The business world is diverse, with companies operating in a variety of industries, some of which are more complex and difficult to compete with than others.

In the next few years, the world’s leading semiconductor company will release a chip with almost 300 million transistors per square millimetre! Hard to copy? Unquestionably. How about a fast food outlet selling chicken sandwiches? On the face of it, not that hard to compete with. You can replicate the ingredients, the store fit-outs, the locations, the marketing and the packaging - but the one secret ingredient you might struggle to copy is the culture.

Consider Chick-fil-A, the fast food business that’s taken over America. A private company, Chick-fil-A is now the third largest chain behind McDonalds and Starbucks. In 2019, it generated more than $US11 billion in revenue, signifying 52 consecutive years of sales growth. When it comes to sales-per-store, no major US fast food chain comes close; the average store turns over more than a Burger King, KFC, Domino’s and Subway combined. And the stores are closed on Sunday!

On the basis of sales per store you’d expect Chick-fil-A could achieve a premium for the franchises it sells. It costs more than $US1 million to open a McDonald’s, a Burger King, or a KFC restaurant, and yet opening a Chick-fil-A restaurant costs just $US10,000.

Charlie Munger’s counsel to understand Chick-fil-A and it’s incredible success would be to ask his favourite question, ‘What in hell is going on here?’

Luckily for us, Chick-fil-A’s founder, S. Truett Cathy, addressed just such a question in his book, ‘How did you do it, Truett?' The answer aligns with another of Charlie’s mental models, ‘businesses that go ridiculously far in maximising and/or minimising one or a few variables tend to have the winning systems.’

“I’d recommend a book by S. Truett Cathy who started Chick-fil-A, the chicken burger chain. The book, ‘How did you do it Truett?,’ was really good. I've been hoping that Chick-fil-A becomes a public company since then.” Francois Rochon

Legendary customer service lies at the heart of Chick-fil-A’s success. There’s even such a thing as Chick-fil-A memes; Parodies of the lengths employees will go to delight their customers. A few years ago a video of a 20-year-old Chick-fil-A worker went viral, ‘The way you interact with people really matters, it transforms their day,’ the eager employee later explained. Termed ‘second-mile-service,’ staff have been known to change a customer’s tyre or drop their lost keys or cell phone home, earning the company the top spot amongst fast food chains in the American Customer Satisfaction Index in each of the last seven years.

Source: QSR 2020 Ranking the Top 50 Fast-Food Chains

The late S. Truett Cathy understood that a business has a higher purpose than just making money. From the humble beginnings of a single restaurant, S. Truett Cathy rode the tailwind of America’s urbanisation, living his religious values, empowering his franchisees, listening to his customers, encouraging innovation, embracing crises, exceeding his patron’s expectations and taking a long term view. In the process he created a multi-billion dollar fast food enterprise.

S. Truett Cathy has shared his experiences and wisdom in a collection of short business books. Highly engaging, the lessons of ‘servant leadership,’ managing growth, selecting and valuing employees, delivering quality and setting the tone from the top are but a few of the mental models to be gleaned. Chick-fil-A’s unconventional approach to franchising provides a bounty of lessons in itself.

I’ve include some of my favourite S. Truett Cathy quotes below.

Education and Smarts

“As a young boy I had a speech impediment so severe I could not pronounce my own name.”

“When I was in school, I never was an achiever. I wasn’t able to make the chorus, I could never play a musical instrument, I didn’t excel in sports, and I certainly didn’t excel academically. But I had established some good work habits and had an attitude that has been very beneficial to me.”

Keep it Simple

“Every day, we remember the Chick-fil-A Chicken Sandwich is really a simple concept. We take advantage of our biggest opportunities when we keep it simple, focusing on serving great tasting food in a clean, wholesome environment with great customer service. That hasn’t changed in the sixty-one years I’ve been in the restaurant business.”

Customers

“Be kind to your customers. It’s the key to success… You can’t beat the Golden Rule as a business philosophy: Do unto others as you would have them do unto you.”

“The customer is always king. He or she is always right. You know the kind of service you like to have from people behind the counter. That’s the kind of service we want you to offer the customers.”

“Listening to my customers - One of the first things I learned in the restaurant business was to find out what my customers wanted then provide it to them.”

“The key to succeeding with a paper route - and the restaurant business, I would learn later on - is to take care of the customer.”

“Ever since I was a teenager delivering newspapers, I have tried not to lose a single customer. I treated each one like the most important person in the world, and delivered each paper as if I was delivering it to the front door of the Governor’s Mansion.”

“The customer is always right, and I always oblige the customer.”

“Courtesy is cheap to provide, and it pays great dividends.”

“The bottom line is, the customer standing right in front of you is funding your paycheck, and perhaps your future. Treat that one person right. Give him or her all of your attention for the moment. Have a servant’s attitude. The customer is always right, even when he or she is wrong.”

“We are building success one loyal customer at a time, and we make sure that everyone who comes in leaves with the intention of coming back.”

“We outperform other quick-service restaurant chains because of the courtesy and kindness we offer our customers. We advertise on radio, television, and in newspapers, but none of that takes the place of having customers as our cheerleaders.”

Servant Spirit

***S Truett Cathy [Source: Chick-fil-A]***

“To often these days, especially in retail situations, when I say, ‘Thank you,’ the response is ‘No problem.' Or worse, just a grunt. It seems the best I can hope for is, ‘You’re welcome’. I asked our Operators, team members, and corporate headquarters to say, ‘My pleasure’ whenever someone thanked them. The purpose was not just to change the words we say, but to remind those we serve, as well as ourselves, of the ‘servant spirit’ and ‘second-mile’ orientation we are continually building into our business.”

“Second-Mile service is about the heart, and it goes above and beyond the requirements, making sure customers not only get what they expect, but something more that makes them say, ‘Wow!’ Almost everyday we hear about a team member helping change a customer’s tire or making an extra effort to return lost keys or a cell phone that was left behind.”

“You can do a lot of things short of giving away food to express hospitality, but the most important thing is to feel in your heart the desire to serve.”

Competitive Advantages

“Chick-fil-A is what it is today because of its product, people, and purpose.”

“Businesses don’t succeed or fail. People do.”

“I believe the reason Chick-fil-A is so successful is simple - we care much more than our competitors. Being successful requires more than just unlocking the doors every day. Our philosophy of ‘doing the right thing and doing things right’ is hardly ever the easiest solution. It is, however, always the best solution.'“

“Because almost all Chick-fil-A franchised Operators have only one restaurant, they’re in the store virtually every day and have the best interest of their particular restaurant in mind. They care about the quality of people on their team and the quality of the food they serve. Better people and better food means higher sales and higher profits for the Operator.”

“Two things set our people apart: We’re happy to be here, and we have the spirit of a servant. In our restaurant, both of those feelings must come from me, the Operator.” Charles Gibson, Chick-fil-A Operator

“Today we go out of our way to keep people from being able to figure out our product. Our company makes our seasonings, and another makes the breading.”

“Raising prices for me has always been the absolute last resort - after we squeeze out every bit of waste we can.”

“Although we’ve been closing my places of business on Sunday for more than forty years [in deference to S. Truett Cathy’s religious beliefs], I keep hearing the same comments and questions. I don’t believe we’ve lost any sales in the long run. In the shopping malls we usually generate more sales per square foot in six days than many others do in seven. We also believe that by giving employees that free day, we attract the kind of people who want Sunday off because of their own convictions.”

Associate with Quality People

“Associate yourselves only with those people you can be proud of whether they work for you or you work for them.”

“You’ll be the same person five years from now as you are today except for the books you read and the people you associate yourself with. I hope I’m not the same person today that I was five years ago.”

Hiring & Firing

“If you really aren’t interested in serving others, you don’t need to be in the restaurant business in the first place. We like to say we recruit smiles. You can’t teach a sour person to be joyful.”

“A good attitude is one of the best guarantees of success. A less qualified individual with a good attitude would be more welcomed at my company than a highly talented individual with a bad attitude.”

“From the beginning, and until only recently, I interviewed every new candidate. I knew all the Operators by name, and most of their spouses and children.”

“I never want to fire someone simply to save money. I want everyone who works at Chick-fil-A to feel secure that we will not resort to layoffs because we have overextended.”

“We don’t hire people because they need a job. We hire people because we need them. We must be very selective... The wrong person working just ten hours a week can run off a lot of customers.”

“The biggest impact on service is our people.”

“Motivation expert Zig Zigler has said that among the top twenty-five attributes companies look for in an executive, not one of them deals with experience. Character traits are most important. Everything else can be learned.”

Hire Better People

“When you get to this size, you grow through the talent of others - people I have attracted through the years who make my job look easy. I divided the tasks among other people more skilled in their areas than I am, and I trust them to do the job well.”

Trust

“Loyalty begins with trust. My policy has always been to select trustworthy people - then trust them!”

“Success in any relationship or endeavour begins with trust. It’s amazing how much you can accomplish when you trust the people around you and they trust you.”

“A lot of what we do is trust. The Chick-fil-A franchise Operator Agreement is based on trust. It’s the biggest key to our success.”

“We trust our Operators to make good decisions - and they do.”

Obliquity

“It’s an axiom of business that if you help people get what they want, you’ll get what you want.”

“Profits should be the score of the game, not the name of the game.”

“What counts in this business is not how much money we make or how much chicken we sell. What counts is the difference we make in the lives of others.”

Reciprocation

“We would be loyal to [the Operators], treating them as we wished to be treated, and they would reciprocate. They did. Fewer than five percent of our Operators leave the chain in any given year. Other chains tout their ‘knowledge management’ with their computer and communications systems; we manage knowledge by keeping people - and their knowledge - in the organisation.”

“I look for ways to do special things for customers. Like when I see a customer three or four times in the same week, I go to their table and give them a ‘Be Our Guest’ card. I figure if they’re spending fifteen or twenty dollars a week, I’ll give them a free sandwich. All of this fits into the Chick-fil-A philosophy that I first experienced when I went to work for the company.” Chick-fil-A Employee

Value Employees

“The most important people in this business are our employees. Some people will say customers are most important, but if we create the right atmosphere where our employees enjoy their jobs and have opportunities for growth, they will get a kick out of their work. Then that feeling will spill right over to the customer.”

“Studies show that between 65% and 80% of working people do not like what they are doing for a living. That’s a sad fact because a person spends one-third of his life on the job.”

Operators

“We do all we can to make our Operators successful because if they’re successful, so is the company.”

“The most important decision we make at Chick-fil-A is selecting restaurant Operators who care about others, who can motivate their team, and who understand how to run a business. Our franchise Operators determine the success of the chain. They’re the ones meeting customers and selling chicken sandwiches.”

“The Operator selection process can be lengthy, sometimes as long as a year, because we want to be certain before we make a franchise commitment that we believe the relationship will last.”

“Our relationship with our Operators begins with the assumption that we have the same goals and we all plan to succeed. Our operators own their own business, but our relationship is extremely close.”

“It’s easy to apply for a position as an Operator of a Chick-fil-A Unit, but hard to qualify... We don’t select or even seriously consider an Operator or a member of staff unless we want the individual to be with us until one of us retires or dies. Because of that, Chick-fil-A has one of the lowest turnover rates in the restaurant industry.”

“Two requirements of being an Operator are that the Operator run only one restaurant and must be on-site to manage it.”

“We supply the initial capital for the restaurant, so we don’t have to limit our search for Operators to people with high personal net worth. The only money required is $5,000 refundable initial capital commitment. To fuel the kind of growth we desire, we need eager, talented, honest, dependable, people-orientated Operators who are hungry to succeed in the restaurant business.”

“The first question most people ask about our [Operator] agreement is, ‘How could you afford such a generous arrangement with Operators?’ The answer is obvious. We love it when an Operator earns a lot of money because that means we are also earning a lot of money from the restaurant. The more successful we make the Operator, the more successful we are.”

“We are placing our reputation and our future in the hands of one individual. Because we build the Unit and then lease it to the Operator, the ability and the character of the individual are more important than his money.”

“The more we can foster the feeling that we are a group of people working together, depending on each other, and not just bound by a franchise agreement, the more likely we are to be loyal to each other.”

“In my first meeting with a potential Operator, I explain that our commitment is going to be like a marriage, with no consideration given to divorce. We’re much more careful about selecting Operators when we know we cant easily get rid of them.”

“Our lifelong commitment to the success and well-being of Operators has resulted in loyal Operators who then experience tremendous loyalty from their team members - and, in turn, their customers - especially when compared to the rest of the quick-service restaurant business.”

“We have created this ‘loyalty effect’ at Chick-fil-A through a unique relationship with our Operators.”

“The Operator is the CEO, manager, president, and treasurer of his or her own business. I haven’t changed the basic agreement with Operators since my first Chick-fil-A restaurant opened in 1967.”

“Our Operators work closely with us, but they are the owners of their own business.”

“Another key to Operator loyalty lies in our decision to allow each Operator to have only one restaurant… A few Operators believe that because they have trained their staff well, their presence isn’t needed. But I’ve found that team members will always perform better when the Operator is on site.”

“We have a saying around the office, ‘An Operator gets the people he or she deserves to have.’ Good people attract good people.”

“We had our design people spend a lot of time in the field talking with Operators and seeing how they ran their business. Experienced operators know better than anybody how to serve people quickly and efficiently.”

“We screen very carefully our Unit Operators. Therefore, we assign our unit realising that this is the most important decision we make. We can decorate it beautifully and out the best equipment in there are prepare the very best food, but if we don’t have the very best Operator, we have blown the whole thing.”

“Another question we often hear is, ‘Why don’t you offer typical franchises where the franchisee makes a substantial investment?’ The answer is similar to my answer regarding a public offering, and can be found in our needs. A restaurant company needs two things to succeed, capital and talent. Franchise restaurant corporations raise capital by selling the rights - usually for hundreds of thousands of dollars - to open a restaurant to people who have already succeeded in business and are looking for a good investment. Sometimes the franchise owner will work directly in the restaurant, but most of the ones I have met are looking to own several units from which they draw income. They aren’t interested in actually wearing a uniform and serving customers. Restaurant magazines are full of articles discussing franchisees blaming franchisers for their lack of success, when the problem is their own lack of time in the restaurant.”

Commitment

“I want everyone at Chick-fil-A to know that we don’t build and open restaurants just so we can close them if they don’t work out. We must be careful about how we build them, where we put them, and who we put in there to run them. Anybody can open a restaurant. All it takes is money. But keeping one open is what makes the difference.”

Family

“We felt like a family, and in many cases we actually had family members working together.”

“When we have team members working together like a family, they extend that feeling to their customers.”

“When Paul Richards was a manager of the Dwarf House [S Truett Cathy’s first restaurant], he mailed out about four hundred birthday cards with handwritten notes to customers every year. He visited them when they were sick and sent food when there was an illness or death. Customers knew we cared. That’s really the key: caring.”

Take Risks & Accept Contrarian Views

“We don’t want to scare people into thinking they can’t take any risk or push limits of their responsibility, or we’ll end up with a bunch of timid Operators. We encourage people to think and to experiment under reasonable circumstances.”

“I want people who work with me to feel completely relaxed when they take a viewpoint opposite mine. I respect their opinions - I would not have hired them if I didn’t - and I want them to feel my acceptance and appreciation for them when we disagree. When you have a dynamic atmosphere, you never know where great ideas will come from. They just come.”

“We prosper by debating ideas and voicing our opinions.”

“Ideas for new products come from Operators, staff members, and customer surveys… We introduce new products only after letting our customers try it out in test conditions in a few restaurants throughout the change.”

Appearances

“Customers can choose from many places to eat. They are quick to pick the most appealing restaurant, the the appearance of the people who work in it can affect such decisions favourable or unfavourably.”

“We concentrate on making sure the back of the restaurant is manicured nicely. Our drive-thru customers spend a lot of time back there, and if they see that area is clean and pleasant, they can be assured that everything is clean inside as well.”

Humility & Tone from the Top

“Everyone from the Operator to the newest hire must be willing to do any job in the restaurant: prepare food, wash dishes, mop floors, clean restrooms. I was the janitor at the Dwarf House, and it’s still my job to pick up paper on the floor, or whatever else needs attention.”

“When top executives demonstrate that they don’t mind doing the dirty jobs, team members understand that every job is important.”

Incentives

“Each year Chick-fil-A brings all our Operators and their spouses together for a business seminar in an exotic resort complex. Through Chick-fil-A’s ‘Symbol of Success’ program we give a new car to an Operator to use for one year if sales in his or her unit increase by 40% or more in one year. If that Operator shows at least a 40% increase the second year, he or she gets the title to the car. We awarded forty-six in 1984 alone. Other incentive awards for Operators include trips, merchandise and cash bonuses.”

Consistency

“I tell our Operators at Chick-fil-A Units today: Consistency is one of the most important aspects of the food business. You can even build your business on bad coffee as long as your’e consistent. Customers are very sensitive to change.”

“We hope customers visiting anywhere in the country know the Chick-fil-A Chicken Sandwich they order will taste just like the ones they eat back home. Few things are more important that consistency in the food business.”

Word of Mouth & Retaining Customers

“Word of mouth in the food business is more important than any other source of advertising. It’s better to maintain your present customers than to spend a lot of time and expense replacing them with new ones.”

Imitate

“Business often remained on my front burner even when we were traveling on family trips… We made lots of stops along the way. Whenever I saw a fast-food restaurant I hadn’t visited, I stopped, went in, and observed their operations, taking away ideas on what was or wasn’t working.”

Evolve & Adapt

“Many successful people I know set magnificent goals for themselves, then let nothing stand in the way of their achievement. I don’t engage in that kind of long-range planning. Instead, I leave myself and our company available to take advantage of opportunities as they arise.”

Frugal

“Some people think I’m a penny pincher today, but when you grow up in a family and in a time where every dollar must be stretched as far as it will go, you learn to watch where your money goes.”

Managing Growth

“To succeed we knew we had to start small and grow slowly. This is where so many start-up companies today make their mistake. Dreamers dream big, and they want to reach their goals quickly. There’s nothing wrong with big dreams. But my experience tells me that we’re more likely to reach our dreams if we climb with care and caution, putting one foot in front of the other.”

“In all my years in the restaurant business, I have tried never to overextend. I’m satisfied stepping from one plateau to the next, making sure we’re doing every thing right before moving on. Financial experts tell me our strength would allow us to open restaurants at a much more aggressive pace than our current seventy per year. But I’d rather have seventy restaurants operating efficiently and professionally than 500 restaurants where half are run well and the others are not.”

“The most common reason companies fail, I believe, is their desire to grow faster than they can manage. This can be particularly true with companies that make a public offering and find themselves staring at a pile of money. All they want to do is grow. But you have to digest growth as you go.”

Debt

“New units are built from the profits of Chick-fil-A. We try not to go into debt to expand.”

“Companies may set goals, and if all goes according to plan everything works out well. But if they have extended themselves to the limits of their finances and their talent, even a slight economic downturn can force them to lay off employees to salvage the company. You don’t build a good reputation by discharging people, but rather by developing people.”

“I am conservative in the amount of money I will borrow to build a new restaurant. I also prefer to own the real estate under our restaurants rather than to lease. The initial investment is greater, but when the loan is repaid, the advantage is clear.”

Private Company

“Chick-fil-A is now one of the largest privately owned restaurant companies in the country. Many others have achieved our size by offering ownership in their companies to the public. We have resisted and will continue to resist that status.”

“In the early years we did not offer stock for sale because I could not predict how fast the company might grow or what dividends we might pay to anyone who might invest. Additionally, I’m afraid the directors, if we had a bad year, might tell me I’m old fashioned and fire me. Too often, Wall Street analysts are more interested in profits than they are in principles and people.”

“Our system puts the cash in the hands of the Operators today, instead of sometime down the road with a lump sum, and encourages them to earn all they can, save all they can, and give all they can right now. Their focus is on today’s customer.”

“Stanley Marcus, retired chairman of Neiman Marcus, said, ‘A public corporation concentrates on profits while a private company concentrates on its people’. By operating one of the country’s largest privately held restaurant chains, Chick-fil-A has been able to do a lot of things that would not be allowed by others in the industry. For example, as a public company, we could not easily give away brand-new Lincoln automobiles, sponsor annual business seminars in posh resorts, offer $1,000 scholarships to our young people, or help support Winshape Centre and Berry College, to name a few projects.”

Community Engagement & Ecosystem

“Our people contribute to their community in ways they could not if they were associated with any other company. They feel a sense of significance.”

“Another key to success in our little corner of the world is community involvement. If somebody calls and asks for something, we give them something. And if churches and schools don’t call us, we call them, and make the offer.”

“It seems the more we give to our community, the more customers support us.”

“The pure and simple bottom line at Chick-fil-A is a commitment to people, and that’s the staff, operators, crew, and the public. From the outset we wanted to have a positive influence on all who came in contact with Chick-fil-A.”

Summary

Today’s business landscape is changing at the fastest rate in history. Technology advancements have disrupted businesses and competitive moats have been filled like never before. Yet, there are some things that haven’t changed and likely won’t. Customers will always enjoy exceptional service and they’ll reciprocate, it’s human nature.

Almost forty years ago, the research underlying Tom Peters’ book, ‘In Search of Excellence’ found, ‘The intensity of customer orientation that exists within top performing companies seems to be one of the best kept secrets in American business.’ Warren Buffett’s exposure to countless businesses across a multitude of different industries has made him conscious of the value in delighting customers, “Don’t just satisfy your customers – delight them .. Anybody who has happy customers is likely to have a pretty good future.” It’s little surprise Buffett expressed an interest in acquiring Chick-fil-A [see letter above].

When it comes to finding great businesses, being able to filter out the noise and identify the key variables that won’t change is hugely valuable. The same ingredients that have delivered Chick-fil-A success for more than 70 years, are likely to deliver success in the future. When ‘delighting the customer’ defines a business’ culture, the results can be extraordinary. That’s how S. Cathy Truett did it.

Sources:
“How did you do it Truett?” S Truett Cathy, 2007.
“Eat Mor' Chikin - Doing Business the Chick-fil-A Way,’ S.Truett Cathy, 2002.
“It’s Easier to Succeed Than to Fail,” S.Truett Cathy, 1989.

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