Leaders Playbook: Inside Shake Shack 1/14/26

0:01On this episode of Leaders Playbook. We had absolutely no idea that Shake Shack would become Shake Shack. Meet the leaders behind one of America's fastest growing restaurant chains. We think we can get to 1 ,500 Shacks. It's like a big, audacious goal. Find out how cereal restaurateur Danny Meyer turned a New York City hot dog cart into an international burger empire. There was no intention that this become a big business, no intention it would become a public company. And how he built over a dozen high-end restaurants and a fast casual chain around the philosophy of enlightened hospitality. I saw companies that put their investors first, theoretically, didn't put their own teammates first, and it didn't always work out so well.

0:44Plus, his secret sauce. When you have happier employees, you get happier guests, then you get more revenue. And the strategies he's developed to help businesses thrive. We came up with this idea, we call it Hospitality Quotient. And how a global crisis challenged his core values. How do you reconcile laying people off when you say you're a people-first company? Leaders Playbook, Shake Shack, starts now. I'm meeting Shake Shack founder Danny Meyer at Union Square Cafe in Manhattan, the first restaurant he opened when he was 27 years old. Now he's executive chairman of Union Square Hospitality Group.

1:20In addition to its award-winning restaurants, bars, and cafes, the company teaches leadership and hospitality to employees and executives at a range of organizations, from Delta to Marriott. And he's the author of the bestseller, Setting the Table, the transforming power of hospitality in business. What is Enlightened Hospitality, and how did you come up with this leadership style? Enlightened Hospitality simply acknowledges that every business in the world, every organization in the world, has the exact same five stakeholders. Business people get to make their own choices about in which order are they going to prioritize their stakeholders.

1:57And this was probably 10 years after getting into business, was that we had been prioritizing our own staff first. And I had grown up in St. Louis, always hearing the customer's always right and the customer's always first. We were putting our guests second. And we were putting our community third and our suppliers fourth and our investors fifth. And that's kind of bizarre if you think about it. Instead of putting investors first, Meyer puts employees first. In a virtuous cycle, one good thing keeps leading to something even better. And so it's not that we want our investors last as if they're at the bottom of a totem pole.

2:36It is truly a cycle where I want great things for our investors. But if you believe in a virtuous cycle, you would always want to start with the input being the people who work there. Because our customers, which we call guests, are never going to be any happier than the people who are working here. They just won't. What happens is that if it feels good to come to work and you share a mission and a purpose, and in our case it's extending enlightened hospitality, then I think that the chances that all the other stakeholders are going to feel great is going to increase. Do you think ultimately it does benefit investors?

3:16Of course. Of course it does. Because when you have happier employees, you get happier guests. Then you get more revenue. When you have more revenue, you can actually invest in your community. And the community is like the rising tide that lifts all boats. You want all of these stakeholders to be rooting for you. You could call it enlightened self-interest. In 2001, Meyer put enlightened hospitality to the test. So I said, I've got an idea. I want to prove that we can redo Madison Square Park, because that will be hospitality to the neighborhood. I was thinking about the community. I want to prove that hospitality works at something as mundane as a hot dog cart, not a fancy restaurant.

4:00And so we picked Chicago-style hot dogs to serve, because they've got eight classic toppings. And we had lines of 100 people at that. And I also wanted to test out in light and hospitality another way, take care of our own people first. Who did we staff the hot dog cart with to do this experiment? Five out-of-season coat checkers who ordinarily would not have started making money until November, we put them to work in June, July, and August and September in the park. So they got to make money. We didn't make money. There's a reason hot dog carts have one person, not five. But we learned so much and the community kept saying, bring it back, bring it back, bring it back.

4:37So Meyer turned the cart into a more permanent business. We talked to the city parks department. We talked to the whole city and we said, we will contribute all the money to build this kiosk, which was less than a million dollars. We will gift the building to the park. So you'll be the landlord. We'll own the business. Every time someone buys something at this thing, a percentage of those sales will be paid in rent right back to the park to keep the park safe and beautiful and programmed. So what if we could have a business that was actually self-sustaining for the park? That kiosk was the first Shake Shack.

5:17We had absolutely no idea that Shake Shack would become Shake Shack. No idea at all. There was no intention that this become a big business, no intention to become a chain. We didn't open a second one for five years. No intention it would become a public company. It was really to make money for the park. The original Shake Shack in Madison Square Park to this day still contributes just under a million dollars in rent to that park every single year. I wish I could come up with that model again somewhere. It's just been a win-win-win. Coming up, big plans for building more shacks and the CEO taking the lead.

5:52Can we take this idea and make it work across the 1 ,500 shacks that we aspire to build? After the break.

6:08The first Shake Shack opened in Madison Square Park in June 2004. People waited in lines up to an hour for their food. Despite the burger joint's popularity, Meyer was hesitant to open a second location. You know, I'd watched my dad go through a few bankruptcies growing up in St. Louis, and I always associated his bankruptcies with expansion. Whenever he grew his business or went to another city, he seemed to go bankrupt. It would just bring our whole family to its knees and cry our eyes out. And I didn't want to go down that route. So my rule was I'm never going to open another restaurant. And if I do, it's only if I believe that that next restaurant can be as excellent as the first one.

6:52It's only if I believe the first one won't get worse in the process. And it's really only if I believe my life will be more balanced by virtue of opening the next restaurant. That's why it took five years to open a second Shake Shack. I don't get any of the credit for that. I would have been very happy with my nice little shack in Madison Square Park with a nice long line. But the manager of that first shack saw a huge opportunity. The person who was running Shake Shack, who would go on to become the CEO of Shake Shack as a public company, is Randy Garudi. Randy lives on the Upper West Side, and he kept passing this space on 77th and Columbus.

7:27And he applied some really constant, not-so-gentle pressure to me, and he said, if you don't look at that space, you're just crazy. So, obviously, we did it. What Randy told me, which really convinced me, he said, here's the good news. What's the biggest complaint we're getting at Shake Shack? The damn line is too long. Randy said, I've got an idea. We can cannibalize the line by opening a second Shake Shack. So now he's got me. So we open the second Shake Shack. The first one only gets busier at this point. As soon as that happened and the second Shake Shack made the first one even busier, I said, I think this is a high-class problem we've got right here.

8:08And that's when the growth really started to happen. The second Shake Shack opened in fall of 2008. By 2015, there were 63 Shacks around the world, and Meyer took the company public with Garuti at the helm.

8:24I'm a much better chairman than I ever would have been a CEO, and I don't know that I ever wanted to be the CEO of a public company. I actually can't imagine it. As chairman of a public company with investors, with shareholders, how do you think about whether you have to justify the enlightened hospitality theories of paying your employees more, paying for premium ingredients when they're ultimately worried about the bottom line? I think we did a good job of that in our original S1 when Shake Shack went public. We came right out and told everybody who we are, what we stand for, what matters. Now, I'm not saying that today's investor, which could be a computer for all I know, read that original S1.

9:05But we've never, ever, I don't think, issued any kind of statement about Shake Shack without reinforcing what matters to us. So let the buyer beware. That's who we are. We think it works. And so far, so good. When Garuti retired as CEO in 2024, Meyer and the board replaced him with Rob Lynch, former CEO of Papa John's, president of Arby's, and VP of marketing at Taco Bell. Rob Lynch knows how to do it. He's run much, much bigger organizations than Shake Shack. There's over 600 Shake Shacks globally right now, but Rob has run organizations with over 2 ,000. And look, from the very first Shake Shack, my sense was that we could bring the kind of taste that you get in fine dining, and we could learn the systems that chains and that scaled businesses already know.

9:59Meyer and Lynch have ambitious expansion plans. We think we can get to 1 ,500 checks. You know, that's a big, bold statement, and that takes you down a path that's a little bit different than saying, hey, we're going to build 50 next year, we're going to build 60 the year after that. It's like a big, audacious goal. You were brought in to dramatically scale this company, very different from prior roles where you've been brought in to do a total turnaround. How does that change your relationship with him as this visionary founder when you're trying to scale the company? Danny is all about people and teams and culture and this culture of enlightened hospitality.

10:36And so when I got here, I had this charge for myself that I was going to maintain that culture while we scaled. And I started talking to Danny about it and I said, you know, I'm really working on this. I really aspire to do this. Do you have any help you can provide me? And essentially he said, Rob, I don't want you to maintain the culture. He said, I want you to advance the culture. The challenge? Delivering enlightened hospitality across 1 ,500 shacks. Our responsibility when people come to Shake Shack is to give them that special experience. You know, our roots are in fine dining. When people make a reservation to go to one of Danny's fine dining restaurants, their expectations are up here.

11:21They should have the same expectations when they come to Shake Shack. Obviously it's a different model and a different experience, but they should come to Shake Shack feeling like, hey, this is going to be the bright spot of their day or the bright spot of their week, and we have to deliver that. We can't let them down. The biggest part of the culture that we need to evolve is we have to help the folks who have been here for a long time who have built this place and are amazing they have to believe that big isn't bad big does not mean that we can't be all the special amazing things that you know we've been for the last 20 years we are going to succeed if we are going to be able to build 1500 company restaurants like we can't lose that because if we do we become just another burger place on the road.

12:10Coming up, a global pandemic rocks Shake Shack and puts Meijer's leadership principles to the test. We looked at our bank account, which was dwindling every single day. After the break.

12:28Danny Meijer built Shake Shack using the same playbook that helped him build award-winning fine dining restaurants, put employees first and empower them to deliver incredible hospitality. For that strategy to work, Meyer created a hiring formula, the 51 % rule, which he now calls the 100 % rule. Explain how that works. We're looking for a 100 % employee, just like anyone applying to work for us should be holding us accountable for being a 100 % employer. How do you get to that 100%. 51 % of it are your emotional hospitality skills. And those emotional skills, we've identified six that are always present in someone who's got what we call a high HQ, high hospitality quotient.

13:13Someone with a high HQ is someone who is happier themselves when they make someone else feel better. Imagine if you had a car where the more you drove it, the more it filled itself up with gas. That's like someone with a high HQ. The 49 % that gets us to 100 are somebody's technical skills? Are they a really good cook? Do they make the world's best pasta? Whatever it is, we need both. You've got to have the whole package. So can you teach a hospitality quotient or is it just inherent? It's hard to teach emotional skills. The six emotional skills we look for in everybody are, are you kind and optimistic?

13:50Are you a curious learner? Do you have an excellent work ethic? Do you have empathy? Do you care how someone else feels? Do you have self-awareness? Do you know what your own personal weather report is on any given day? And finally, do you have integrity? Do you have the judgment to do the right thing, even when it may not be in your own self-interest? I don't know how to teach someone to be those things. I do know how to teach someone how to hire for those emotional skills. Most of our interviews for our team members are conducted in our dining room. I don't always tell everybody when I walk into a Shake Shack, Hi, I'm Rob Lynch, the CEO.

14:19Sometimes I'll just sit down, I'll have a meal. If I'm really lucky, I get to sit there and see a GM interviewing a prospective team member. They're not asking them, like, have you ever made custard shakes before or have you ever sliced tomatoes? They're asking them about what motivates them. What do they love to do for fun? How do they interact with people? It's really about finding people that light up when they're taking care of others. But the employee's first philosophy at the center of Meyers Empire was put to the test in 2020. The pandemic must have been tough. I read that you had to lay off 95 % of your employees.

14:56Yeah, that's about right. For a company that is so focused on employees, how did you manage that? How do you reconcile laying people off when you say you're a people-first company? How? Many, many, many sleepless nights. And finally, coming to the conclusion, if we're out of business, we're not going to be anyone's employee. And we had no revenue coming in, none, for several months. We kept as many people on as we could. We looked at our bank account, which was dwindling every single day. On the other hand, we were raising, we raised$2 million. We created something called the Hugs Fund to take care of people who we had laid off.

15:36It was just awful. It was just awful. But I think we did the right thing because the only way we could become great employers again was to do the right thing. We had weekly Zoom chats with laid off employees. We had resource pages on our website for how to interview for a job. We found 20 companies that were like-hearted companies, like Whole Foods was one of them, who were actually hiring people at this point. And we got interviews from people with them. So we did every single thing we could. The pandemic also tested Meyer's pricing strategy to pay employees more and more fairly. He called it hospitality included.

16:16The concept eliminated tipping and instead charged higher prices. The additional revenue was used to pay cooks, managers and servers higher salaries. We embarked on the initiative because the tipping system unfortunately comes with laws in many, if not most states, including New York State, where tips may be shared amongst people in the dining room, but may not be shared with anyone in the kitchen. So I wanted to take on that system and say, it's not fair that year after year after year, the offense is making more money and the defense keeps kind of pumping along right where they always were. So by eliminating tipping, I said, I'm going to be the boss.

16:57I'm going to decide how much people are going to get paid. And we succeeded at narrowing that discrepancy by about 25%, which felt great. And at the end of the day, when the pandemic hit and we could finally open our restaurants again after being closed for many, many months, we brought back servers. It was really hard to find people who would work. Remember, we didn't have vaccinations back then. And when someone's eating in a restaurant, they're not wearing a mask while they're eating. So our servers were actually frontline employees. And New Yorkers were so grateful for the opportunity to come out to eat.

17:35they were throwing tips at our people. And after two weeks of telling our staff, wait, you can't accept tips, I said, Danny, you're not being on their side. So we brought back tipping. However, when we brought back tipping, I did not want to erode the gains we had made over five years of the experiment. And so in addition to bringing back tipping, we instituted a new policy where we pay a percentage of sales to all of our kitchen workers and all of our non-tip eligible workers so that they too have an incentive on a busy night to keep the place really busy. The success of Danny Meyer's growing restaurant empire caught the attention of leaders in other industries.

18:16They wanted to see if his approach of hospitality-driven leadership could work for them. We started fielding all kinds of calls from people. We're trying this in our organization. Can you help with this? So we came up with this idea. We call it hospitality quotient. And lo and behold, the amount of demand that there has been from companies, everything from airlines to retailers to beauty salons to lawn companies, automotive companies, it's just been absolutely remarkable. And guess why? Because anyone who's got stakeholders, anyone who's got employees and customers, communities, suppliers and investors has learned that the way you make your stakeholders feel is paramount.

19:03It never hurt our business to share our recipes for our food with people. So I kind of feel like the same way. It won't hurt us to share a recipe for hospitality with other people as well. Meyer shared his leadership strategy with dozens of companies. And in 2010, his Union Square Hospitality Group started a consulting arm to deliver bespoke training courses in hospitality to employees at a range of companies, including Marriott, Lexus and Delta. I would call out our partner Delta as a company that has a huge operation, thousands and thousands of employees in a very tough industry, who I believe delivers the best hospitality in the industry.

19:42And so the only way you do that is if everyone in your company believes that that is what is the special sauce. Like if that is what makes you Shake Shack. And so we aspire to give our team members the right tools to execute that model every day. So what is it about Danny Meyer's leadership? How is he different from other people you've worked with in this industry? I have a call or meet with Danny probably about once every two weeks. And when we talk, we usually talk for about an hour. And about 55 minutes of that talk is about people. is about our team, how we can support them, who's doing great work, how we can recognize them.

20:25So we probably spend about five minutes talking about the business and the other 55 talking about the people. And that's super different than most of the other bosses I've had or coworkers that I've engaged with on a regular basis. What do you think your leadership superpower is? Probably humility, which is that I don't think I have a superpower. I don't really focus on that. When I say humility, I really believe that every day is a day to reprove who you think we were. Today is the day to become the company people think we are. More valuable insights from some of the top business minds in the country on the next episode of Leaders Playbook.