I’m standing on second base at Pac Bell Park in San Francisco. It’s a glorious day in the Bay Area, and all around me, civilians are living out their big-league fantasies. Sales managers don batting helmets and step up to the plate. Young product testers picnic in right FIeld. Five slithery dancers shimmy as a singer in a leopard-print tuxedo belts out an energetic version of Prince’s “Cream.” The event: an extravaganza for a dotcom that’s celebrating its 5,000th paying customer and its latest product release. Our host, Marc Benioff, chairman and CEO of salesforce.com, is at the mike, ready to deliver an Academy Award – worthy litany of thank-yous to all of the folks who made it possible.
Is this some sort of business flashback? Is the economy partying like it’s 1999? I check my ticket stub. It’s stamped 2002. The Nasdaq is at a six-year low, unemployment for college-educated workers is nearly as high as it was in the early 1990s, and there are new indictments every day on Wall Street. Yet here’s a company with enough confidence to host a $100,000 bash for 1,400 people. As I’m leaving the stadium, a pudgy guy in a baseball cap grabs the elbow of the salesforce.com employee at my side. “You guys are one of the few bright spots in technology these days,” he says. “Everyone is looking to you as a leading indicator.”
The economic turmoil of recent years has taken a toll on jobs, stock prices, and venture-capital funding. But the most damaging toll may be psychological: indecisive CEOs, risk-averse companies, frightened frontline executives. What business needs is a vote of confidence: companies that aren’t afraid to make big bets, executives who spend more time looking ahead than looking over their shoulders. That’s why I went on a tour of America — from New York to San Francisco and many cities in between — searching for businesses and business leaders who have managed to thrive despite the economic meltdown, who have positioned themselves to grow even if the economy doesn’t. Over the long term, the economy has nothing to fear but fear itself. I went out to find people and companies who aren’t playing scared.
NEW YORK AND SAN FRANCISCO
THE LOOK OF A CONFIDENT CEO
It’s three days before the party at Pac Bell, and I’m meeting Marc Benioff for lunch at the Four Seasons Hotel. He’s had a grueling three days in New York. Customer meetings with Cablevision, RR Donnelley & Sons Co., and AOL Time Warner. Dinner with sales reps. Product demos. Sessions with analysts. Benioff flops his 6-foot-5-inch frame into a leather chair, polishes off two glasses of sour-apple lemonade, and launches into a recital of his company’s recent triumphs: deals with Honeywell, Le Meridien Hotels and Resorts, and Segway LLC. Revenue that skyrocketed from $23 million last year to a projected $50 million to $60 million in 2002. No wonder this CEO exudes confidence the way most CEOs these days radiate misery.
Benioff launched salesforce.com in 1999, after 13 years on the fast track at Oracle. He was the company’s top salesperson at 21 and its youngest VP at 25. At Oracle, Benioff worked closely with Tom Siebel, who eventually left the company to found Siebel Systems Inc. in 1993. Then, in 1999, Benioff announced that he would leave Oracle to form a new company to deliver sales-management services via the Web. Siebel, a friend, invited Benioff to develop his product at Siebel Systems. But Benioff declined and, with $2 million in backing from Oracle CEO Larry Ellison, went out on his own.
Benioff’s business model is simple and disruptive: Instead of installing software on each user’s PC, salesforce.com rents out its service by the month for between $65 and $125 per user, depending on the sophistication of the application. That approach eliminates the up-front investment required by enterprise software. “We’re a utility,” Benioff says. “Everything is already installed, upgraded, and going. We are surrogate CIOs for 5,000 companies.”
Today, Benioff, Siebel, and Ellison are fierce competitors, duking it out in a high-stakes (and acrimonious) rivalry. The day-to-day skirmishes involve competing for business. The real battle is about the future of software. “A lot of Siebel customers are coming to us because even if Tom Siebel gave you his software for free, you still couldn’t afford it,” Benioff says. “You’d have to hire the consultants to install it, buy the application and database servers, and train people to use it.”
Benioff gets animated as he contemplates the outrage of enterprise software. “We’re the antithesis of that! We’re like electricity! You only pay us if you use us. But Tom Siebel would say, ‘We’re going to build a nuclear-power plant for you right here on 57th Street.’ Even if a company buys one of our competitors’ products, we’re still not out of the game, because odds are, they’ll never get it running,” he says with serene self-confidence. Until that customer finally comes to its senses, salesforce.com will keep trying. “And we will go back, and we will go back, and we will go back, and we will go back.”
Tom Siebel has plenty to say about Benioff and his claims. He regularly predicts salesforce.com’s demise and notes that Siebel Systems is the only company to be ranked by Fortune in the top 20 of the 100 fastest-growing companies in America for four straight years. Still, Benioff is clearly on to something.
“Other than market-saturation issues, the expense and complexity of installation is probably the number-one obstacle for growth in enterprise software,” says Charles Phillips, Morgan Stanley’s managing director of enterprise and Internet software. “Marc has a point that there’s another way to do it, and sometimes it’s a better way. For small companies in particular, it doesn’t make sense to deal with all of the software issues yourself.”
It is tempting to dismiss Benioff’s bravado as hyperbole from another era. And his company has had its share of setbacks. In November 2001, Benioff fired his former CEO, John Dillon, over differences in product and marketing strategy. Last March, he dismissed his CFO, Andrew Hyde. Benioff is now handling CEO chores himself and has hired former Autodesk CFO Steve Cakebread to replace Hyde. But Benioff didn’t put in 13 years at the knee of one of the technology industry’s toughest CEOs without learning a few lessons about building a competitive business. “I learned at Oracle that you need to have a highly differentiated product, a strong value proposition, a good distribution organization, and a lot of focus,” he says.
Benioff insists that salesforce.com will thrive because it has the right stuff built into its very DNA. “When we started, we said that there were three things we were going to do differently from other companies,” he explains. “One was to have a radically different technology, which is the utility idea. The second was to have a radically different business model — the idea that you can pay as you go. The third was to have a radically different philanthropic model.”
In July 2000, Benioff launched the salesforce.com Foundation, a nonprofit organization that provides technology and software to young people in disadvantaged communities from San Francisco’s bleakest housing projects to Israel’s West Bank to Tibetan refugee facilities in India and Nepal. From the start, it was decreed that 1% of the company’s stock would be held by the foundation when salesforce.com went public, 1% of the company’s profits would be donated to the community, and 1% of employees’ time (typically, four paid hours a month) would be given to charitable causes. To date, salesforce.com employees have donated more than 3,000 hours.
Benioff calls the foundation his secret weapon. “It’s a great program, it does amazing work, but it also builds confidence in our employees,” he says. “It makes people feel that this company is grounded. People learn that there’s more out there than just themselves. When you talk to our employees, they say that they aren’t here for the IPO. They’re here because they want to be part of something big.”
HOW TO COACH CONFIDENCE
Hurricane Isidore is hovering off the Gulf Coast, making Orlando hot, humid, and overcast. But inside the offices of LGE Performance Systems Inc., Jim Loehr is worried about another, potentially more devastating tempest. “Life is about storms,” says Loehr, tall, tan, and loose limbed. He’s talking about the pressures that push people physically and emotionally, that test their character. “This is the most that people have ever been pushed,” says Loehr. “The people we’ve seen are pretty far out on the edge. In many cases, they’re way beyond their limits, and they’re in pretty significant pain.”
Loehr is a performance psychologist and the author of 12 books. He coached speed skater Dan Jansen back from his disaster at the Calgary Olympics in 1988 to win a gold medal at Lillehammer in 1994. He’s the force behind Monica Seles, Jim Courier, Eric Lindros, and Nick Faldo. But Loehr’s bigger challenge these days is rehabilitating the shaken ranks of corporate America. His company teaches executives to cope — to rebuild their confidence — by building and managing their energy. Clients such as AOL, Estée Lauder, General Motors, Pfizer, and the FBI have all shelled out $3,000 a head to bring their top performers to the three-day program.
Today, a group of medical-supply-company managers is meeting in the training center, and if their experiences are any barometer, Loehr has his work cut out for him. One man, a balding 50-year-old sales manager, says that his heavy client load allows him only 4 or 5 hours of sleep each night. A small blond woman confides that she has been taking naps in rest areas between office visits. Time for exercise? For family? For fun? They’re incredulous at the very thought.
Stress, in and of itself, is not the problem, Loehr says. Indeed, stress can be a good thing. “If you think about the things that created your character, created your ability to fight, and made a difference, in every case, it would be the storms,” Loehr says. “It’s the things that pushed you the most, that helped you the most.”
The problem, Loehr believes, is that we have conceptualized the notion of workplace performance as a marathon: a long haul that requires us to hoard our energy in order to avoid burning out too soon. Loehr suggests that we think of our workdays instead as sprints: defined periods of high performance alternating with short intervals of recovery. And, he says, leaders must train for that competition much as elite athletes do.
At LGE, clients begin their program with physical tests: blood work, aerobic testing, and a body-composition measurement in a space-age-like capsule called a Bod Pod. Then they are asked to fill out a questionnaire designed to identify their values. Most rank family, friends, health, and community up high — even though it’s work, work, and more work that gets their attention. Finally, they’re confronted with the results of anonymous questionnaires filled out by colleagues back at the office. Are they antagonistic? Hypercritical? Impatient?
The program forces participants to compare their stated values with how they live their lives and to figure out where they are in conflict. If, for example, an executive says that he values time with his family but admits that he spends every night sacked out on the sofa in front of a ball game, Loehr and his team are quick to point out the discrepancy. “The tension between the vision they have for themselves and the reality of what’s happening becomes intolerable,” Loehr says. And that’s when change can happen.
Loehr’s program teaches participants to build rituals — tangible actions that ultimately become automatic — that bring those disparate goals together. They may be physical (getting up a half hour earlier to hit the treadmill), emotional (making a weekly inviolable “date” with your spouse), mental (taking a 5-minute break every 90 minutes at work), or spiritual (setting aside time for meditation, journal writing, or prayer). The net result is an uptick in energy, balance, and attitude that can fuel both high workplace performance and a more rounded life. Loehr likes to cite Aristotle: “We are what we repeatedly do,” the great philosopher said. “Excellence is not a singular act, but a habit.”
Loehr’s message is finding an audience among confidence-hungry Wall Street executives. Rob Knapp, managing director of the Midwest market for Merrill Lynch, believes in the program so much that he has brought 40 high performers a year to Orlando for the past seven years. “I do it to save lives,” he says. “My people tell me that given the world we’re in, they don’t think that they would have made it without this program.” Some of his troops have dropped 30 pounds and dodged likely heart attacks. Others have salvaged troubled marriages.
Knapp concedes that the program is expensive. But he insists that his ROI is substantial. “I’ve had several million-dollar-producing financial advisers who have said that they were exhausted and wanted to retire. I took them to the program, and they not only transformed themselves but said that they were going to take their businesses to a new level. If each guy decides to stay on for five more years, it’s worth $5 million each,” he says. More important, he says, by caring for his people, he helps them care better for their clients.
Finally, Loehr says, one secret of confidence is simply acting the part. Several years ago, he went to Spain and got an audience with one of the greatest bullfighters of all time. “I asked him, ‘What is the single most important thing you have learned when facing the bull?’ The matador said, ‘It’s my look. That is the basis of my confidence. I believe in myself. I am in control. I have no fear.’ “
Loehr says that when he returned home, he began training his athletes in the “matador walk.” Arantxa Sanchez-Vicario, trained to walk like a winner, lost the first set of her U.S. Open finals with number-one seeded Steffi Graf. “But if you look at the tape,” Loehr says, “you would swear she had won.” She came back and won the match for the first time in her history. “That’s the look I want,” Loehr says. “Particularly in the storm.”
A CONFIDENT COMPANY ON THE RISE
The line is six deep at the cash register at the Saint Louis Bread Co. bakery café in Brentwood, Missouri. It’s rush hour, and people are crowding the counter, trying to decide on this morning’s indulgence.
The decision isn’t easy. Behind a glass case, arrayed like jewels, is a pastry lover’s dream scape: flaky apple croissants, glistening pecan rolls, and a sugary, muffinlike concoction called a cobblestone. There are also fragrant loaves of bread: stone-milled rye, kalamata olive, and rosemary-and-onion focaccia. And there are bagels like they’ve never seen on the Lower East Side of Manhattan: cinnamon crunch, French toast, Asiago cheese, and “choc-o-nut” with powdered sugar.
The place is buzzing, but it’s not just the usual doughnut-shop in-and-out crowd. A slick suit at a table in the corner is earnestly making a pitch to his breakfast companion, who’s clearly not buying what he’s selling. Laptops are open at tables near the fireplace. A woman in a print dress asks me if I’m here for the school-committee meeting. I’m not. I’m here to meet the choreographer behind this drama, Ron Shaich, chairman and CEO of Panera Bread.
Panera (still called the Saint Louis Bread Co. in St. Louis, where it originated) has been the darling of both customers seeking an alternative to fast food and investors hoping to find that rare company whose stock has been rising like a loaf of sourdough. Last year, Panera was the top performer on the Standard & Poor’s SmallCap 600 Index, with a stock price that jumped 44% from October 2001 to October 2002. Shaich (pronounced Shake) and his team are bullish about their prospects. This year, sales are expected to top $750 million, and Shaich predicts that they will hit $1 billion by 2003. Panera now operates 414 bakery cafés (each with an average annual sales volume of $1.8 million), and Shaich expects to have nearly 600 open by the end of 2003.
Shaich calls Panera (a name loosely derived from Latin that means “time of bread”) his “21-years-in-the-making overnight success.” A soft-spoken man with self-deprecating charm, he began his love affair with the food industry with a small cookie shop in Cambridge in 1980. He was the mixer and the baker. He also had an MBA from Harvard, so it didn’t take long for him to start thinking beyond gingersnaps. “I realized that 50,000 people a day were going past my shop, and I had nothing to sell them in the morning,” he recalls. So he became a licensee of Au Bon Pain, the Boston-based company that put croissants on the American fast-food map.
At the time, Au Bon Pain was struggling. Between 1978 and 1981, it had opened 13 stores in New England and closed 10. It had also piled up $3 million in debt. But Shaich and his partner, Louis Kane, thought that the business had potential. They put together a deal to buy the company and spent the next three years trying to get out from under the debt load they had assumed.
Along the way, Shaich and Kane began to notice a strange pattern of customer behavior. People would order a baguette and ask that it be sliced, not in little round slices, but from top to bottom. Then they would pull out a bag from the corner grocery, slap on some lunch meat, and make a sandwich. “You didn’t have to be a Harvard MBA to realize that there was a huge opportunity there,” says Shaich.
It was a “eureka” moment, the birth of the category known as “quick casual.” Au Bon Pain was “the first place that gave white-collar folks a choice between fast food and fine dining,” Shaich says. “You could come in at noon on a Wednesday and get smoked turkey and real Brie or roast beef and Boursin. Nobody else was doing that.”
By 1991, Au Bon Pain owned the category. By 1994, it had 200 stores. But that top-line growth masked a problem. The company was built around what Shaich calls “high-density urban feeding” for office workers in places such as Boston, New York, and Washington, DC. That real estate was pricey, and locations were hard to come by. It was a niche business with limited expansion possibilities.
In the early 1990s, Shaich met a group in St. Louis that had 19 bake shops — the Saint Louis Bread Co. — doing about $1 million in lunch business a year, rooted in bread. Again sensing an opportunity, Shaich and Kane bought the company. “It was our gateway into the suburban marketplace,” Shaich says, “and backward into a manufacturing business.” The Au Bon Pain team spent two years studying the business, looking for a concept that combined Au Bon Pain’s quality food with the potential for broader appeal.
Scott Davis, Panera’s chief concept officer, remembers the miles that the management team logged trying to figure out what the new business should look like. “We didn’t just look at restaurants and coffee houses,” he says. “We spent a lot of time looking at retailers. That’s where our front-of-the-house bakery displays came from. We knew that people buy with their eyes, so we wanted them to walk in and crave baked goods.”
The team also discovered the start of a backlash against the commoditization of food that began in 1950 and spawned a coast-to-coast sameness. People were looking for a more unique expression of their tastes and style. Shaich and his team sat in a restaurant in St. Louis and wrote a manifesto — a 12-page bible that spelled out what Panera Bread would be, from the type of food it would serve to the kind of people behind the counters to the look and feel of the physical space. “We knew that this whole thing had to hinge around bread,” says Davis. “And we knew that it was going to be a neighborhood bakery café rather than an urban store like Au Bon Pain.”
Shaich also understood that it was time for one of those gut-wrenching decisions that make CEOs reach for the Maalox. He could see Panera’s huge potential, but he knew that it would take every ounce of the company’s resources to turn it into a winning brand. “For every 100 concepts that want to be nationally dominant, only 2 or 3 of them ever make it,” Shaich says. “It’s a very hard thing to pull off.”
Meanwhile, Au Bon Pain’s stock had been flat for four years, the banks were beating up Shaich for putting money into the new business, and members of the executive team were at each other’s throats. So he made an emotionally tough decision. “I went to the board and said, ‘We’re going to sell our first son.’ ” By May of 1999, Au Bon Pain had been sold to a private investment group, and Shaich’s team members could turn their full attention toward growing Panera.
They began with what they’d learned at Au Bon Pain: that delivering real food makes a real difference. “We have a commitment to doing the best bread in America,” Shaich says. That starts with making fresh dough every single day at 14 locations around the country and trucking it to the cafés where it gets baked overnight. “Nobody has ever done this on such a large scale.”
The team also held the conviction that the quality of the people involved is an equally essential ingredient. “People are a critical part of the product,” he says. “Everyone wants to have good people, but we know that in order to get them, you need to have a systematic approach to their development.”
Next came the environment: a comfortable place in pleasing colors where people could sit and dine off of real china — even if the meal was delivered at a counter. Each store is designed individually within the rules set up in the company bible.
Finally, Shaich says, there was a commitment to authenticity. “My role,” he says, “is to hold us to our promise and to really deliver.”
So far, says Joe Pawlak, a principal with Chicago-based restaurant-consulting firm Technomic Inc., Shaich has honored his pledge. “Panera has the right formula,” he says. “It could very easily become a 1,000-unit chain.”
But if Shaich’s experience has taught him anything, it’s that being on top today is no guarantee about tomorrow. “Our biggest risk,” he says, “would be to get fat and happy and therefore stupid. My job at Panera is to keep challenging the existing assumptions.”
Shaich is cagey when asked about the company’s future strategy. He and Davis will admit that they’re testing wireless networks in some of the shops to accommodate the chill-out crowd. They are experimenting with various ceiling tiles and flooring options to make the environment at Panera more acoustically appealing and tinkering with the music mix. They are trying out ways to increase production capacity at lunch, when shops tend to be overstretched. They are also planning to commission paintings and graphics from local artists around the theme of bread, hoping eventually to acquire the country’s biggest collection of bread art.
Because ultimately, Shaich says, it really does come back to the bread. “We legitimately want to have the best bread in the country,” he says. “That’s number one.”
Linda Tischler (email@example.com) is a Fast Company senior writer. She has never felt more confident.