food and flavors and not on price.
It worked beautifully, allowing customers to try different dishes and experiment without needing a calculator.
Now we've started to decouple our line pricing to a degree. It's still simple, though. The biggest differentiation is the price of the proteins, and we try to keep that within a tight range. That makes it easier for patrons to customize their meal in terms of taste and price.
I don't think our current model would work as well if we hadn't gone to line pricing first. We wanted people to think, "Hey, I can try anything I want." That was a major step in building repeat customers and brand loyalty.
Loyalty. The bane of a restaurant owner's existence is employee turnover. How do you deal with the hamster wheel of hiring, training, hiring, training...?
We have a very tight training and operating model, but our desire to let people bring their personality to the table, pun intended, has helped keep our turnover at historically low rates compared to the industry.
Here's our approach: Our training is rigorous and unforgiving in areas that must be done a specific way... and almost nonexistent in areas where employees need to be genuine and engaged and sincere. We don't over-train to the point that employees don't have to think.
Personality is like attitude. It can't be trained. Maybe that's why, "Would you like fries with that?" is a punch line for jokes about the fast food industry.
We want employees to bring their own personality to the job; that increases their pride and sense of self-worth and accomplishment.
You also can't overestimate the impact success has on employee attitude. The fact we're growing in an industry that isn't growing, that we're building at a double-digit pace, that we're experiencing 10% to 15% unit growth every year... that all creates an excitement and momentum and opportunity for people to take on new challenges and new responsibilities.
I think that's one of the biggest advantages of a company-owned growth model: creating opportunities for employees to grow with you.
In fact, that's one of the best things about our business, and one that resonates personally. You grew up in printing. I started at McDonald's as a cook. I grew up in the restaurant business.
At Noodles we have kids who start with us at a young age and we get to see their emotional maturity and skill set grow. We get to watch them grow with our organization and we get to watch them get married, build a family... and they can do all that within our organization.
Creating opportunities for professional and personal growth is an important part of why we do what we do.
Check out other articles in this series:
- How Ashley Madison's founder built a business everyone loves to hate
- Julia Allison on building a great personal brand
- Eric Ripert on how to build a classic brand
- How to protect intellectual property
- The secret to outstanding customer service
- Shake Shack's CEO on how not to sell out
- The basic social media marketing mistake most businesses make
- The best way to learn to be an entrepreneur
- Red Hat CEO Jim Whitehurst on how to inspire your team
- Debate: Does social media marketing even make sense for a small business?