Colorado success stories: Smashburger

Editor's note: This series of interviews with Mead Consulting clients and friends focuses on companies that have succeeded during the recession through disruptive innovation, new business models, or superior execution. The stories are told by the CEOs and business owners themselves. This article was first published on March 22, 2011 in ColoradoBiz magazine or you can read it below.

Smashburger is the fastest three-year start for a restaurant company - in history - to almost $135 million in system wide sales. I recently spoke with Smashburger CEO Dave Prokupek about the appeal and trajectory of the company in the midst of the worst recession in a generation. He will be among the featured speakers on April 27-28, 2011 at the Rocky Mountain Corporate Growth Conference.

Why would someone invest $20 million in a new hamburger chain?

While it might seem, illogical, we saw several factors that made this business very appealing. First, research showed that while the hamburger was America's favorite food, people were dissatisfied. There was opportunity in the ‘better burger' category - a segment which is projected to double over the next decade. Second, we saw an opportunity for a disruptive innovation with a new restaurant model that we believe will be the model of the coming decades. The model has a small footprint (about 2,000 square feet), sit-down service, good food, beer and wine service, and fast service (average 23 minutes).

You're not competing with McDonald's and Burger King. Who is the competition?

We don't primarily compete with the big three burger chains which control 70 percent of the market. In the "better burger" category we compete against Five Guys Burgers and Fries, the local Bar & Grill, or casual dining restaurants like Red Robin or Applebee's. Interestingly, our biggest upside surprise is that about half of our customers say they would have gone to a non-burger sit-down restaurant such as PF Chang if they hadn't dined at Smashburger.

To what do you attribute for the fast growth?

We had a better idea and are very well capitalized. We took advantage of the recession and have been able to make very good real estate decisions and attract very talented, experienced people. We started franchising very early - after only four stores. Since it requires a relatively low investment to open, Smashburger locations offer a superior return on capital. We were able to attract 32 of the top restaurant franchise companies which committed to open 450 locations and who currently manage over 650 restaurants. These companies had the capital so that they could expand aggressively during the recession without the need for bank debt. These franchise partners see Smashburger as a better use of capital than other restaurants. Today, we are about 50 percent franchised vs. company-owned locations. Over the next five years, we expect that to flip to 60 percent-80 percent franchised.

That addresses the business-side of your growth, what attracts the customers?

Consumers give us high marks for ‘great food' (93 percent) and ‘friendly service' (94 percent). The 'smashburger process' seals in the juices so it's a great burger. We recruit and screen our employees for friendliness and a service personality, and we train to a casual dining hospitality standard-of-service. We have secret shoppers in our restaurants every week. We also offer a cash bonus to server crews for high service marks and the cooks for speed and accuracy. Over 90 percent of our customers say they will visit us again.

What are your biggest challenges?

Maintaining culture and consistency as we grow. We continue to recruit from top restaurant companies to help manage the growth. We look out two years and hire people with the potential to rise two to three levels in the organization.

We recently instituted what we call our "high fives": excite and delight, perfect food, pride in place, ‘it starts with me', and ‘do well, do good'. These ideas reflect the core values of Smashburger that we want to reinforce every day with every customer. We are very consumer and metrics-driven. We measure and reward the attitudes and results that are important to our continued success.

You have an interesting blend of people with restaurant experience as well as those with other backgrounds?

It's about 50 percent/50 percent. We think that helps blend new ideas and approaches with the critical restaurant expertise. We recently have developed a training and modeling program which pairs very bright, talented "30 somethings" with our senior executives to accelerate their experience and growth to be able to fill future leaders.

What keeps you awake at night?

We have some clear advantages. Being well-capitalized is a clear differentiation. We have to continue to be smart with real estate decisions, especially in new international markets. We need to continue to stay on top of consumer trends - continually innovating our offering including our food. We launched the brand very cost effectively essentially with social media, PR, and active cultivation of the ‘food bloggers: and our fans.' We need to continue to develop that social media capability and connection.

So what's ahead for Smashburger over the next five years?

We are focused on building the #1 brand in our space. International expansion is a key strategy. We are currently looking at Canada, Australia, London, and the Middle East. We are evaluating whether we will offer a localized menu or western menu in each location. We already offer a specialized local burger in each of our U.S. markets. We have tremendous upside - we plan to be a $500 million revenue company within the next few years

What do burgers, focus groups and web conferencing have in common?

What do burgers, focus groups and Web conferencing have in common? All are crowded, competitive spaces that might be considered to be commodity markets. Most of the products are relatively similar with little differentiation among competitors.

Conventional wisdom might suggest that these markets have limited opportunity for new entries unless sold at a lower price. Yet even the most commoditized markets offer opportunities for innovation, new business models and superior execution.

Several Colorado companies like Smashburger, Qualvu, and ReadyTalk have changed the paradigm in their categories. Each of these companies has enjoyed significant growth during the recent recession.

Enter a niche with a better experience.

Smashburger found that while the hamburger was America's favorite food, people were dissatisfied with the general fare offered by the major competitors in the market. So it developed a way to deliver a more flavorful, juicy, fresh burger - smashing the burger to the grill to seal in the juices.
However, its success was not just about entering the "better burger" niche. Smashburger found that consumers also wanted a better experience - a fast casual sit-down dining experience with very friendly service in a smaller, high-energy setting. Better burgers and a better experience are just the start.
The company has demonstrated the ability to scale with superior execution in its hiring, training and rewards for great service, as well as by tracking data and metrics to ensure consistent delivery. It has become the fastest three-year start for a restaurant company - in history.

A disruptive innovation with
"home video."

Clayton Christensen, author of "The Innovator's Dilemma," coined the term "disruptive innovation" to describe innovations that improve a product or service in ways that the market does not expect, typically by lowering price or designing for a different set of consumers.

Characteristics of disruptive businesses, at least in their initial stages, can include lower margins, smaller target markets, and simpler products and services that may not appear as attractive as existing solutions when compared against traditional performance metrics.

Qualvu changed the way that focus groups are performed. By putting video cameras (now in most smart phones) in the hands of consumers to provide feedback and testimonials about consumer products, it can develop, execute, upload and analyze a focus group with the customer's desired demographics - virtually overnight - at significant savings.

Consumer products companies, such as Procter & Gamble, Johnson & Johnson and Adidas, can achieve faster turnaround, more cost-effective research and video testimonials from real people where and when the products are used.

Using "homemade videos" for research would not be something that would occur to established market research firms who are more likely to disregard this segment of the market in lieu of the traditional methods, giving Qualvu a window of opportunity.

A new business model - Free.
ReadyTalk entered a crowded conferencing arena with a new approach. It had developed technology for Web conferencing that had a much lower cost than audio. ReadyTalk decided to provide the Web conferencing service for free along with the audio conferencing as a way to differentiate itself in the market among the large competitors and to buy market share.

At the same time, ReadyTalk saw that the actual cost of audio conferencing was significantly lower than the per-minute fees being charged by the major providers. So it priced its audio product significantly below the then-prevailing rates. ReadyTalk was able to develop customers and gain market share with its lower pricing and free Web conferencing services model.

Ultimately, as the market matured, demand flipped, and the market required more Web conferencing services. ReadyTalk was then in a position to change its pricing model and charge customers for Web conferencing services. The company enjoyed 483 percent growth between 2004 and 2009 and added another 35 percent growth in 2010.

Clayton Christensen explains the opportunities for these companies this way: "Because companies tend to innovate faster than their customers' lives change, most organizations eventually produce products or services that are too good, too expensive and too inconvenient for many customers ...unwittingly opening the door for disruptive innovation and new business models."

Colorado Success Stories: ReadyTalk

CEO attributes growth to innovation, service and culture

By David P. Mead

Editor's note: This is another in a series of Colorado company success stories as told by CEOs and business owners. This article was originally posted in Colorado Biz magazine on April 12, 2011

ReadyTalk, provides audio conferencing, web conferencing and webinar services for companies. ReadyTalk emerged from the ashes of a dot-com-era bust, when its co-founders transitioned to a strategy to provide wholesale web conferencing services to infrastructure-based audio conferencing providers.

The new strategy was so uninteresting to the venture capitalists that they pulled the plug on the company and allowed the founders to retain the rights to the technology. While the business may not have met those initial VC expectations, ReadyTalk, by most measures, has become a very successful business. During the period 2005-2009 the company grew 483 percent and then added another 20 percent growth in 2010.

The company will deliver over 600 million minutes of audio and web conferencing in 2011 and anticipates growing to 150 employees by the end of the year. Dan King and I recently reviewed the company's record of progress and growth. He'll be a speaker at the Rocky Mountain Corporate Growth Conference on April 27-28 at the Inverness Hotel.

What is your differentiation?

We compete with some of the largest technology companies in the world, including carriers and technology-based service providers such as Citrix (GoTo Meeting and GoTo Webinar), Cisco (WebEx) Microsoft and Adobe. They all deliver essentially a "self-serve model," providing a very specific tool set and then leaving it to the user to navigate their own way.

We deliver a better, and more complete, overall experience, which includes both technology and service. Unlike our competitors, we incorporate all of our web conferencing features into a single product. This allows our customer to use ReadyTalk for an impromptu, collaborative meeting today and then use it for a large-scale webinar tomorrow. Our teams provide hands-on support during live events and 24x7 customer care. Customer feedback is solicited in a variety of ways and incorporated into our product development process. Between the technology and the attention to customer service, our customers are extremely engaged and feel connected to our company.

Who uses your products and services?

ReadyTalk's audio and web conferencing services are used by thousands of national and international customers. American Marketing Association (AMA), Gallup, Newsgator, ITT Visual Information Solutions, and others use ReadyTalk's webinar services for lead generation, employee training and customer education. Rally Software, Frost and Sullivan, the US Small Business Administration and others use ReadyTalk's audio and web conferencing for product demos and collaborative meetings.

How has the recession impacted your business?

It's been both good and bad for our business. We lost some customers who either sold to larger companies or went out of business. We've also felt a lot of price pressure resulting from our customers' efforts to reduce operating expenses. On the other hand, we've benefited from the fact that in a down economy companies look for cost-effective alternatives to travel, and we provide a great solution for that. Our remote meeting and webinar services provide a huge return on investment for our customers.

What are the keys to continued growth over the next 5-10 years?

The audio and web conferencing industry is highly competitive. We need to continue to innovate new product functionality that meets the needs of our customers while continuing to maintain our high standards for customer service, product reliability and ease of use. We also feel it's critical to maintain our company culture as we grow our business. We've built a really strong culture around execution and customer service that has allowed us to significantly outpace the overall growth of our market. We expect to double in size over the next 3 to 5 years and it's critical that we maintain our workforce quality and a consistent culture.

Tell us about your culture.

Our culture starts with us being clear about our sense of purpose and values. We strive to hire great people - highly competent and aligned with our orientation to product quality and customer service. We work hard to ensure that the people remain highly engaged. We've created a very open work environment which encourages communication, collaboration and transparency. We feel it is in our interest to be employee-centered, with generous employee benefits including an ESOP that we recently implemented in order to allow employees to share in the value we create as we grow the company.

How do you maintain the culture?

It starts with a consistent hiring process - we hire for fit, values, attitude and natural talents. We utilize a peer-interviewing process, which reinforces these traits. We also invest in manager training (communication and understanding), teambuilding and goal setting to help maintain this.

Is it difficult finding good people and good leaders?

Yes. Hiring top software R&D talent has always been a challenge, and more so of late. We tend not to compromise on our hiring standards, and that can slow down our progress. We have an ongoing recruiting process and are always looking for new employees.

What do you think of the business climate in Colorado? Would you build your business here again? In general Colorado has a very healthy business climate for building a software-based services company. Long term, we'd love to see the state do more to promote software technology business and continue to invest in education, both K-12 and post-secondary.