In-N-Out Burger (16 page)

Rich well understood that if he wanted In-N-Out to grow, he needed professional managers, and he began hiring executives who had not come up through the ranks working at the stores. During this time, he brought in a group of men with college degrees who had already gained some management experience elsewhere, men like Roger Kotch, a graduate of business administration from California State Fullerton, who started as an accounting manager (two decades later he was the chain's chief financial officer); Ken Iriart, vice president of human resources; Steve Tanner, chief financial officer, who earned his bachelor's degree in accounting from Brigham Young University; and later Carl Van Fleet, a U.C. Berkeley graduate and former Pizza Hut executive. At one point, Rich poached an executive from McDonald's, but apparently his ideas (and attitude) didn't mesh with In-N-Out's culture, and his tenure was short-lived. With few exceptions, the group that Rich put together proved to be a remarkably loyal, deep bench of talent. Nearly all stayed with the chain for decades, seeing it through a number of critical junctures.

Around the same time, Rich decided to establish a new department devoted to real estate and development. It was his desire to roll out anywhere between five and ten new stores a year. Up until then, In-N-Out Burger had used its small maintenance department to build new stores—during the day, they worked on routine maintenance, and after hours they worked on new store construction. This setup severely limited the chain's ability to build more than one or two new stores a year. If In-N-Out was to move forward, it needed to increase its ability to survey locations and erect new stores. The Snyders believed that quality control should extend to all areas, and the building of new stores was no exception.

Rich tapped longtime friend Richard Boyd, a local contractor who owned his own business and had worked on a number of In-N-Out's stores as well as the rebuild of the warehouse and new headquarters, to head up the department. Very quickly, Boyd developed
a formula for construction that mirrored the system that the chain had with its food suppliers; it was based on establishing long-term relationships with contractors. As In-N-Out expanded, so did its real estate and development department. Under Boyd, the chain now had the capacity (at least in terms of construction) to build a minimum of ten new stores a year.

Under Harry, one of the cornerstones of In-N-Out's limited growth strategy was the determination to expand only as quickly as its management strength would allow. In order for Rich to be able to realize his goal of significantly expanding the chain, he needed to come up with a process to rapidly develop a strong, competent line of managers. By promoting solely from within, In-N-Out was able to preserve both its exacting standards and unique culture—but that very same system of rolling out a new store after someone had moved up to manager severely limited the chain's ability to grow substantially.

Rich was constantly on the lookout for management talent. He established incentives for store managers to find new management trainees. While eating out in a restaurant, if one of the staff caught his eye, Rich would strike up a conversation. If he liked what he saw, he'd say, “Hey, you've got a great personality. Why don't you come work for In-N-Out?”

It wasn't enough. There was another crucial element that Rich needed: the ability to increase the number of well-trained store managers as well.

In 1984, Rich founded In-N-Out University, a large-scale management training program on the corner of Francisquito Avenue and Vineland, across from store Number One. It happened to be located on the site of Harry and Esther Snyder's former house. “If you are going to grow your organization,” explained William Martin, who devised the University's initial training manual and curriculum, “you need a training program, and that's the bottom line. That was Rich's motivation for the University. He really understood that.” Originally built as a full-service drive-through restaurant (if bigger than a typical In-N-Out store), the University was where management-level employees could receive instruction and learn how to run a unit in a real-world environment.
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It also allowed the company to reinforce its own particular methodologies and strategies.

The concept was not entirely new. In 1961, McDonald's had founded its own Hamburger University in the basement of one of its restaurants in Elk Grove Village, Illinois. A full-time training center, Hamburger U was originally set up as an instructional program for its licensees, intended to ensure uniformity in every aspect of the McDonald's system. As McDonald's grew, its university grew as well.
By 1983, the company had moved from the Elk Grove Village basement to a new $40 million facility instructing five thousand students from 119 countries.

In-N-Out University was as practical as it was bold—at least in terms of sheer size, the Snyders' chain could not equal its early Southern California rival. The year that In-N-Out University was established, there were about thirty stores pulling in an estimated $30 million in revenue. In contrast, during the first quarter of 1984 alone, McDonald's had opened forty-one new stores and reported record system-wide sales of $2.2 billion for the quarter. By the time that Ray Kroc died in January 1984, almost eight thousand pairs of golden arches circled the globe in some thirty-one countries, generating $8 billion annually. The ledger of the two companies' numbers listed side by side might have seemed horribly mismatched, save for one figure; In-N-Out Burger was meeting the industry giant's revenues on a store-to-store basis. In something of a surprise for the notoriously tight-lipped company, Rich himself admitted as much when he told a local reporter that in terms of volume, the average In-N-Out location came “pretty close” to the volume at an average McDonald's.

 

According to William Martin, who had previously directed the training and organizational development at another California restaurant chain, the Snyders gave him a great deal of autonomy to come up with a program. “They didn't have an in-house, in-depth expertise for training.” When he started, Martin discovered a successful company with a special culture, one that was insulated and private but seemed to vibrate with happiness. He found Rich and Esther Snyder “absolutely wonderful.” Rich, he said, was “the ultimate great boss,” and Esther was “gentle, kind, and lovely…a saint.” Martin added that, “whole graciousness permeated though the company.” Guy, however, was rarely around.

Initially, In-N-Out University's program consisted of a once-a-week afternoon course conducted over five weeks. Later, the training expanded to classes of about twenty students who spent 165 hours
in the classroom. Martin incorporated such management staples as
Your Attitude Is Showing
by Elwood Chapman and
The One Minute Manager
into the curriculum. “It was a natural because they were so attitude-oriented,” he said. The curriculum stressed how to hire, interview, and train. Perhaps not surprisingly, the program was intensely focused on areas that mirrored key aspects of Rich's personality: communication skills, methods for motivating associates, and positive attitudes. It was also tailored to help associates spot potential as well as to give them a sense of challenge and decision-making. One of the basic tenets taught at the University was called rule number one: “The customer is always right.” Martin recalled that “Rule number two was, ‘If in fact the customer was not right, refer to rule number one.'”

Although flipping burgers and dressing buns might be tedious, the Snyders made sure that working at In-N-Out was not. While those at the store level were expected to rigidly adhere to procedure, according to Martin the company had a real “respect for creativity and judgment.” Rich gave a great deal of latitude to his employees, rewarding and encouraging those associates who showed initiative and independent thinking, particularly at the corporate level.

While Rich was eager to accrue more managers to facilitate In-N-Out's expansion, it was not easy to join their ranks. In order to attend the University, an associate usually had to have already worked full-time at a store for a year before she was eligible to start at the fourth rung as an entry-level manager (In-N-Out has a four-tier manager system in each store). During that time, the associate had to demonstrate a track record of hard work, responsibility, and potential; he also had to show that he could make good decisions, take initiative, and exhibit considerable people skills with both the customers and his co-workers. As positions opened up (and new stores opened), there would be upward movement to the next level of manager, and each level had to spend time at the University once they were promoted for additional training.

On average, it took about five years to reach store manager from entry-level management—and within the company it was viewed as
a significant accomplishment. “There was no overnight promotion,” explained Martin. “You had to prove yourself.”

Notably, only store managers manned the grill. Unlike most fast-food chains, the company considered a grill position a highly skilled job. After all, it was the altar upon which the whole enterprise rested. It was a very intricate operation, since every single burger was made to order—a beef patty did not go down until an order ticket went up. It required a tremendous amount of coordination and speed, requiring three to six months just to learn to operate and manage.

Teaching and reinforcing consistency of quality was a real obsession with Rich, and at the University he came up with a number of schemes to maximize the opportunity to do so. The company began sending its top executives to Cal Poly Pomona College, where they took courses in a number of areas such as human resources and sexual harassment. A team of field specialists were deployed to further motivate and train in-store managers; they helped with everything from the proper way to talk to customers and associates to flipping hamburgers. Inspired by college and professional sports teams, Rich began producing a series of training films, videotaping trainees for the express purpose of critiquing their performance.

“Rich was always a leader in communication,” recalled Jack Williams. “And by communication I mean really good follow-up. He developed a package that was clear in what you were expected to do, you were given training to do the job, and then there was always follow-up to see how you were doing it and if you could do it better. If you were strong in one area and not in others, they would work with the people. They gave them direction and motivation. They had an awesome selection process, and his management development and training program was never-ending.”

As a result of his dyslexia, Rich had relied heavily on verbal and visual communication techniques—it was one of the reasons he launched In-N-Out's
Burger Television.
The program was a modern, company-wide motivational tool, full of colorful graphics, a vibrant soundtrack, and MTV-style quick cut edits. Similar to a network magazine program, the show broadcast In-N-Out news and events
each month to the company. Often a be-suited Rich, with a
BTV
mic in hand, was shot interviewing various associates.
Burger TV
allowed the company to reaffirm its basic concepts while rallying the troops and bolstering morale.

Before long, the company launched its own newsletter called
The Bulletin.
Initially, it was a one-page, black-and-white internal dispatch; distributed to the associates, it offered details about operations and company policy. As the chain grew,
The Bulletin
expanded to an eight-page color glossy filled with breezy stories about In-N-Out goings-on (store openings and promotions) as well as the associates' personal milestones (weddings, births, graduations). Although publicity-shy, the chain wasn't averse to seeing its own name in internal headlines, and one section in
The Bulletin
was later devoted exclusively to recounting where and when In-N-Out Burger had appeared in the news.

 

At one point in the midst of Rich's planning, building, and growing frenzy, he decided to seek the advice of a hard-charging food industry consultant. Given his penchant for surrounding himself with mentors and his desire to constantly upgrade his own management understanding and abilities, it wasn't surprising that he sought outside counsel—but the consultant's recommendation took him by surprise. Apparently, the consultant told Rich that if he slashed salaries, In-N-Out could save a “ton of money”; the very idea infuriated Rich. This contradicted the very foundation of In-N-Out's philosophy and its success. When Rich sourly recounted the story, he said the suggestion was exactly the kind of advice one would get “from a guy who wears a suit and who thinks you don't pay a guy who cooks hamburgers that much money.”

Like his father, Rich shared in the belief that running a successful fast-food business was not about cutting corners or about purchasing the right equipment. What it boiled down to was people management. Where the two differed, however, was that while Harry had hoped that his associates would work hard at In-N-Out, save their money, and then move on—perhaps even to open their own fast-food
businesses (as a few of them did)—Rich had a different vision. As president, one of his chief goals was to build a much bigger footprint for In-N-Out Burger. And his philosophy was, “Why let good people move on when you can use them to help your company grow?” But he had no intention of cutting costs to inflate paper profits.

From the start, In-N-Out paid its employees more than the going rate (associates always made at least two to three dollars above minimum wage) and was an early practitioner of profit sharing. Under Rich, In-N-Out went further, establishing an expansive set of benefits under which part-time workers received free meals, paid vacations, 401(k) plans, and flexible schedules. Full-time associates also received medical, dental, vision, life, and travel insurance.

In fact, after the state of California raised its minimum wage in 1988 from $3.35 to $4.25 (its first increase in seven years), the
Orange County Register
called Rich Snyder perhaps the only restaurant executive in the state to favor a widespread pay hike. At the time, Rich had already boosted In-N-Out's starting wages to $6 an hour from $4.25. “If you lose your workers, you lose your customers,” he said. “I don't know how others do it, but we just try to keep everybody happy that works for us.”

Low-wage employers, particularly in the fast-food industry (which traditionally had both the highest proportion of minimum wage workers and the youngest employees), had long opposed increasing the minimum wage. Chief among their reasons was the belief that it would have a negative impact on employment. Famously, around the time of President Nixon's 1972 reelection campaign, a number of McDonald's franchisees were among a group of small businesses that lobbied Congress to prevent an increase in the minimum wage and even sought to have legislation passed that would exempt part-time students from earning the minimum wage. Critics of the move quickly dubbed it the McDonald's Bill. The fast-food chain's detractors were further angered when it was revealed that Ray Kroc had personally (and separately) donated $250,000 to Nixon's reelection campaign.

To put it in further perspective, fast forward to February 2008, when starting pay for all new In-N-Out associates (including part-
time associates) reached $10 an hour. Two years earlier, the chain raised its own minimum wage for part-time workers to $9.50. At the time, the minimum wage in the state of California was $6.50 (in January 2007, the minimum wage increased to $7.50). By contrast, Wal-Mart, a company with $375 billion in sales (some ten times greater than In-N-Out's annual revenue) was paying its full-time hourly workers $10.51, only 99 cents more per hour than In-N-Out was paying its part-time hourly employees.

In-N-Out's store managers (about 80 percent of whom began at the very bottom, picking up trash, before moving up through the ranks) earned salaries equal to if not greater than most college graduates. By 1989, top store managers earned about $63,000 and were eligible for monthly bonuses tied to store performance. On average, they had been with the chain for about ten years. Accounting for In-N-Out's team of dedicated managers, Esther once proudly stated, “We're blessed with good employees, who run the restaurants as if they were their own stores.” Certainly, their high salaries went a long way toward explaining their longevity. Some twenty years later, store managers were pulling in at least $100,000 annually.

It was Rich's belief that his job was the bottom point of an inverted triangle. He was there to support everyone else in the company. When talking to store managers, he was always careful to refer the shops as “your stores” and never asked them “What store do you manage?” He wanted them to have pride of ownership. Regardless of anyone's position or length of time with the company, Rich treated everyone equally and as if they were all special. “He really lived the Christian belief of treat your neighbor as yourself,” exclaimed Rich's good friend Heath Habbeshaw. An ordained minister, Habbeshaw began working at the La Puente In-N-Out as a teenager with Rich in 1968 and remained with the company on and off until the mid-1990s. “He poured that into his business philosophy and everybody loved him. It made us all work even harder.”