Managing Change

This start-up team did everything wrong. Except the one thing that mattered

In an April 1996 restaurant review, a Wisconsin State Journal staff writer praised the concept of Noodles & Co., a start-up restaurant chain based in Boulder, Colo. "If ever there was a killer idea for a fast-food chain -- a real beat-the-band, hands-down, gold-medal, go-for-the-gusto winner -- Noodles & Co. is it," he wrote. The kudos, however, ended there. The writer criticized nearly every dish he'd tried at the chain's new Madison, Wis., location and concluded: "The premise of the restaurant is great. But it seldom delivers on its promise."

Revenues in Madison plummeted following the negative review. Two months later the shop's sales just covered the cost of food and labor -- never mind rent and utilities. The company had already lost $50,000 on its first restaurant, which had opened in Denver in 1995. With his new business sagging like overcooked tortellini, founder and president Aaron Kennedy summoned his team of advisers to a two-day meeting at which they would "conduct the first major overhaul of our concept ... to redefine and refine nearly every aspect of the operation." Kennedy asked the team to examine each element of the business, from restaurant layout to menu to pricing, instructing them, "I want to strip the concept down to the naked essentials and evaluate every belief and premise we currently hold."

Kennedy, 37, was a classic entrepreneur -- a guy who was ready and willing to grab an opportunity when he saw one. A former brand manager for Pepsi and Oscar Mayer, he'd gotten the idea for Noodles & Co. after enjoying a tasty meal at an Asian noodle shop in Greenwich Village. He hadn't been planning to start a business, but while taking a walk after that meal, he'd mused on pasta's potential. People all over the world ate noodles, he thought. Why not a global noodle shop?

Kennedy had no restaurant experience, little money, an untried concept -- and a willingness to operate on gut instinct. He was all improvisation and opportunism -- exactly the qualities entrepreneurs need to jump into a new business, according to Amar V. BhidÉ, author of The Origin and Evolution of New Businesses. And just the qualities that, without a good dose of coldhearted analysis and a talent for strategic planning, often kill new enterprises.

It was no wonder that less than a year into the new venture, things weren't working out. But if Noodles & Co. were to fail, it wouldn't be for lack of trying to resuscitate it.

Bailing Out the Business
To kick off the "Redefine Noodles & Co." meeting, Kennedy and his team -- executive chef Ross Kamens, then board member (and now executive vice-president) Tom Weigand, and a handful of specialists in architecture, management, and construction -- traveled to Chicago, where they visited some of the city's many noodle shops. After tasting several dishes and observing the sizzling sautÉ process at half a dozen restaurants, the team drove three hours to the struggling Madison store. While sampling each dish on the menu, the executives compared the restaurant's operations with the examples they had seen in Chicago. They evaluated the restaurant's design (too cold), the pricing (too cheap), and, of course, the food itself. "It was one disappointing dish after the next," recalls Kennedy. As the miserable team members were squabbling, it started to pour. A staff member rushed in with the news that the basement was flooding. The team spent the night bailing out the dingy cellar. "We were in the basement, literally and figuratively," says Kennedy.

The flood had a galvanizing effect. "We could have easily rolled over and said, 'Let's cut our losses and go back to our careers," says Weigand. "Instead we kind of got a renewed energy to break down the business and attack it piece by piece."

The next day, Kennedy made a list of the 15 weaknesses they'd pinpointed and detailed the steps the team would take to fix them. It was a new stage in Kennedy's entrepreneurial life -- a move from opportunistic to analytical, from short-term thinker to long-term planner. It was just the move the company needed.

With sales barely covering food costs, Kennedy needed to fix the problems fast. He parceled out responsibility to each of his colleagues. Most important, Weigand and Kennedy searched for some experienced restaurant managers. They found two industry veterans, one with a background in fast food -- an industry known for its carefully delineated operating procedures -- and one from the fine-dining side of the business. Executive chef Kamens reexamined the menu. And the architect refashioned the restaurants with warmer colors.

Within 60 days, the cooks were sautÉing every dish to order, and the food had improved dramatically. By August, Kennedy had checked every item off the list. By September the restaurant had broken even.

Although Kennedy's lack of restaurant expertise almost doomed his new company, it ultimately worked to his advantage. In reexamining the concept, he held nothing sacred. Noodles & Co. now has 30 stores. It sold nearly $14 million worth of noodles last year, and it plans to reach 40 stores and $30 million in sales this year.

Kennedy still keeps the list of everything the company was doing wrong, and he and his staff regularly check everything from food quality to customer wait time. Once a year the restaurant managers and the company's central support staff review everything from how they order forks to the merits of booths versus tables. Weigand claims that the constant review process is a key to the company's success. "Maybe because we didn't come from the restaurant business, the management team was willing to recognize our mistakes and put aside our egos and think about what we needed to do to make it work. If you're a famous chef and someone tells you your marinara sauce is no good, you're going to say, 'What do you mean, it's no good?' If someone tells us our marinara sauce is no good, we say, 'OK,' and we change it."

Kate O'Sullivan is a reporter at Inc.

Hands On

Von Best could give rubber stamps a good name. Best, CEO of IVPCare, a specialty-drug supplier in Carrollton, Tex., restructured his 130-person company to give middle managers more authority. (See " Breaking Up the Kitchen Cabinet," Inc, January 2001.) But some still sought Best's blessing on every decision, driving him crazy. So Best made and distributed "official stamps of approval," each imprinted with "Approved by Von." The stamps themselves are a gag; Best doesn't expect people to plaster their work with his imprimatur. But the underlying message is no joke. Rosanne Best, the Inc 500 company's vice-president of corporate communications (and the CEO's wife), calls it a vote of confidence for those newly empowered managers. "It's saying, 'We wholeheartedly trust you to do the right thing," she says. Between the lines: take some initiative, will ya?

--Anne Stuart

The Whole New Business Catalog

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