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#008: What delivering newspapers taught me about pizza – The story of Dominos.

Dominos was started in 1960 and grew to be the largest independent restaurant business on the planet.  Started by an orphan who was swindled out his life savings.  This is a true rags to riches story.  Sometimes you just need to hang in there and not chicken out.

David Young:

Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from Mom and Pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen sidekick and business partner, Dave Young. Before we get into today’s episode word from our sponsor, which is… Well it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.

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David Young:

Stephen, it’s pizza day. Is that right?

Stephen Semple:

30 minutes or free, baby.

David Young:

It sounds like Domino’s. Huh?

Stephen Semple:

Domino’s, all right.

Stephen Semple:

Yeah, Domino’s is interesting. It was founded by Tom Monaghan in Michigan, back in 1960. In the ’80s, he sold it to an investment place and he sold it for about a billion dollars.

David Young:

About a billion?

Stephen Semple:

About a billion. So he did okay with his investment but there’s kind of a couple of funny twists in there, including some things with his brother. I would not relish Christmas with him and his brother because basically, it happened in 1960s, his brother was working at this pizza store that was actually called DomiNick’s. And it went under, and Tom and his brother borrowed 500 bucks. They scraped together 500 bucks for the down payment to buy the store. So they buy the store and it was not an immediate success. So, you know how we talk a lot of times around the chickening out period in terms of-

David Young:

Mm-hmm (affirmative)

Stephen Semple:

And you’re working on it and people chicken out. How long does it usually take for the chickening out period to happen, Dave? One more time in the client.

David Young:

Three to four months usually.

Stephen Semple:

Yeah, it really becomes strong at the six-month period, right? Well, at the six-month period, his brother said “I’m out, I can’t do this any longer. It’s just not working” and so basically, he bought his brother out by giving him… They had this old VW Beetle that they use for delivery and that’s basically what he bought his brother out with. So he bought his brother out with basically this car and he went on to become a billionaire. How would you like those Christmas dinners?

David Young:

Let’s say the guy made his choice.

Stephen Semple:

Yeah, I know. But still, it’d be one of those weird ones but here’s the thing about Domino’s that’s really interesting, is when they bought the store, the store was small and that really limited the amount- like pizza stores in those days were limited by the number of seats you had and how quickly you could turn those seats. And Tom had a really interesting background. He learned something in the newspaper business. He grew up really poor, he grew up in foster homes and the like. He couldn’t afford university so he enrolled in the Marines, during the time he was in the Marines, he saved money for university, and then he got swindled, he got swindled the money. So he never ended up being able to go to university, so he needed to make money.

Stephen Semple:

He basically took over a newspaper stand and this is what he learned in the newspaper stand, he said “wait a minute. I can’t only sell so many newspapers from a stand. I can sell a lot more newspapers if I deliver door-to-door” and he had heard about somebody else in another community doing door-to-door. So he started delivering newspapers door-to-door and this learning stayed with him because the key was door-to-door, do it fast. If you can do it fast you can make a lot of money doing door-to-door delivery. So when he took over this small pizza place, that lesson was still with him and he said “you know what? We’re going to do pizza door-to-door delivery” because when you’re doing delivery, it’s limited by the number of hungry people that are short drive away than the six seats that you’ve got in your pizza place.

Stephen Semple:

So they started to do pizza delivery. And really, quite frankly, they invented pizza delivery. People were not doing pizza delivery at that time, but it also meant they had to change the business model because pizza delivery is about fast and efficient, right? So one of the things was when he took over the store, they had five sizes. And if you think about five sizes of pizza, when somebody phoned- remember, this was… We’re talking in the ’60s, somebody phoned playing the five different prices and the five different sizes, you got to stock five different sizes of box, you’ve got to have dough and everything pre-made for five sizes because you’re not going to make everything, you have to make a fast, right? So they cut it down to three.

David Young:

Then he got people on the phone doing the mental math of trying to figure out the… one between the medium and the large is a better deal than the large or… right? And then nobody remembers Pi R Squared for area of it. Yeah, don’t want to do that.

Stephen Semple:

Becomes really complicated. But what he realized when he took it down to the three sizes is that he was actually going to have to eliminate the most popular size.

Stephen Semple:

So think about that. You’ve got a restaurant, it’s a new restaurant. It’s struggling, you’re inventing this new thing called pizza delivery and you’re going to take your most popular size and you’re going to eliminate it. That’s a pretty fricking bold move.

David Young:

Sure.

Stephen Semple:

People got to be bold. That is a bold move, but it worked. And he found that margins were better and the business started growing, had a couple locations going, and then he met Ray Kroc. He met Ray Kroc in the ’60s and that’s when he started then to expand using the Franchise Model. And there he-

David Young:

Wouldn’t you want to be a fly on the wall of that conversation?

Stephen Semple:

No kidding, meeting Ray Kroc and you’re just getting things going. And you decide to follow in the McDonald’s Model.

David Young:

Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.

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David Young:

Let’s pick up our story where we left off and trust me, you haven’t missed a thing.

Stephen Semple:

And you decide to follow in the McDonald’s Model. When they first started expanding, they were really smart because again, when you think delivery, if you can go to somewhere where you can deliver three or four pizzas at once in a single delivery, that’d be really effective, right? So they located near university campuses.

David Young:

That makes sense.

Stephen Semple:

And they really focused on that as their business model, they didn’t start with the 30 minutes or free, took them a number of years to develop that and an investment of millions and millions of dollars to build the systems and the processes to do that. But nevertheless, they were one of the first doing delivery located near the universities. And basically, by the end of 1973, 13 years after they started, they had 76 stores. They’ve grown from zero or from the 1 to 76 stores. And there’s an article on my website that talks about how businesses grow and businesses don’t grow like this, they get a speed and then they grow exponentially. So you think about it, they went from zero to 76 in 13 years. Well, five years later, they doubled to 159.

David Young:

There you go.

Stephen Semple:

Five years after that, a thousand. And they actually became the largest privately-owned restaurant company in the world before being bought out by the investment firm, which was then 15 years after that, where they got given a billion dollars for the investment. And it was Mitt Romney’s firm that bought them.

David Young:

Oh, wow.

Stephen Semple:

Yeah. So Mitt Romney was actually involved with the firm, at the time of that acquisition was done.

David Young:

That’s pretty cool story. So being able to apply something that you’ve already learned, newspaper delivery, and taking what you’ve learned and applying it into some new venture is pretty powerful lesson.

Stephen Semple:

Yeah.

David Young:

And then the accelerant being that, meeting with Ray Kroc and going ” oh, you know, there’s a bigger vision than just being the biggest pizza guy in town”

Stephen Semple:

Yes, yeah.

David Young:

Or in your part of town.

Stephen Semple:

And taking that learning. And again, we accept Franchising as a common thing today but in the ’60s, it really wasn’t. It was still a relatively new idea. So it would’ve been easy to go “I don’t know Franchising, I don’t know” so he really showed his ability to look at other things and go “how can I apply this to this business model? How can I apply that to this business model? How can I apply that to this business model?” and built an empire and none of these things were easy decisions. It would be easy today to go “yeah, it was easy decision. It was Ray Kroc” but Ray Kroc back in ’60s, McDonald’s was not… it was [inaudible 00:10:56] as well.

David Young:

Well, like I said, to be a fly on the wall of that conversation. They were both in building mode.

Stephen Semple:

They were both in building mode. We all know Domino’s is not the best pizza on the planet. Just like McDonald’s burgers are not the best burgers on the planet but yet, there’s lessons that we’ve learned from these companies.

David Young:

You create an experience for people and you can recreate it with ease because you have systems in place that allow you to do that.

David Young:

Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app and leave us a big fat juicy five-star rating and review at apple podcasts. And if you’d like to schedule your own 90 minute Empire Building session, you can do it at empirebuildingprogram.com

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