A Leading Restaurateur on What It Takes to Scale a Winning Culture

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0:36Sarah Green Carmichael:I'm Alison Beard. I'm Adi Ignatius, and this is the HBR IdeaCast.

0:48Sarah Green Carmichael:Adi, when a business is small, building a great corporate culture can feel relatively straightforward. Leaders are close to their employees and customers. They can see what's happening on the front lines and intervene when something feels off. But what happens when the organization gets much, much bigger? This is a classic business dilemma. And I think a lot of companies get it wrong, even though they understand the risk, right? They make tradeoffs for efficiency and profitability. They add layers of management. They forget about what made the business special in the first place. Exactly. So joining me today is Danny Meyer, the restaurateur who founded and scaled Shake Shack, as well as an acclaimed fine dining group, and the author of a new book called What Could Possibly Go Right?

1:29Sarah Green Carmichael:The Essential Journey to Scale an Enduring Culture. In an extremely demanding industry, we're talking about Michelin-starred Manhattan restaurants to a global burger chain. He's stayed successful for decades, but he's also really candid about the mistakes that he's made and corrected along the way. I talked with him about the building blocks of a strong organizational culture, the frameworks he uses to ensure that diverse, dispersed teams stay on the same page, and when a leader should step in versus step back. Here's our conversation.

2:02Sarah Green Carmichael:So when you first started out with your first restaurant, Union Square Cafe, how did you articulate the culture that you wanted to create and get the team to successfully execute on it? I didn't. I never articulated anything to anybody because I didn't know the first thing about opening a restaurant, starting a business. I just did what came naturally to me and what was intuitive. I think over time, I started to use my words as we used to teach our kids. Instead of just, you know, trying to embody the behaviors I wanted to see, I really was trying to let people know what they were. And that's when things started to get pretty good because it's not fair to ask your team members to be guessers as to what really matters.

2:51Sarah Green Carmichael:You talk about this idea of enlightened hospitality. Explain what you mean by that. So the idea of enlightened hospitality, in fact, occurred to me when I opened my second restaurant, which was Gramercy Tavern, almost 10 years after opening Union Square Cafe. it didn't feel right to me in there and I couldn't figure out why. For the first time in my career I was not a hundred percent of the time at the front door in one restaurant so I was going back and forth and if I've learned one thing about culture all these years later culture is what happens when you're not in the room and half the time I was not in the room and I had not done a good job of defining it.

3:33There was one awful day, a Union Square Cafe regular dined at Gramercy Tavern, and she came up to me furious after her meal. And she said, you know, what I just experienced never would have happened at Union Square Cafe. And she was really talking about a horrible lapse in hospitality. You know, she went into great detail about what we had done. And I was so upset with myself because I realized I had never really clarified our culture to our team at Gramercy Tavern. I hosted an all-staff meeting the very next day, and that's when I coined the expression Enlightened Hospitality. And I said, guys, from this moment on, we are in the business of hospitality.

4:20Yes, we're going to always try to make our food much better. We're going to always try to have better wines on our wine list. But when someone pays their bill at the end of a meal here, what they're paying us for is not the food and wine. You got to pretend all that stuff was free. What they're paying us for is how we made them feel, hospitality. Here's what hospitality means to me. It means that the person on the receiving end of your service truly believes that you were on their side. And I'll take it a step further, guys. Our first customer is us. and I coined the expression, the virtuous cycle of enlightened hospitality.

4:57And I said, I know for a fact that the way you treat each other is going to directly influence how our guests feel treated. And if you have a lapse in how you care thoughtfully for one another, our guests will feel that. And so enlightened hospitality, I told them, was basically taking all five of our stakeholders and creating a virtuous cycle where the input would be one another, followed by our guests, followed by the community in which we do business, followed by our suppliers, followed by our investors. And if you break this anywhere, you break the whole thing. All of that came to me in a fit of anger over how poorly we had treated a guest the day before.

5:39That has been the blueprint for every single restaurant we've ever opened since. And people don't have to guess anymore what matters to me.

5:48Sarah Green Carmichael:So how do you translate that ethos into values or specific behaviors that you want to see? Well, that's another thing that I didn't do a very good job of for many, many years. It was constant learning by doing, and a lot of the doing, I was falling down and getting myself back up. But the first iteration was I said, I know what I need to do. I need to establish what are our family values. And somebody really smart said, okay, that's a good idea, Danny. You should really crowdsource those family values from the team. So instead of being a top-down thing, everybody will have some skin in the game.

6:31And so I did that. And this was probably 15 years ago or something. I got probably 60 answers. And we were so smart, we created a word cloud, printed it on coffee mugs, and gave it to every leader in the company with 60 words on it. And it was everything from enthusiasm, community, spirit, seasonal. And then another consultant came to me and they said, you can't do that. You can't expect people to remember 60 different values. And so we spent like three days locked up in a room bucketing those 60 values into four. and the four family values we came up with, which could be values for anybody's company, were excellence, doing the thing you do as well as you can do it, a little bit better than you did it yesterday.

7:28Hospitality, doing it in a way that made other people feel better. Entrepreneurial spirit, identifying problems before others identified them and coming up with a fresh solution and integrity, having the judgment to do the right thing, even when no one else is looking and even when it may not be in your own self-interest. So we had these four family values. And then we had a really important aha moment. And we had an outside speaker, a guy who's a friend, his name is Dove Seidman. He's the founder of the Howe Institute. And Dove came to speak to my senior leaders. And he said, guys, the companies that succeed in this next generation are not going to be the ones that outperform their competition.

8:14They're going to be the ones that outbehave their competition. And I had never thought about that. So with that nugget, I went back with my team and we said, you know what? We should really scrap family values. and instead we should replace family values with expected behaviors. And this was one of the most powerful things we've ever done in terms of taking a quantum leap forward for our culture was that family values is a big problem. We are not a family, we're a business. And it was disingenuous of me to suggest that we were a family. Yes, if you've ever worked in a restaurant, there are things that feel good.

8:59You sit down and you have something called family meal with everybody else who works on the staff. But you know what? Sometimes you got to fire somebody in a business. You don't fire a family member. Your crazy uncle still gets invited back to Thanksgiving dinner, but you cannot do that in a business. And so second problem besides it was family is that it's really hard to hold someone accountable to a value. And then third problem was, is that the four family values we had, again, this in terms of advancing culture, could have been any company in the world. Who would argue with wanting your business to be more excellent, more hospitable, better entrepreneurial spirit, and exemplifying integrity.

9:44So what we did was we took all of the expected behaviors from stories that were actually in my first book, Setting the Table, stories that were uniquely ours. And that's when we really hit go on this whole thing.

10:01Sarah Green Carmichael:So what's an example of an expected behavior distilled from the inline hospitality and the family values? One that I really love is called Center the Salt Shaker with an unwavering commitment to excellence. And centering the salt shaker means that you're doing things the way they are supposed to be done. So that's one. And if I were to say salt shaker to anyone in our whole company, thousands of people, and then if you add Shake Shack in, many, many more thousands of people, they will actually be able to look at a salt shaker and know what that means. So I imagine that finding people who will adhere to those behaviors starts with hiring, right?

10:42Yeah. We will never be any better than the quality and the emotional skills in addition to the technical skills of the people who we've hired to be on our team. And so our recipe is 49 parts technical prowess and 51 parts hospitality skills. I learned that if we're just hiring the person who's the best cook, but they're not great for the team based on who they are while they're doing that cooking, it's a lose. And, you know, we've all made excuses for people who are great at what they do, even though they're not great for the culture. So that's why when we hire somebody, we're very specific about what the emotional skills are we're looking for because, quite frankly, we're much better at identifying those when we interview than we are at changing them once somebody's actually on the team.

11:37I knew the kind of people who worked really, really well. I knew the kind of people that didn't work as well or work out as well. And it was really just a matter of, for the first time in my life, saying, stop being intuitive about everything and start being intentional about everything. Who are the 10 or 20 most successful servers you've ever had at Union Square Cafe? Who are the 10 or 20 most successful cooks you've ever had? And what was it about them that made me feel so good? What are the emotional skills that they all have in common? And when you put them all together, they added up to something that I named the hospitality quotient.

12:17And these are people, people who have a high HQ are people who are actually happier themselves when they make other people feel better. That doesn't say a damn thing about a good bookkeeper, a good sommelier, or do they know how to make pasta? It's all about their wiring. And we started calling those people 51 percenters. Then I realized that that wasn't even adequate because we got really, really good at hiring 51 percenters. Sometimes at the expense of hiring what I now call 100 percenters, it wasn't doing any good to hire people who were only good at the emotional skills, but didn't know how to cook very well.

13:00But now what we're really good at is hiring the whole thing because we want to get 100 on our test.

13:07Sarah Green Carmichael:Yeah. As someone who frequented Union Square Cafe from, you know, 99 to 2004, I will say that the one thing I remember the most, apart from the delicious tuna, is the fact that the servers seemed to love their job and they were really good at it. This hospitality quotient is important, not just for people in consumer-facing roles, but also for people in the corporate offices who need to be hospitable to their colleagues, right? Yeah. Any business on earth is only as good as its team. That's the real competition is getting the strongest team. And I just don't know anyone who would rather work with people who, in addition to how good they are at their job, aren't also good for how it feels to work there.

13:55Look, I'm actually a sports fan. And sure, you take a sport like baseball, where they measure every statistic of what's happening on the field. And the office staff of baseball teams have gotten really expert to dealing with that data. But the weird thing is that baseball is a game where you spend half the game in the dugout. There's not one statistic I'm aware of in baseball that measures who are you in the dugout, meaning who are you for the rest of your team? Are your behaviors actually bringing out the best in everybody else on your team?

14:30Sarah Green Carmichael:They do have that in basketball, which is very interesting. It's like you're plus minus, right? Yeah. Absolutely. I do understand the plus minus in terms of, well, I understand in hockey where, you know, when you're on the ice, how many goals were scored when you were on the ice versus how many goals were scored on your team. But I don't think I've seen that with respect to what happens when you're on the bench. Yeah, they don't measure like who's a good locker room guy, right? That's what I'm talking about. Yeah, exactly. So what are the six elements of HQ? The first one is kind to optimism. And you can look at someone's eyes and see if they have kind eyes.

15:09But I also think optimism, which is a first cousin to hope. You want someone who actually believes that they can impact things for the better. The second emotional skill we look for is curiosity, curious intelligence. We're not interested in hiring know-it-alls. We love hiring learn-it-alls. The third emotional skill is work ethic. We can teach anybody how to set a table, but we can't teach most people how to care about doing their job as well as it can be done. The fourth emotional skill we look for is empathy, which is having the unique ability to imagine what it might be like to walk in someone else's shoes.

15:50And I think about the golden rule that I was brought up with growing up in St. Louis was always do unto others as you want others to do unto you. That's the golden rule I learned. My golden rule, I call it the golden rule of hospitality, is do unto others as you believe they would want done unto them. And it's very different because we're all different. So I don't impose my wants on you. I try to imagine as an empathetic person, what do you need? What do you want? The next emotional skill is self-awareness, which is what's making me tick today? What side of the bed did I wake up on? Hospitality is a team sport.

16:27So understanding what my personal weather report is and understanding how to make sure that that works for my team and not against my team. And then finally, integrity, which is having the judgment to do the right thing, even when no one else is looking and even when it may not be in your own self-interest.

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17:24Sarah Green Carmichael:so you mentioned your hesitation at wanting to expand and you expanded not only to sort of more restaurants in new york but then shake shack which is a international chain now so why did you or how did you get comfortable making that leap and not being absolutely in touch with every part of your business? I had great leaders who were pushing me to grow. And Shake Shack, we only had one for the first five years. Now there's over 700 in the world. But I just didn't really want to grow it because my own father's bankruptcy. I always associated his two bankruptcies with growth. And it took me several years of therapy, actually, and also his dying for me to realize that, guess what?

18:12There's a whole lot of businesses that have grown and that's not what put them out of business. In fact, they've thrived. So it was a combination of my own internal growth and getting over that, but also having the kind of leaders on the team. One in particular, a young man named Randy Garuti, who had been a general manager of our Indian restaurant, Tabla. And then he was the general manager of Union Square Cafe all by the time he was 26 years old. And he wanted to take over Shake Shack. And he saw when we just had this one Shake Shack in Madison Square Park, it was busy all the time. It was making good money.

18:50And the only problem we really had at that Shake Shack was the people complained the line was too long. And Randy finally convinced me. He said, there's one thing we could do to make the line shorter, and that's open a second Shake Shack. And he probably argued with me to do this for a good three years or so before I finally succumbed. And I got to the point and I said, you know what, who am I? This business is good for its community. It's good for its suppliers. The people working there, people were doing really well. We were hiring a lot of people for whom it was their first job ever, teaching them about what it means to be a responsible member of a team.

19:28It was a good thing. And I said, who am I to hold back more of that? So we went ahead and opened our second Shake Shack on the Upper West Side five years after the first one. And the only problem with that was that the line at the first one only got longer. So Randy's primary argument to me had backfired. But that's when I said, uh-oh, we've got a tiger by the tail here.

19:52Sarah Green Carmichael:In the position that you're in now, how do you stay in touch with the culture sort of on the ground? I go. I go to the places and I care. I have an expression, which is that I think a good leader, especially as she's growing, needs to stop micromanaging but needs to double down on micro-caring. So I don't travel anywhere in the country or in the world where there's a shake shack without stopping in to say hi I have a list of all the managers at every single shake shack And I ask for the manager by name and they are surprised that I do that. They're surprised that I know them I just did one this week actually In boston.

20:36Oh and the general manager whose name is barbie was amazed that I asked for her by name and then I spend time with her. I spend time with her team and I ask them, what can we do better? Everyone loves when you ask them that and guess what? I get good ideas. And so it starts with caring. It starts with showing up, but I'm not micromanaging. I'm not telling anyone how to do their job. I'm not going there to play a game of gotcha. As a matter of fact, I'm going there to play the game of teach me, show me, let me see what you're proud of because everyone's proud of something in their job. And then I circle back and reinforce it with their boss, who I hope their own boss doesn't micromanage them, but I do hope that their boss gets to see them and care even more than I do.

21:23Sarah Green Carmichael:Yeah. In periods when you've either encountered problems on those visits or you've sensed that sort of the entire corporate culture is slipping, I think in the book you described it as like going sideways, how do you move to correct it? The only things I will correct if I'm visiting a restaurant that doesn't report directly to me is if I think it's either dangerous or it's going to cost us customers that minute. So I've walked into Shake Shack. I went into one in Chicago a couple months ago. and I walked in on a Sunday afternoon at about four when you would not expect the restaurant to be busy and yet the place was still packed and I noticed that there was water spilled on the floor and I noticed that there was ketchup on the condiment station right on the surface and I said to myself this doesn't look right it doesn't feel right and in that case I asked for the manager said hello, introduced myself, but I brought what I call a charitable assumption.

22:31I didn't say, this place doesn't look clean right now. I said, it looks like you've had an incredibly busy day today. So I started the whole conversation with that. And I learned, yeah, there was some big event that day and they were just playing catch up. And he said, I don't know if you got 15 minutes, but this place is going to look like day one if you got 15 minutes. I'm going to show you that, but we're just playing catch up right now. I've had an experience where something in the food didn't taste right. And I'm not talking about Shake Shack now. I've talked about another one of our restaurants.

23:05And I said, guys, we've got to take that off the menu till we figure out what's going on because that's not how it's supposed to taste. It's important for me that when I leave there, we center the salt shaker. We go back to doing it the right way. But I also want people to feel proud that they're on a championship team whose ultimate boss cares deeply about that. And guess what? I then, in every case, I absolutely circle back, whether it's good news or constructive news, to speak to that person's boss or write an email or whatever. But we also have a culture where whenever I dine in any of our restaurants, I know that the next morning I'm going to have an email from the chef and the general manager asking me for feedback.

23:53They want it. And that's part of the culture is that they don't wait for me to say this was good or that could have been better. I want them literally to be saying, give us the goods because I'm on our side.

24:06Sarah Green Carmichael:Yeah. So we talked about hiring for hospitality quotient and technical skills and ultimately good judgment. How do you indoctrinate people into the culture so that everyone is on the same page and then also incentivize adherence to it? We talk about this from the minute that we hire people. We tell people what we mean when we say a 100 percenter. We tell people not everyone gets hired here. We're really, really selective. And we tell people exactly what we saw in them that made us want to hire them. So right from the get-go, we're letting people know we hired you because we believe that you either already have or have the potential to be really, really good at the job that we are paying you to do.

24:53But that's not enough. There's another 51 % that made us really want to hire you, and that's for who you are. And we talk about what the six emotional skills are right there that we're looking for. And we let people know that when you have a performance review, we're going to be talking about how you're doing with the 49 % and how you're doing with the 51%. We even had at Union Square Hospitality Group with all of our restaurants, when you work for us, one of the benefits is you have a 51 % dining discount whenever you come to any of our places. And it's just constantly reinforcing what matters.