A fresh perspective Featured

8:00pm EDT June 25, 2008

There’s a belief among business leaders that change is just a part of growth. That might explain the history of Garden Fresh Restaurant Corp., where there’s been no shortage of change or long-term growth since Michael Mack and a partner purchased two Souplantation restaurants in 1983.

The company operates a chain of casual dining restaurants that go by the name Souplantation in Southern California and Sweet Tomatoes elsewhere. Mack, the company’s co-founder and CEO, has expanded the company to 109 locations in 15 states during that time (the company doesn’t disclose revenue, but online estimates put it at more than $100 million), but it was not without navigating through a few twists and turns along the way.

In order to sustain growth over a quarter century, Mack’s list of successful change management feats includes guiding the company through an initial public offering and then returning it back to private status.

“At the time, going public was a viable option because it served as a financing vehicle to support growth,” Mack says. “It worked well for the first five years, but we expanded too rapidly, and we compounded our problems by some missteps in pricing and menu selection, and soon, our quarter-over-quarter performance was uneven. At the same time, the public environment changed with the advent of Sarbanes-Oxley. Very few businesses actually function well quarter over quarter, so the next logical move for us was a return to private status, which was a decision that also made our shareholders and board very happy.”

While the road to sustained growth is never straight, Mack insists that CEOs can navigate change successfully, by keeping everyone on the team aligned with the CEO’s goals.

Create alignment

So what’s a guy with an undergraduate degree from Brown University and an MBA from Harvard doing in the salad business?

“Originally, my partner and I got into the restaurant business because we wanted to become entrepreneurs in an industry where the competitive barrier was not technology,” Mack says. “We wanted to be in a business where the competitive advantage came from people.”

It’s important to understand Mack’s motivation because it’s an integral part to his change-management philosophy. Mack says that during his consulting days, he noticed that when leaders failed to guide their organizations successfully through a change process, it was generally because their employees no longer felt aligned with the personal goals of the CEO and the organization’s mission and vision.

Providing clarity in direction and gaining support from employees about proposed changes keeps everyone’s efforts unified toward the goal and prevents uncertainty, which can lead to execution failure.

The scope of Mack’s communications challenge has grown along with the company as it now employs more than 5,000 workers, but his personal goals have not wavered during his tenure. Much of his motivation for change has been to adapt to changing conditions in order to sustain growth.

As an example, Mack says that after expanding to 33 locations, he opted to take Garden Fresh public in 1995. At the time, his goal was to use the public offering as a way to finance expansion. He says that a common misconception shared by employees is that a public offering is the ultimate financial prize sought by founders,and it’s often part of a founder’s exit strategy. In fact, there are numerous restrictions that prevent management from exercising large blocks of stock after going public, and exiting the company wasn’t his plan. So he communicated his goals, intentions and vision for the company with employees and got his team on board with the change.

“As they go through the change process, people will draw strength from knowing that everyone on the team shares the same priorities and reasons for being here,” Mack says. “As the CEO, you should ask yourself a few questions to clarify your intentions before beginning the change process, such as, ‘What is it I personally want from the change, and what are the business goals that will result from the change?’ Then clarify your intentions with the employees. Without clarity of intentions, everyone will just flounder and flop around.”

Then in 2004, after adding 44 additional units in 10 states, Mack engineered Garden Fresh’s return to private status because the company was having difficulty generating revenue and earnings to match Wall Street’s expectations, and the costs and complexities of Sarbanes-Oxley compliance were diverting funds that could be better used for growth. He informed the staff of his decision six months prior to his return-to-private-status goal date, which gave them ample time to ask questions and digest the change.

“The next step is to articulate your plan to the executive team and let them communicate it down through the organization,” Mack says. “Many leaders think once they’ve communicated their intentions, that’s it. In fact, you have to communicate your intentions and goals over a long period of time because if you graph the way people actually jump on board with change, you’d see the adoption rate is actually shaped like a bell curve. Some people get on board right away and contribute to the change process, some come along as they hear more and start to understand, and then at the other extreme, you have the dissenters.”

Mack says he welcomes open dissenters and says it’s important for CEOs to listen to them and understand their concerns because silent dissenters can become plan saboteurs, unless they are heard. And if saboteurs emerge, Mack favors firing them.

Implementing change

As employees gain comfort with the proposed change, Mack’s next step is to move to the planning and implementation stage.

“Once the strategy is set, you move forward and let people know how they’ll contribute toward the change,” Mack says. “To execute change effectively, you have to be clear about the outcomes you want to achieve.”

He says that effective implementation plans are fluid and tweaked along the way because, invariably, CEOs must adapt their plans for unanticipated circumstances. He first sets macro-level business goals with his executive team and then creates microlevel outcome expectations, such as same-store EBITDA growth targets that need to be achieved by managers in the next 12 months. He keeps a pulse on the change process by reviewing his team’s progress toward the specific milestones during weekly executive meetings. Mack says he doesn’t get overly involved with the plan details, unless the implementation course starts to deviate from the main business strategy or the milestone check reveals a lack of progress.

“I’m always involved in decisions involving the critical business profitability drivers like pricing, menus and advertising, but more

often, I’m not involved in all the details, I’m more of a facilitator,” Mack says. “It’s more important to spend time getting clear about where we’re going and be a little less hung up about how we’re going to get there because that’s what creates alignment. I want to make sure what I’m doing is consistent with my values and the values of the organization.”

As an example, Mack says he’s supportive of a restaurant manager’s decision to offer menu items that appeal to local diners, but he says he’d want to know if the manager chose to make a major change from the restaurant’s primary fare, like diverting from salad as the main item on the menu.

Accountability counts

Mack’s final change-management lesson is this: Before embarking on any major change initiative, CEOs should ask themselves if they are willing to be accountable, vulnerable and authentic to the people around them — no matter the outcome.

“It’s important for CEOs to take accountability no matter what happens because that kind of openness and honesty with the organization creates alignment toward the mission and vision, and no matter how involved you are, on some level, when something goes wrong, you’re responsible,” Mack says. “When you ask yourself what you could have done differently when something doesn’t go well, it’s part of an iterative process that causes you to ask what was the outcome you intended and where it got off track.”

Accordingly, Mack admits to making a few mistakes along the way.

Besides accepting responsibility for the company’s early difficulties with large-scale expansion, Mack says he was the major architect of an ill-fated discount program designed to bring more guests into the restaurants. While guest traffic did increase, only half the goal was achieved because the meal price was too low and the program wasn’t profitable. Afterward, he took responsibility and asked his staff for input about how discount programs might work better going forward.

Creating a culture that embraces change without blame has helped Garden Fresh accelerate growth. After opening a few new locations in 2006 and 2007, the company plans to open nine new restaurants in 2008 and at least four in 2009. The new growth plan is the result of Mack negotiating through even more major changes at Garden Fresh, including the private sale of the company to investment group Sun Capital in 2005 and the creation of a new restaurant prototype in 2006.

An in-house team took on the task of creating a new concept for the restaurants that would reinvigorate expansion by reducing the barriers to entrance and profitability thresholds. The newly configured restaurant will allow more guests to dine in less space and require fewer workers.

“Most of the recommendations came from an in-house team because we’ve created a culture where people see the value in change,” Mack says. “There were no sacred cows. Everything was up for review, including how the restaurant was laid out and the way the food is merchandised.”

Mack says that on occasion, conflict erupted within the group as it debated prospective designs. In this case, he says, conflict was a good thing because there’s benefit in considering numerous options as part of a major change initiative. Ultimately, the team had to justify its creative concepts through financial models, and it also had to weigh customer feedback in making its recommendations.

For Mack, the success of the redesign initiative was indicative of the reasons he initially chose the industry — because people, not technology, will dictate the difference between success and failure with the new restaurant model. All in all, that alone is proof-positive that his team remains aligned with his personal goals.

“It always comes down to this: Are we all here for the same reasons, and are we all drawn to the same goals?” Mack says. “It was a passion for people that originally drove me to this business, and creating great returns is all about having the right people doing the right things with the same set of priorities.”

HOW TO REACH: Garden Fresh Restaurant Corp., www.souplantation.com