Take Two Company Founders. Add 10 Years of 80-Hour Workweeks. Fold in a Formidable Outside Ceo. Mix Carefully.
Very Carefully.
From:
Inc. Magazine, August 2006 |
Page: 100
By: Leigh Buchanan
Photographs by: Nick Ruechel
How the food company Two Chefs on a Roll grew up, and really started growing.
Two Chefs on a Roll has two things in common
with Willy Wonka's candy company: a business model that depends on
secrecy and one hell of an impressive plant tour. Over the past few
years, representatives from some of the country's largest food
companies have submitted to the twin indignities of hairnets and
nondisclosure agreements in order to explore the company's Carson,
California, factory, which is a showplace of agile manufacturing. Rich
green cilantro hummus is churned in liquefier as tall as a man, and
vivid red tomato sauce burbles in great vats suspended from a deck that
looks like something an oil company might erect in the North Sea.
Employees at satellite quality assurance stations measure salt levels
and viscosity against metrics produced by a half-million-dollar
computer system. Each room in the factory announces its purpose with a
different powerful aroma--garlic, cumin, chocolate--and the scents
change almost daily as new items are introduced and lines swapped
around.
In other rooms, the company's human taste buds--chemists, food
scientists, and chefs--labor amid a motley assortment of ovens, giant
mixers, and other equipment meant to replicate the contents of clients'
kitchens. The goal: to devise gold-standard products that send eyeballs
rolling rapturously, and keep them rolling even when recipes are
multiplied a thousandfold. On one recent afternoon, R&D manager Dan
Fleischman is patiently testing the 66th iteration of creme brulee for
a restaurant chain that demands both convenience and a luxurious "mouth
feel." "Instead of making it fresh and baking it, we've given them this
concept of having it frozen--all you have to do is heat it in a pot,
pour it into a ramekin, put it into the refrigerator," says Fleischman.
"So I'm working with different thickening systems, trying to get the
texture I want." (Iteration 68 eventually won approval from both
Fleischman and his client's executive chef.)
Such chefly creativity hasn't stopped Two Chefs from becoming a
high-performance operation. The company manufactures a million pounds
of products a month, in as many as 120 distinct SKUs. In one week it
produces more than 100,000 pounds of dips and sauces for a major
national food retailer and 50,000 pounds of customized sauces for two
casual-dining chains, each with more than 250 restaurants worldwide.
(Two Chefs is a private-label manufacturer and so does not name its
clients. The customers approached for this story would not discuss the
relationship.)
Almost everything the company makes it also develops--quickly.
Operating in a notoriously trend-driven industry, Two Chefs has
occasionally taken a product from concept to commercialization in as
little as four weeks, although three to nine months is more usual. And
its success rate for new products (success being defined as achieving a
significant life in the marketplace) is 70 to 80 percent. In five
years, the company's revenue has tripled to roughly $40 million, while
head count has remained stable at about 200. Production has doubled,
and the executive team has grown fat with pedigreed talent.
Some days, Two Chefs' founders find it hard to believe that this
exceedingly capable grownup is their baby. The business looked very
different back in 2000, the year Lori Daniel and Eliot Swartz--the
eponymous two chefs--came to grips with the need to become two chefs
and a CEO. With only some trepidation about yielding absolute control
of their business and their destinies, they hired Jeffrey Goh, who as
chief executive has transformed the company. He has recruited people
with blue-chip resumes, mandated more selectivity in projects, and
implemented the kinds of systems and processes he learned while
introducing products such as Head and Shoulders and Cheetos to China.
"Systems and processes," of course, is code among entrepreneurs for
"the hard, boring stuff I have to do to grow."
Under Goh's leadership, Two Chefs has become adept at execution on a
large scale. Meanwhile, Daniel and Swartz have been freed up to do the
thing they love--which by the way is also the thing they do that most
benefits the business: think and act like chefs. Founders often worry
that hiring professional CEOs will leach the souls from their
enterprises. But Daniel and Swartz found that ceding control of
day-to-day leadership left them better able to protect the culinary
creativity that was pretty much all they had going for them when they
started.
And Two Chefs has no choice but to continue to be creative--its
customers are also getting bigger and so require from their supplier
infusions of innovation as well as efficiency. That is just the balance
that is implicit in the company's name, which nods to both the
founders' native artistry and the company's growth. (It is expanding 20
to 25 percent a year, on track with its five-year plan.) A largely
right-brain business--creative, conceptual, opportunistic--has grafted
on a process-oriented left lobe with minimal sacrifice of its goals and
identity. How it did so--and how its founders found their place in the
new order--is instructive to any company hungrily eyeing the next
level.
First, the chefs. Lori Daniel and Eliot
Swartz are foodies by nature (his parents owned delicatessens near
Boston; her grandparents founded a series of candy stores in New
Jersey) and by nurture (both trained at the prestigious Culinary
Institute of America in Hyde Park, New York). In the early 1980s the
pair, then recently married, fetched up in Redondo Beach, California,
where they cooked at a California-style restaurant and debated starting
a business selling wholesale desserts to hotels, caterers, and other
chefs. In 1985 they took $13,000 of their $20,000 in savings and did
what so many entrepreneurs had done before them: They traveled to
Europe and spent four months eating cake.
"Guests at the restaurant were saying, 'Have you ever had patisserie
in France? Have you ever had strudel in Germany?'" says Daniel. "I
needed to know what we were missing." The continental offerings did not
prove intimidating. "The Europeans didn't have anything on us," says
Daniel. "We realized we should be proud of our cupcakes and layer cakes
and puddings. We decided to go for it."
Home from Europe, Swartz went back to sous-chefing to provide an
income, while Daniel baked from 2 p.m. to 10 a.m. in the kitchen of an
Italian restaurant that was open only for lunch. Her customers included
restaurants that wanted to enliven their dessert menus and caterers
serving Hollywood clientele. Daniel gave everyone something different,
from a pecan pie as tall as a four-layer cake to miniature truffle
cakes baked in geometric shapes. Photographs of those early concoctions
adorn the hallway of their current factory, each framed in a gleaming
cake pan or pie plate.
For the first few years Daniel and several employees made everything
from scratch. Growth was limited by lack of capital. "The banks
wouldn't lend to us because they said our customers were too volatile
and the business was too seasonal," says Daniel. The banks finally came
around in 1988, around the same time Swartz joined full time. In the
'90s the company added savories to the mix and switched the business
model to volume production for bigger customers, but volatility
remained. Two Chefs' first large client was a specialty food retailer
that wanted a fruit-and-spice cake for the holiday season--and stopped
wanting it in February. "We thought it would be an ongoing item, but we
learned even big customers weren't business you could count on," says
Daniel.
The pair experimented with different channels including catalog
marketing and an early Internet site on Prodigy. They also sold to the
airlines: Five of the 15 desserts served to United's first-class
customers in the early '90s were Two Chefs' creations. Over time, they
winnowed their channels to two: retail and food service, with an
emphasis on rapidly expanding restaurant chains. For those customers,
Swartz and Daniel created signature items. For example, the chocolate
souffle cake that for more than a decade has graced the menu of a
popular 200-restaurant chain is one of theirs. Two Chefs ships 40,000
of them every month.
For the next few years, Two Chefs often had more work than it could
handle. Opportunities knocked and the founders welcomed them all with
open arms--not only for the money but because the jobs sounded fun. "We
didn't know we could turn things down," says Swartz. As production
volume grew, the company moved five times to larger and larger plants,
accumulating employees and equipment somewhat haphazardly along the
way. Ten years after starting the business, Daniel and Swartz were
still working 80 to 100 hours a week.
Their difficulty keeping the business manageable was exacerbated,
the founders agree, by their yin-yang personalities. The gregarious
Daniel leads with her gut, a trait that sometimes frustrates the more
cautious, show-me-the-data Swartz. In theory, those differing styles
are complementary. In practice, neither founder could make a decision
unilaterally with complete confidence that the other would agree. "We
would try to put ourselves in each other's heads but that was hard,"
says Swartz. "It became almost impossible to travel because if only one
of us was there to step up, the decisions wouldn't be as good."
In 1995 Daniel and Swartz separated. Four years later they divorced.
Concerned about spooking employees, customers, and their bank, they
told no one of their changed relationship, though word leaked out
gradually over the years. "We saw a therapist together for a long time
to try to preserve what was good about our relationship so we could
continue to work together," says Daniel.
The business, meanwhile, marched along, earning profits, winning
ever-larger customers, and attracting the covetous gaze of other
companies, including Conagra, which wanted to make Two Chefs its
skunkworks. But the growing volume was leaving stretch marks on
production capacity. "We had all these opportunities we wanted to
pursue, but we were kind of out of space," says Daniel. The need for a
new facility--potentially two or three times the size of the existing
one--loomed, and with it the need for millions in new bank loans.
Exhilarated but exhausted, the founders wondered just how large and
sophisticated an organization they should be planning for. Did they
need 60,000 feet or did they dare to think larger? Was their labor
force sufficient to run the new plant or would they require more
experience, more skills?
Those questions weighed heavily on Daniel and Swartz when they sat
down with their accountant one afternoon in 1999. "He told us, 'You
could run this business just the way it is today and keep sales just
where they are for the next 10 years and you'd have enough savings to
live on for the rest of your life,'" says Daniel. "'Or you can put it
all on the line and go to the next level.' Only one of those options
was interesting to us."
To help chart a course, the founders assembled a board of advisers.
Daniel and Swartz went in talking about recruiting talent and
negotiating with banks and landlords--the outward-facing aspects of
growth. But over several meetings they realized they needed help with
the inward-facing aspects as well: what projects and customers to focus
on, what direction to take, what shape the company should have. They
also realized they had to lower the heat on themselves.
The founders didn't need someone to listen to them but rather
someone to whom they would listen. By the third meeting it was clear,
says Daniel: "We needed professional management."
For an under-the-radar outfit like Two Chefs,
Jeffrey Goh was an impressive catch. He had spent the early part of his
executive career in Asia, first helping Procter & Gamble launch its
China operations and then serving as general manager for Frito-Lay in
China and Hong Kong. He next became a partner in an investment firm
with interests in China. Upon returning to the United States, he was
recruited as CEO for an education start-up. An American of Japanese and
Chinese descent, Goh spoke fluent Mandarin and held a degree in finance
and entrepreneurship. He also knew a lot about food.
It was crucial that the new CEO establish his
leadership."A lot of success has already taken place," says Jeffrey
Goh. "And you're trying to figure out what needs to change. "
Daniel and Swartz had already interviewed five or six candidates,
each over several days, when a member of their advisory board
introduced them to Goh in 2001. The founders fell hard. They liked his
detailed questions about the company's history. They liked how he spoke
to workers on the plant floor. They even liked the way he put on a lab
coat when entering the R&D kitchen.
But what the chefs liked most was the obvious respect Goh showed for
what they had accomplished. "Other people seemed to think they could
move us forward without asking how we had gotten here in the first
place," says Swartz. "Jeff wanted to understand the history."
A leader with Goh's experience didn't come cheap, and Daniel and
Swartz resisted making him a full partner. So instead the pair, with
the help of the company's attorney, crafted an agreement, the details
of which they won't reveal. "Let's just say it's a formula where as the
value of the company grows, Jeff participates in that," Daniel says.
In Goh, Swartz and Daniel knew they had a first-rate ingredient; but
they weren't sure how he would work in the recipe. The six weeks
between Goh's hiring and his arrival were tense. Daniel, in particular,
fretted: She was ceding to Goh not only her title--he came in as
president and was made CEO a year later--but also her office. With
space severely limited, she relocated to a building three miles away
until the company's move to its new facility.
Daniel was also suffering, uncharacteristically, from a bout of
performance anxiety. Specifically, she worried that Goh, once on the
ground, would find the business--and its leaders--less sophisticated
than he had expected. His ability to ask smart, challenging questions,
which had so impressed her during the interview process, now seemed
vaguely threatening. "He had a wealth of experience in very
large, very structured companies and was used to
being in a much more polished environment," Daniel
says. "I was excited, but I was nervous about whether he
would be happy in this environment."
More troubling, neither Daniel nor Swartz could picture quite how
the leadership menage would look. The two were on the board and knew
they would continue to be involved in setting direction. But the big
picture wasn't big enough to fill their days, and everything else was a
question mark. Looking for a model, the founders read about companies
led by collaborative teams, paying particular attention to Wendy's, a
fellow food business that at the time shared leadership among three
people. But nothing reminded them of them.
Goh, meanwhile, had his own concerns. Not surprisingly, he worried
about working with a divorced couple. More substantively, he pondered
the best way to keep the founders deeply and visibly involved in the
business. Daniel and Swartz were the culture's keystone, and their
reputation was among Two Chefs' main selling points. At the same time,
it was critical that he establish his leadership. "You have a strong
personality coming in. A lot of success has already taken place. And
you're trying to figure out what can be kept and what needs to change,"
says Goh. "Before we decided anything what we needed was regular,
structured communication."
So starting in the first month, Goh set up a system. From Monday
through Friday morning he ran the show. Daniel and Swartz would sit in
on meetings, take notes, and coach him on relevant events from the
past. On Friday afternoons the roles reversed: Goh would visit Daniel
and Swartz in their offices, answer their questions and receive their
feedback on the week's events and decisions. "Otherwise they would have
worried about saying things in meetings that might affect my
leadership, or I might not have listened to them," says Goh. That
balance of power sat well with both founders. The arrangement continues
to this day.
Chaos is like cholesterol: There's a good
kind and a bad kind. From the first, Goh saw his job as eliminating the
bad kind, which had squandered Two Chefs' energies on low-return
projects while straining its people and production systems. For 15
years the founders had leaped into development and manufacturing with
little advance planning. So when, for example, a retail customer once
ran a promotion for a new bread and the order suddenly spiked, the
founders, their entire production staff, and most of that staff's
spouses had to work around the clock to get it out, taking catnaps on
sacks of flour to ward off collapse. The next day Swartz found a
machine that would quicken the process and--cost and future utility be
damned--bought one immediately "so at least we could get home in the
next 15 hours."
To eliminate that kind of crisis the new CEO set about erecting
infrastructure. Goh recruited an executive team that combined food
experience (the founders insisted on that) with backgrounds in either
large or fast-growing companies. He revamped human resources and
created new training, compensation, and employee orientation programs
to make the business more attractive. He reorganized R&D as a
separate department, with tendrils snaking into everything from sales
to manufacturing. And he borrowed the money for a new plant big enough
and modern enough to accommodate next-generation manufacturing. (See "Portrait of an Agile Manufacturer".) Swartz, with whom structure sits easy, managed some of the largest projects, including the move to the new plant.
At the same time, Goh wanted to nurture the good kind of chaos--the
openness to exploration and ferment that kept the company innovative
and its new-product pipeline primed. This became Daniel and Swartz's
purview. Swartz, for example, was able to flex his creativity in the
place where it did the most good--in front of customers. For the first
time since Two Chefs' early days, he found time to go on sales calls,
often meeting with the executive chefs of restaurant chains. While the
account manager ironed out questions of price and scheduling, Swartz
helped these clients come up with ideas by talking to them in chef.
"The language that a chef will use speaking to another chef is very
similar to what a doctor might say to another doctor," says Swartz.
"The understanding on both sides helps to generate ideas that build
upon themselves." So, for example, the conversation on a recent call
turned to how much food restaurants throw out. Swartz and his client
began toying with ideas to reduce that waste, among them the
possibility of creating a beurre blanc that is spreadable cold and so
can be refrigerated after each use. Swartz punted the idea to
R&D--and a spreadable beurre blanc just launched.
Two Chefs wanted to nurture the good kind of
chaos--the openness to exploration and ferment that kept the
new-product pipeline primed.
The chef-to-chef conversations have proved so fertile that when
Swartz isn't available the company now routinely sends an R&D chef
along with the account manager. Both founders also do stints in their
clients' kitchens, scouting for ideas and insights as they work
alongside the line chefs.
Swartz and Daniel scout for ideas not just among their customers but
also out in the broader world, where thousands of next new things are
waiting to be discovered. Few industries are globalizing as rapidly as
food: U.S. restaurants offer everything from Spanish foams to Mongolian
barbecue, while specialty retailers brand themselves as purveyors of
the exotic. Under Goh, the company's annual travel budget is in the
hundreds of thousands of dollars and managers have visited more than a
dozen countries. (The only executives who rarely go anywhere are Goh
himself and the CFO.) "Half the time I have a customer in tow so I can
see how he or she responds to things firsthand," says Daniel, who last
year spent 27 weeks on the road.
Two Chefs' transformation was not painless,
of course. Most of the stress built up around people issues. Goh had
determined to go the Good to Great route and assemble a
top-notch management team before embarking on strategy. Specifically,
he needed people accustomed to the kind of high-performance operation
Two Chefs wanted to be. In some cases that meant big-business
experience at places such as Unilever, General Mills, and Mars. In
others it simply meant willingness to accept more structure and
hierarchy.
But many employees fit neither criterion. Goh fired some; others
fled what they perceived as encroaching corporatism. In 2003 and 2004
the controller, the director of sales, and 10 out of 25 key managers
left. "Some people liked it better when it was smaller and we could all
meet together in one room and decide things for the company," says Goh.
"Other people discovered that we needed a higher skill level or a
little more experience. That was just attrition as we moved to a much
larger business." Still, he concedes, "it should have been less."
The hiring process, meanwhile, took longer than expected. Goh
recalls sitting late one night in his office after firing a direct
report and "thinking to myself, I have more vacancies on my executive
team than positions filled." Haunted by the leafless branches of his
org chart, Goh fought the urge to start hiring just to fill the slots,
just to be done with it. He succeeded, though it meant he spent months
searching for talent.
Daniel and Swartz accepted their colleagues' departures with stiff
upper lips and sometimes trembling lower ones. And while they abided by
Goh's hiring decisions, they didn't always agree with them. "We would
have new employees in particular positions and I wouldn't see how they
could be successful," Daniel recalls. "And Jeff would say, 'They're
doing fine. Just let them be.' And I would say, 'I don't see how it's
going to work, and if I don't see it, I don't see it.'"
Elsewhere in the company, changes were less seismic but still felt.
The enterprise resource planning system, a behemoth brought in to
manage processes as varied as resource planning and allergen
management, altered the day-to-day work of whole swaths of the company.
Approximately a quarter of the work force--many with very little
computer experience--found themselves wielding scanners and pecking at
keyboards as they processed more than 40,000 discrete "transactions"
each month. Training remains a work in progress.
By contrast, the other huge disruption--moving to a new
factory--emerged as change management at its best. Goh and Swartz made
sure everyone interested had a say in designing the plant, and as
moving day approached they and Daniel brought groups to tour the
facility and hold parties in the new parking lot. Employees grasped one
another's hands to see how far their human chain would stretch across
the vast space. Some raced around the empty rooms on bicycles. "People
cheered," Goh says. When the move at last took place in early 2003, Two
Chefs didn't miss a day of production.
Exhilaration over the move has naturally abated, but morale is
buoyed by the company's growth and rising industry profile, say the
founders. And now that they've absorbed the shocks, Daniel and Swartz
are punch-pleased with their own roles in the new regime. More than two
decades after launching the business they finally have the luxury to
think strategically. Relieved of his go-to-guy mantle, Swartz can
follow his interests into any department and choose whether to
participate or simply observe and advise. Daniel spends time just
talking to employees, with whom she enjoys warmer, more relaxed
relationships now that "we're no longer the bosses and the heavies."
She's also emerged as the company's public face at industry events.
Perhaps ironically, the founders have come to embody the brand more
than at any time since they were inventing four-layer pies in their
tiny rented kitchen. On the conference circuit, in clients' offices and
kitchens, and on their website (designed by site consultants Day For Night Multimedia working closely with Daniel) the two talk
endlessly and animatedly about, not the business of food, but rather
food itself. Their message is simple. Because the company is what it
is, customers can count on 10,000 pounds a week of reheatable creme
brulee. Because Daniel and Swartz are who they are, customers can trust
it will be satin on the tongue.
People visit the plant to inspect its operations, says Swartz. But the first thing they always ask is, "Who are the two chefs?"
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