CEO Stories: The Ripple Effect of Doing Good

This Is Capitalism: Scott Svensen

RH: This is Capitalism. I’m Ray Hoffman. It was Allie Svensen’s desire to find a good cup of coffee in London that made an entrepreneur of Scott Svensen, her husband. Each of their three companies has been genuinely successful but their most recent one may turn out to be legendary, maybe as big as the fast casual restaurants it was modeled after — Chipotle and Panera–only in the pizza category. A fresh, on-demand, artisan style, six-minute pizza.

But there’s more to the story of the fastest-growing restaurant company in the U.S. in 2016, MOD Pizza, as they named it. Ask the many employees with special needs, including the former felons who have been given a second chance as members of the MOD Squad. But then, as Allie Svensen said when they were planning it, the world doesn’t need another soulless pizza chain.
SS: We have started three companies now and in each case the company we started was something that we ultimately felt called to do. We almost felt like we couldn’t not do it. We’re not very good entrepreneurs from the perspective of sitting in a room and saying “where is the next great opportunity and where can we make a bunch of money?”.

When we started our first business, which was, Seattle Coffee Company, a Starbucks-style coffee business in London, we’d been living in London for years and my wife in particular had identified that London was desperately in need of that type of an experience and that type of a product offering.

RH: And Starbucks was not there at the time?
SS: Starbucks was not there. They were in the U.S. and they had just expanded to Japan, which was their first international market. So it was more filling a need that we felt had to be filled by someone. And we talked about it for four years before we finally did it.

My career had developed such that I had become deputy chief executive of a public healthcare company, a company called CrestaCare–it was a long-term healthcare provider. And my wife and I decided we were going to start this coffee business and I went to the then-chairman, a wonderful Scottish industrialist named Sir Matthew Goodwin, and I told him what I was going to do. And he told me that I needed to take a vacation because he thought I’d been working too hard because I told him that I was going to go start a coffee shop company.

And in the U.K. coffee shops had a bad connotation. So he thought I’d been working too hard and that I was having a breakdown. And he orchestrated an intervention from several board members because they thought that I had lost my mind. In any event, I finally explained to him what we were going to do and we went off and did it and it was a fabulous experience.

But that was the first step and it was crazy. My wife and I went from a very traditional career path to jumping in and sitting in this little room in our basement flat in London, trying to figure out how we’re going to launch this business. It was scary and exhilarating and exciting. But the real gift was my wife and I, Allie, we’ve been best friends ever since we’ve known each other, we were doing it together.

It was fascinating. We had some really smart people working with us. And one of the easy decisions you would’ve thought is we’ll come up with a name. For the first five months of preparing to launch, we struggled to come up with a name. And one gentleman in particular, who had a lot of marketing background, consumer-packaged product marketing, really believed that it needed to be a one-word name because he had a lot more experience.

And we had some marketing consultants we were working with and we kept explaining this concept that we wanted to build and they kept describing it as a Seattle-style coffee. And finally they threw up their hands, after the 30th meeting, and said, “why don’t you just call it what it is, Seattle Coffee Company?”. And it was almost a default decision out of exhaustion and it ended up being one of the best decisions we ever made.

RH: And of course you sold out to Starbucks then and you became the head of Starbucks Europe.
SS: We were living under the belief that only the paranoid survive–this was when Andy Grove wrote his book–and we respected Starbucks enormously. And we just assumed that as soon as they saw us opening in London they would come to London and clean our clocks because we viewed them as being a lot better at what we were doing than we were. So we grew really rapidly. We opened our first three stores, proved that the concept would work, and then we opened 65 stores in 22 months in the U.K.

RH: Quite a defensive move.
SS: Yeah. I mean we did it because we just assumed…There were all these stories that were being told at the time around how Starbucks, for instance, had moved into Toronto where they were really stealthy, there was a local competitor and they came in and secured six pieces of real estate and they opened all six stores in one day. And no one knew they were coming. And I’ll tell you, at least once a week, once a month, we heard a story that,“oh, Starbucks is taking a piece of real estate.”

And so we just assumed that was going to happen. So we were running scared and appropriately paranoid for the whole time we were building the business because we really respected Starbucks and we knew that if they turned their sights to London they would be fierce competitors. And by the way, they were our inspiration so the idea of competing with them was a tough one.

And they made our life easy because we were actually getting ready to go public in the U.K. We were growing rapidly, we needed the capital. They approached us and we, I’ll never forget, we sat down with Orin Smith, who was the then-president at Starbucks, and Allie and I met with him for three hours in our little conference room and just were so impressed with him and the way he talked about Starbucks.

And then we met Howard Behar, another fantastic culture carrier for the company, and just were super impressed. And then we had this meeting…Howard Schultz came to London and we had this really fascinating and fantastic two or three days with him and at the end of his time we agreed to sell the business to them.

And the nice thing about that was we had been inspired by them–and the thought of competing with them we were up for because we were committed at that point–but we loved the idea of collaborating with them as opposed to competing. And so they made it easy for us and kind of made us the proverbial offer we couldn’t refuse.

RH: How long did Seattle Coffee Company exist?
SS: About three years. We launched, grew really rapidly, and then we sold and.…So the interesting part of the story is we operated when they bought us throughout the U.K., in South Africa, Southeast Asia, and the Middle East, and we were getting ready to go to Northern Europe. Our partner in Southeast Asia became part of Starbucks and our partner in the Middle East became part of Starbucks and ended up…it has become a huge partner for them growing throughout the Middle East and elsewhere.

Howard Behar and I talked to the partners in South Africa. And Howard, who is such a wonderful guy, said listen, “South Africa is so far away, we’re not going to go there, we really like you guys, we’re just going to release you from your licensing agreement as long as you stay in South Africa.” So my wife and I and four boys traveled back to South Africa two years ago and Seattle Coffee Company now has over 100 locations in South Africa. So it still exists.

RH: Awww.
SS: It still looks like it did back then.

RH: Isn’t that nice? What did you observe and what did you learn about management and leadership from your time at Starbucks that you didn’t know before?
SS: The first thing was that we went into the transaction assuming that we were walking into a company that had it all figured out. We watched them from the outside and just respected them so highly. And when we got inside, we realized they had all the same dysfunction and all the same challenges we did, even though we were a much smaller company. So that’s just I think the reality of building a business is that the process is messier and less linear and less clean than it might appear from the outside. So that was one of the lessons.

And the other was Howard Schultz took my wife Allie and I out to dinner right after the transaction. He had been reading a book at the time, which was called Orbiting the Giant Hairball. It was written by the former creative director from Hallmark Cards. And the whole story behind it was this idea…He was struggling with how can Starbucks get big but stay small, to hold onto the things that were so impactful and important when it was a small company.

And this book talked about as you take this crazy idea that leads to a great opportunity to grow–Starbucks with their coffee shop idea–then to grow it and to make sure that it can be executed consistently, you  need to lay on policies and procedures and systems. And these are each hairs that you lay on it and it eventually becomes a hairball. And if you’re not careful, those strands of hair can choke off the very innovation that led to your success in the first place.

Somewhat motivated by that, I think, Howard said build a wall in the middle of the Atlantic and don’t let…He used the word “bastards,” don’t let the bastards in. Because there are all of these people in Seattle who believe that they’re doing my bidding, my work, and they will come over and try to change what you’re doing to the way we do it.

They’ll do it because they’re motivated to try to do the right thing but I don’t want you to do that. I like the way you guys are doing it here and I want you to explore doing it differently. We’re in Europe, we’re not in the United States. It should be different.

He understood, I think, the core issues but the reality was that the momentum of the organization is stronger it turned out than even Howard’s desire to sometimes change it. And over time things did happen to the business in the U.K. and in Europe that I think in hindsight people would look at and say well that doesn’t make any sense but it was because of the organizational momentum to continue to do things the way they were doing it elsewhere.

RH: So you come up with the concept of MOD. Was the name as difficult to come up with as Seattle Coffee Company?
SS: It’s funny, a lot of people think that MOD stands for Made On Demand. When we build Seattle Coffee Company it was largely about bringing some things from Seattle that we missed living in London–the culture, this product offering, the service ethic. And when we moved back to Seattle, we loved our time in London and so we thought how could we do the same in reverse?

So when we were building this business we thought well we love that mod era from the ‘50s and ‘60sin the U.K. I grew up as a big fan of The Who and just the music and the attitude. And we thought “gosh, that’s a great energy and a great spirit for a company.” And so we decided to call it MOD.

And the fun thing about the name was not only did it have that core but MOD also can stand for Made On Demand. It can also stand for a desire to modernize the way people enjoy pizza. It can also stand for your ability to modify your pizza or your product there in any way you want.

So it’s kind of a brand, depending upon how you approach it, can mean different things, which we like. It’s not too literal. We don’t take ourselves too seriously.

RH: And the spreading MOD-ness campaign and the MOD Squad as you describe your, what, four thousand plus employees?
SS: Yeah I think we’re almost up to fifty-eight hundred now. We’ve been growing rapidly. Three and a-half years ago we had fourteen stores and today we have two hundred and thirty-six. And by the end of the year we’ll have just over two hundred and ninety. So we’ve been growing rapidly and, as you say, spreading MOD-ness. My wife coined the phrase–spreading mod-ness is the ripple effect of simply doing the right thing.

And there is a really important story at the core of MOD which is back to that comment my wife made at the outset: The last thing the world needs is another soulless pizza chain. We knew that for us, if we wanted to do this, we needed to embed inside the business a meaning or a purpose for us that was more than just opening stores and generating more revenue and creating more value.

We reflected back on our professional lives and career and we asked ourselves a question–when were the moments when we were the happiest and we felt the most fulfilled? And my wife and I agreed that those were moments when we had an opportunity to make a positive impact in someone else’s life. And by changing the trajectory of someone else’s life and the gratitude that came from that and just the sense of gratification for ourselves was.. You couldn’t put a price on it.

And so we thought okay, let’s see if we can fill this business with that because we wanted to fill our life’s journey with as much as happiness and gratification as possible. But we also love building things and building businesses so we thought let’s try to do both. And it’s been a challenge but it has been the most rewarding thing we’ve done professionally.

Some of the most inspiring stories that I have about MOD come from my two older boys, who have worked there with people that have come from tougher backgrounds. And the impact that those people have had on my boys has been unbelievable. For my sons to be managed by people who were former felons or who had had troubled backgrounds and my boys realizing wow–understanding them and their stories and really getting to know them as people has changed their perspective.

RH: Without a strong corporate culture that couldn’t happen. There would not be that cohesion, right?
SS: Well we’re very fortunate. I was saying before, my wife and I kind of set a direction for the company. Beyond that, we just started hiring people that we trusted and we felt were as good or better than we were at doing what we needed to do and they have brought this business to life.

What’s special about that is that strong cultures defend themselves. And as people have entered the organization and the organization has been good to them and they have benefited from it, they have turned around and they’ve now become defenders of the culture. And it’s become a really inspiring thing to watch. And it’s fun because I feel like a passenger in it.

RH: To repeat, the MOD Pizza definition of spreading MOD-ness, the ripple effect of doing the right thing.

This is Capitalism. I’m Ray Hoffman.