Author Talks: Ron Shaich shares leadership lessons on what matters most and why

In this edition of Author Talks, McKinsey Global Publishing’s Emily Adeyanju chats with Ron Shaich, chairman and lead investor in Cava, Tatte, Life Alive, and Level99 and former chairman of Panera Bread and Au Bon Pain, about his new book, Know What Matters: Lessons from a Lifetime of Transformations (Harvard Business Review Press, October 2023). Drawing on more than three decades of innovation and transformation, Shaich offers a detailed playbook for how to create and sustain a successful enterprise. An edited version of the conversation follows.

Why did you write this book?

I wrote this book to share with entrepreneurs, corporate leaders, and folks who are evolving their careers a bit of what I’ve learned in 36 years of running organizations and in 26 years as a public company CEO. More importantly, I write from the perspective of having been part of the most successful public restaurant company, a company that was able to deliver nearly 25 percent annual returns over 20 years. Fundamentally, it yielded those returns because everything was done by intent. The question really is, “How do you build and think about things by intent?” The key to that is actually discovering today what will matter tomorrow.

The book is about that process of figuring out, “How do you discover today what’s going to matter tomorrow?” It was less my intent to tell my story and more to share with folks the humanity, the reality of entrepreneurial life.

So often, both the entrepreneurial life and running large organizations, whether they’re corporate or public, are glorified. Yet it is powerfully difficult work that taxes the soul. I wanted this book, unlike many others, to actually speak to that in a very real and profound way and to help people prepare for that. Everyone talks about the success. They talk about the financial rewards, the opportunity, but that comes from having been involved in three major companies: Au Bon Pain, Panera, and now Cava, which just went public. I’ve effected four major transformations in the course of my 36 years of running Panera. Yet the really important and valuable stuff is not that. It’s the doing of the work. It’s the figuring it out. It’s ultimately having determined what is going to matter tomorrow and having gotten it done.

The key to most everything is, first, tell yourself the truth, where you really stand, what the competitive marketplace is. Second, based on that, know what matters. Third, get done what matters.

What can leaders learn from adopting a future-back vision?

So many of the lessons of running any organization—small or large, public or private, civic or corporate—are ultimately driven by the rules of life, the lessons of life. For me, I first learned about it watching my parents pass away. Each of them went through a judgment day. If you live long enough, you have an opportunity to judge your own self as you’re going through that process of leaving this world.

While watching my parents, it really struck me in a powerful way that the time to have your own review of your life is not in the ninth inning, with two outs. Do it in the seventh inning, the fifth inning, the third inning. Based on the experience with my parents, every Christmas week I began to spend a couple of days sitting down and saying, “Okay, Ron, where do you want to be in three years, in five, in seven in relation to your health, your work, your relationships, your own personal relationship with your God, with spirituality? Where do you want to be?”

Once I try to define where I would like to be, I write out, “How am I going to get there?” This process began to work for me. I said, “Well, if it works for me, this is exactly how we want to run our companies.” Essentially, the process of a premortem, or defining today what’s going to matter tomorrow, is about figuring out, “Where do I want to land in the future? I know where I want to be in three years, in five, in seven. I could effectively build a plan to get there.”

That is the thesis of this book. Start with where you’re trying to go, with understanding your organization—and ultimately your life—as you move down the road. Then figure out the path to get there.

Why is today the moment of greatest risk?

Today is the moment of greatest risk, because the world is always changing. Change is absolute. It is ongoing. What an organization does by its very nature is lock in processes to reproduce or to continue what it does. If we get very good at doing what was valued yesterday, as the world continues to evolve, we aren’t highly conscious of that change. We also aren’t aware enough of the continuing demand from the organizations we work in and run to adjust to those changes. So we end up breaking down.

In my industry, the restaurant industry, there are just a few billion-dollar-plus companies. The irony is, often the billion-dollar-plus companies are absolutely efficient at what they do, yet not very effective. There’s a difference between discovery and delivery and how that impacts an organization. It’s powerfully difficult for an entrepreneur to get anything off the ground. You don’t have economies of scale. You don’t have market presence, customer awareness. Instead, you have to do something that breaks through for that guest in a powerful way. You discover a better alternative. That begins to gain ground. Behind that success comes the need for more capital.

As more capital comes, you realize you’ve made a powerful discovery, but now you need to make it more efficient. Then comes purchasing, then financial planning. Over time, you begin to find these two different sides of the organization. Efficiency, that delivery muscle, makes a real difference. Margins get better. The business begins to scale.

When a business is formed, when that discovery muscle is utilized, it’s about what could be. It’s about dreaming. It’s about poetry. It’s about, “Imagine this.” When the delivery muscle is engaged, it’s about execution. It becomes, “Prove it to me.” These are two fundamentally different languages. As many organizations get larger, they get more effective at delivery. That delivery muscle pushes out discovery, and people wake up 20 years later and realize they have all delivery and no discovery. That’s not a problem, except the world continues to change, and they need to continue to evolve also. The end result is very large companies that have powerfully effective delivery muscles, yet modest capabilities for discovery in a rapidly changing world. They’re very good at delivering what the customer cared about yesterday and not necessarily what the customer needs tomorrow. That is the fundamental conundrum of any large organization.

What’s the secret to maintaining competitive advantage?

Competitive advantage is everything. It means your target customer will walk past the alternatives they have. In my case, the ten or 15 restaurants on the same strip can choose to come to you for something.

If you don’t stand for something, if you don’t differentiate, if you aren’t special in some way, you will get just your market share. In most industries in this economy, if you get your market share only, it will not be good enough. You will not have a sustainable and successful enterprise. I care about being a better competitive alternative. I care about treating my guests better in some fundamental ways than the alternatives. When I do that, I win.

What matters most when driving transformations?

The most powerful responsibility of leadership in business or in any organization is to actually transform—once you discover what’s going to matter in the future.

The key to most everything is, first, tell yourself the truth, where you really stand, what the competitive marketplace is. Second, based on that, know what matters. Third, get done what matters.

The things I’m most proud of in my career are actually not the stock performance, and it has been great. It’s not the fact that we sold the company in the largest US restaurant deal ever done at that time. What makes me proud are the opportunities I had to actually learn something, figure out what matters, and then transform my company to get it done. That usually happened every six or seven years over 35 years. I went through massive transformations and what others perceived as massive bets. Yet I perceived these as highly necessary changes that had to be made if this company were to sustain itself for the future.

There were four transformations. Initially, I merged my cookie store with a three-store chain of French bakeries called Au Bon Pain. Then I transformed it from a bakery offering croissant and bread to a bakery café using the croissant and bread as a platform to sell sandwiches. The first transformation occurred because of a learning, which was that people wanted that bread as a means to have a sandwich. People would walk in, and I’d be working at the counter. They’d say, “Could I have that baguette? Could you slice it?”

They would put roast beef and Boursin on that French bread, and they’d make themselves a sandwich! Clearly, the opportunity wasn’t in bread, it was actually in selling the thing they wanted: the sandwich. That learning led to the transformation of this company from a simple croissant and bread shop to the first of bakery cafés in this country. It became powerfully successful and part of every mall. A few years later, that broken-down little company had 100 stores. We took the company public. That was all the by-product of that first learning and transformation.

The second transformation was about six or seven years later when I realized the world was changing. By the early ’90s, almost every major consumer category was dominated by two or three players—essentially oligopolies. I began to see in certain consumers a reaction to that—a desire to feel special in a mass market that was no longer special. We began to see this happen in coffee, with Folgers and Maxwell House yielding to specialty coffee. We saw it in soft drinks: Coke and Pepsi began to evolve as people wanted Snapple and other beverages. We began to say, “Hey, this is the same trend we’ve seen in any number of categories, this drive for specialness. How is that going to affect the food industry?”

Then we said, “What if we created a restaurant that was different from what existed at the time—fast food and fine dining? What if we created a restaurant in which there was food that actually honored people, that made them feel respected, in an environment that engaged them, and with staff who cared? If we could do that, we could change the currencies of the food industry.” Maybe we could give people something that elevated them, gave them a greater sense of self-esteem, and would appeal to a significant niche in the marketplace.

Watching the consumer and ignoring all those folks who said, “All people want is fast food or fine dining,” became the genesis of another learning. That ultimately is called fast casual now. That’s an $80 billion niche of the marketplace that I feel profound pride in having been a part of discerning and understanding. I feel proud of having discovered today what will matter tomorrow and having put that in place.

The third transformation was ultimately to take this business we owned, Panera, and transform it into a specialty food with a specialty bakery attached to it. Panera was one of four divisions in a public company, and it was the third largest. In the spirit of telling myself the truth, figuring out what matters, and getting it done, I realized Panera had the potential to be nationally dominant. Yet we were likely to screw it up because we had four businesses. A friend asked, “Ron, what would you do if Panera owned Au Bon Pain, as opposed to it being the other way around?”

Panera was the gem, and we had to change the paradigm. I realized I needed to ensure it had all the financial and people resources it needed, then I made a decision that people thought was crazy. Au Bon Pain was my first child. I sold all other divisions of this public company—international, manufacturing, and the Au Bon Pain stores. It led to the worst year and a half I can remember in many years. But we held course; we got it done.

That led to a stock that essentially appreciated 100 times from that point forward. I predicted success. Yet no one wanted to listen, because they were still stuck in today and not focused on what this would be worth and on what would happen tomorrow. That’s often the reality.

The fourth major transformation occurred after I retired from Panera. I wanted to take what I’d learned at Panera and apply it more broadly in civic society. I helped found the group called No Labels in an attempt to reduce hyper-partisanship in DC. I also created Panera Cares, which were shared-responsibility community cafés where we fed anyone who walked in the door, with no set prices.

I was still involved in Panera in terms of its mergers and acquisitions, and in customer-facing initiatives. I wrote a document that asked, “How would I compete with Panera if I weren’t part of Panera?”

That strategy called for the utilization of digital when it was not used in the restaurant industry. This transformation initiative called for implicitly rewriting how we went to market. When I returned as CEO, I implemented that vision. It led to another five terrible years. Transformation is hard. There’s nothing in the world that’s more difficult than getting up in front of 5,000 people and saying, “This is the way we’ve got to go, and this is why.” When I left that room, I was saying to myself, “You better be right, Ron. You have a lot of people counting on you. You’ve got billions of dollars [in investor] capital, 100,000-plus people, their lives and mortgages, and their kids’ education counting on you. We’ve got all these vendors. You’d better be right.”

I knew the vision was right, but I was unsure if I had enough time to get that transformation done before the pressures of Wall Street and those of the marketplace would bear down on me, and I wouldn’t get the opportunity to complete it. This is the reality of transformation. There’s that burden on your shoulders as you take any organization through a transformation.

What were the outgrowths of these transformations?

Ultimately, by 2016—five years later—it was working in a powerful way. We had the best year we’d ever had. Our sales were up. We had generated extraordinary returns for all of our core constituencies, all of our stakeholders. When an organization approached me about selling, I wondered, “Can I really let go of this?”

It meant not taking the victory lap for this transformation we had completed. It was already working, it was succeeding, but the results were still evolving. It meant losing control of it and of my ability to protect it.

My son wrote me, “I can only imagine what you’re feeling today. There has to be a time for change. Everything has transformation. I’m going to go off to college. I’m changing. As much as I love being with you and Mom, it’s time for me to take the next step in my life. It’s probably the time for you to take the next step in your life.”

My son was right. The beauty of it is, we’re still doing business and we’re still undergoing transformations. And we’re still applying long-term thinking to everything we do. In some ways, Cava is a by-product of that.

Cava founders had a beautiful business; they were private at the time. We were able to help them understand scale and growth. I actually financed a significant part and helped them see what it meant to become a public company. My role there was not to do it but to guide them through that transformation, because I had a core thesis. We are searching for niches in the marketplace that have tailwinds and then helping to build the dominant brand in that category. In the case of Cava, we give guidance along the way to help them more easily discover today what will matter tomorrow.

The transformation never stops. This process continues to apply. I wanted to share this book because I believe it’s a powerful prospectus on how to go forward in any organization, whether it’s in business or in civic society.

Why is innovation the CEO’s most important role?

It is important to recognize the nature of innovation in any enterprise. If you don’t innovate, you die. You must continue to stay ahead or at least keep pace with a changing marketplace. As your company gets larger, it takes more time to develop that and to get it done.

Most organizations are set up with functional leaders. Functional leaders are very good at saying “no” in defending their function. The problem is, very few people say “yes.” Saying “yes” is about a fundamental commitment to where the enterprise itself is heading, not to the functions.

I believe deeply that innovation is so powerfully and profoundly important to an organization that it requires the leadership and commitment of the CEO. If the CEO sees him- or herself as simply an administrator, the company will fail. That CEO cannot prepare that company for where the future is going. I first started by continually trying to tell myself the truth of where we stood in the marketplace relative to our guests, our customers. I asked myself, “What’s going to really matter? What is it that I need to do to continue to stay current, to remain contemporary, to create better food environments that engage humanity?”

My innovation strategy took form ultimately as transformation. Yet none of this can happen if the CEO doesn’t see him- or herself as the innovator in chief.

How has maintaining a contrarian stance worked to your advantage?

Everything about the book is linked together in a contrarian view of the world. Entrepreneurs are opportunists. They find opportunities. The greatest risk is not fulfilling that opportunity. That’s contrarian thinking. It’s going against what is contemporary and conventional.

By nature, running a large company and building a better competitive alternative requires you to be contrarian. If you do what everyone else is doing, you will get your market share, but you will not do anything better. My goal was to figure out how to build differentiation. Differentiation requires a contrarian view. In fact, I’m a cynical optimist. I believe powerfully in possibility, but I’m highly cynical about the many things that can happen along the way.

By nature, running a large company and building a better competitive alternative requires you to be contrarian. If you do what everyone else is doing, you will get your market share, but you will not do anything better.

I’m always asking a question. If everybody’s going left, is there a real opportunity on the right because there’s a vacuum? What is that vacuum? How do you think about that, and where do you go?

The book’s common denominator is not simply the contrarian thinking but what’s at the root of that mindset. That is everything by intent. If you’re not clear about why you’re doing something, it won’t matter. Most people look to their competitors to define what they’re doing. They’re following their competitors. We never did. Instead, we said, “Why are our competitors doing that, and is it going to work? And what would work better?”

If you attempt to please all the people all the time, you’re pleasing nobody at any time. In reality, we live in a marketplace of niches. You don’t have to be everything to everybody. But understanding that you want to be deep in people’s love and affection for you and make a difference for them, uniquely them, is ultimately how you find success in most businesses in which there are multiple alternatives.

What are some common misunderstandings about successful entrepreneurs?

Some of the most common misunderstandings are that entrepreneurs are risk-takers or risk seekers. We’re not. I’m not. I’m a risk-averse guy. What I do is I see opportunities.

I see opportunities all around me. The most risk-avoiding action is to use everything in my power to seize that opportunity and ensure I can fulfill it. Oftentimes, entrepreneurs are seeing the context in terms of what comes out the other end—the financial success. If you want success as an entrepreneur, you’d better have much more fun doing what the business does than what it generates.

Some of the most common misunderstandings are that entrepreneurs are risk-takers or risk seekers. We’re not.

Considering your success since being escorted out of that convenience store decades ago, what lessons matter most?

I’ve learned to trust myself, believe in myself. Many of my basic inclinations—intently focusing on delivering for the guest, making a difference in the lives of those guests and in the lives of the people who work with me—were good. And those inclinations were right. As a young person coming of age, I discovered I often would not trust that inclination. It would take me too long to get to where I needed to be to do it right.

As I’ve gotten more mature and older, I’ve experienced an even greater willingness to follow the principles in this book and actually do it. Believe in yourself. That’s really hard, because you don’t know until you’ve done it. But go for it.

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