1: “Our bread wasn’t good enough,” Ron Shaich writes in Know What Matters: Lessons from a Lifetime of Transformations.
This was a real issue for Ron because he was CEO of Panera Bread.
“Bread” was in the company name.
And, one of the company’s guiding principles was: “Bread is our passion, soul, and expertise.”
Ron knew he had to fix this problem. The stakes were high.
And it was a difficult challenge because “doing bread well is tough,” he writes. “It’s devilishly difficult to make good, fresh bread under any circumstance, but to do so consistently in hundreds, eventually thousands, of cafés is damn near impossible.”
But there was an opportunity in the challenge of baking delicious bread across all of Panera’s cafes.
“When we declared, ‘Bread is our passion, soul, and expertise,’ we knew that if we pulled it off,” he observes, “we’d produce something that was difficult for rivals to match. . .
“When it comes to making smart bets that create a competitive advantage, what matters is what’s difficult,” Ron notes. “I want to do the tough stuff—I seek it out.
“Because if it’s easy,” he observes, “it’s not worth doing.:
Why? Because easy doesn’t create real, sustained competitive advantage.
“Competitors will just copy what we’ve done—especially in a business like the restaurant business, where we’re not protected by copyrights, where anyone can just walk in the door and see exactly what you’re doing and copy it. You might as well be their R&D department,” he remarks.
2: Ron shares two examples of this principle in action.
First, in the 1990s, one of the first frozen yogurt companies was called TCBY in Little Rock, Arkansas.
TCBY was doing great. “Rght up to the moment McDonald’s put frozen yogurt in its soft-serve machines,” Ron explains.
“First to market means nothing,” he notes, “if we only last a month. If there’s no barrier to entry, there’s no sustainable business model.”
A second, positive example is the Cheesecake Factory. “Its complex menu offers real competitive advantage because it is hard to pull off right,” Ron explains.
“Most competitors want to go in the opposite direction and simplify their menus,” he observes. “That’s why the Cheesecake Factory has sustained its competitive advantage while so many other casual dining establishments fell by the wayside, copying each other.”
The bottom line: “Mastering what’s difficult—establishing our authority on that higher ground—is what sets us apart in the eyes of customers,” Ron writes. “It’s what inspires them to walk past competitors and come to our door.”
Which is why Panera was so committed to creating a real barrier to entry with its signature offering: Bread.
“For us, setting ourselves apart meant the bread had to be freshly baked each day, using fresh dough,” he explains.
Panera started out as the St. Louis Bread Company. The small cafe chain had several facilities to make the fresh dough and then transport it to the stores in refrigerated trucks, where it was then baked.
“Expanding this operation for Panera was daunting—but necessary,” Ron notes. “Bread is based on yeast, a living organism. Fresh dough makes better bread, and better bread was the platform that made all our other food special.”
The company committed to delivering fresh dough daily to all of their cafes. “No matter how many we built, no matter what the cost,” he writes.
So, in addition to being in the restaurant business, Panera was also in the manufacturing and logistics businesses. “We were operating more than a million square feet of manufacturing facilities and running hundreds of trucks each day.”
Over time, Panera mastered the challenge of fresh dough, even as the company grew rapidly.
Doing so was expensive and required significant financial investment to operate their fleet of trucks.
“We also spent dearly on our ovens,” Ron notes. “Early in the development of our concept, Scott Davis and I insisted on using artisan European deck ovens in all our cafés. They cost about $75,000 a pop. We had little hard evidence that this investment would pay off in the short term.
“But I never doubted the long-term competitive logic behind it,” he reflects. “Without those ovens, we would be limited in our ability to produce an extraordinary crust and always have an inferior, easy-to-copy product.”
Baking wonderful bread was a true barrier to entry.
“Retail food outlets couldn’t build and run manufacturing and distribution systems like ours,” Ron reasons. “Smaller competitors lacked the scale and capital to mount such an effort. Industry giants would find it extremely challenging to integrate it into their complex supply chains.”
3: Discovering barriers to entry that create sustained competitive advantage happens when we ask ourselves a series of challenging questions:
“What can we do that customers seek and our competitors can’t deliver?”
“In a world of abundance, what can we do that is scarce?”
“What can we be that is special and unique?”
“What’s tough enough that it’s worth doing right?”
Once we discover our competitive advantage, we must pursue it with tremendous focus and intensity.
We “can never let up in this effort because competitive advantage is transient,” Ron notes. We “don’t secure it once and then sit back and watch the profits roll in. Sooner or later, a bigger, better financed, or smarter competitor will figure out how to do what you do.”
What having a successful competitive advantage does is buy us time to innovate and create the next competitive advantage.
Ron writes: “The key to thriving in a freakishly competitive world is to know what will matter tomorrow, get it done, and accomplish what others cannot—again, and again, and again.”
More tomorrow!
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Reflection: What can we do that customers seek and our competitors can’t deliver? In a world of abundance, what can we do that is scarce? What can we be that is special and unique? What’s tough enough that it’s worth doing right?
Action: Identify one “tough thing” in my work that, if mastered, would be hard for others to match, and take a concrete first step this week to lean into it—whether that means upgrading a core capability, investing in better tools, or redesigning a process.
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