Panera Bread/Au Bon Pain: Ron Shaich

In the early 1980s, Ron Shaich bought a small, struggling Boston bakery chain called Au Bon Pain, and built it out to 250 locations nationwide. Ron then saw an opportunity to build something even bigger: Panera Bread. It was the start of "fast casual" – a new kind of eating experience, between fast food and restaurant dining. Today, Panera Bread has over 2,000 stores, and $5 billion in annual sales. Plus, for our postscript "How You Built That," how Tyson Walters got so tired of his St. Bernard shedding everywhere that he created the Shed Defender, a zip-up body suit for dogs that captures loose hair. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Guy Raz?

  Hey, it's Guy here. And in case you missed the announcement, I want to tell you about this incredible and exciting event we're planning. This is the first ever One Day How I Built This live summit. It's an all-day gathering in San Francisco for innovators and entrepreneurs just like you. It's sponsored by American Express, and we're hosting it this October 16th at the Yerba Buena Center for the Arts in San Francisco. I'll be doing live interviews with some of the most dynamic entrepreneurs in the world right now, like Lyft's John Zimmer, Airbnb's Joe Gebbia, and Katrina Lake of Stitch Fix. We're also going to have workshops with experts and guides there to give you tons of advice. If you want to find out more or get a ticket, go to npr.org/summit,

• 0:45Guy Raz?

  and I hope to meet you there.

• 0:50Speaker 01

  We were making spinach croissant. We'd buy the spinach frozen. We didn't have a way to get rid of the water. And somebody came up with the idea, well, let's buy a dozen clothes dryers, and we'll put the spinach in the clothes dryer. That will dissipate the water. It was a great idea until one day we blew the top off the dryer

• 1:09Guy Raz?

  Oh, my gosh.

• 1:10Speaker 01

  and ended up with spinach in all 3,000 square feet of the production space.

• 1:19Guy Raz?

  From NPR, it's How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

• 1:33Guy Raz?

  I'm Guy Raz, and on today's show, how Ron Shake built a successful bakery called Obom Pan and then took a big bet to build an even bigger restaurant chain, Panera.

• 1:52Guy Raz?

  Ron Shake isn't a household name like, say, Howard Schultz, but you could argue that what Howard Schultz did for coffee, Ron Shake did for cheddar broccoli soup or the Asiago cheese bagel. Because like Howard, Ron wasn't just focused on a product. He was interested in creating a space, a place where people could hang out for a long time, maybe even have a PTA meeting or social gathering, and really linger over that bagel or cup of soup. This is the famous third-place concept that both Howard Schultz and Ron Shaich wanted to tap into. And that's how Panera became one of the fastest-growing

• 2:32Guy Raz?

  restaurant chains in the world. In fact, if you'd invested $7,000 in Panera's stock in 1999, you'd be sitting on more than half a million dollars by 2017. Now, the thing is, if you met Ron Shaich, say, in high school, this is not the path you'd have predicted for him. Ron wasn't even interested in business. His passion was politics. His parents were raging liberals, and Ron grew up going to rallies and volunteering on campaigns all over New Jersey. He eventually went to Clark University, where, naturally, he majored in politics. And he was quickly elected to student government. And that could

• 3:13Guy Raz?

  have been Ron's life, except for one day, when something happened to Ron and a group of friends. Something kind of small, but something that, when you look back on it, probably changed his entire life.

• 3:26Speaker 01

  Yeah, so we were in a local convenience store called Store 24, across the street from the main entrance to the Clark campus. And they accused us of shoplifting and tossed us out, asked us to leave.

• 3:38Guy Raz?

  Were you guys just being rowdy or wild or anything?

• 3:41Speaker 01

  No, we were shopping. But I came back to campus, and I was in my dorm room with a couple of friends. And I said, you know, why are we shopping there? How the heck can they treat us like this? We're what supports that store. We said, what do we need them for? We can do this ourselves. We can have our own convenience store. And I said, you know, this isn't going to be that hard. Let's go do it. And we approached the university. They weren't so keen on this. But I moved the question to the student body. They voted in support of it. And I basically agreed to spend that summer, between my sophomore and junior year, opening this convenience store guy.

• 4:17Guy Raz?

  Wow. So what'd you guys sell?

• 4:19Speaker 01

  We sold everything from drinks, to munchies, to cookies and candy. And, you know, our assistant manager would come to my apartment at 5:00 in the morning. And we actually would go to this deep-discount supermarket and buy, I don't know, 10 or 15 baskets full of merchandise that we'd stocked the store with. And we hired 20 or 30 different students to work there. I will be very frank in saying to you, I was more interested in that store than I was in my own academic life.

• 4:57Guy Raz?

  And you're a guy who's still focused on public policy and government, but I guess this was kind of cool. You liked, you kind of liked doing business. You liked running a business.

• 5:08Speaker 01

  Yeah, and you know, I didn't see myself as that kind of guy. And it took me a while to make sense of that. But in so many ways, running a business is no different than a campaign. In fact, a campaign is a business that essentially has one day in which it ends. A business is a campaign that goes on and never ends.

• 5:35Guy Raz?

  So at this point in his life, Ron wasn't quite sure what he wanted to do, business or politics. But people around him saw how much he loved running that convenience store. And a lot of people said, hey, why don't you get an MBA? So Ron did. He enrolled at Harvard Business School in 1976. And when he finished, unlike a lot of his classmates who went into banking or finance, Ron decided to go into retail. And he took a job in the Midwest at a place called The Original Cookie Company.

• 6:07Speaker 01

  20 stores in shopping malls. We grew it to about 125. I took the job as the third year of the MBA. What I mean by that is, I took a job as a district manager, basically. I ran 10 or 15 of these cookie stores, half the United States. And I spent my time running around the country. And I ended up opening dozens of these cookie stores around the country.

• 6:32Guy Raz?

  So at a certain point, I mean, so you're learning about the cookie business, I guess. And then at a certain point, you get this idea like, hey, wait, I can do this myself. I can have my own cookie store?

• 6:43Speaker 01

  Yes, and I can literally remember traveling across Indiana on my way to Fort Wayne to open a new cookie store. And it hit me and I said, why are we opening this in a mall? There's a huge opportunity to open these in an urban setting. Why don't we open one? And I can remember going to my boss. I remember him taking me to meet the CEO of the company. I said, I want to open an urban cookie store. And he looks at me and he says, we don't do that here. We open mall-based retail units. And I thought to myself, well, you're not going to do it. I'd like to go do it. Why shouldn't we? And I'm the kind of guy who, if I say I'm going to do it, I want to go do it.

• 7:23Speaker 01

  And it led me to actually resigning my job, and I moved back to Boston. And I started looking for real estate. And the reality was, nobody would lease me space.

• 7:38Guy Raz?

  For a cookie store?

• 7:39Speaker 01

  Couldn't find any. For a cookie store.

• 7:41Guy Raz?

  Because they thought it wouldn't make enough money to pay the rent?

• 7:43Speaker 01

  Because I had no credibility.

• 7:45Guy Raz?

  Yeah, right.

• 7:46Speaker 01

  I had no real money. I had, you know, no balance sheet to sign a lease. And so I went to my dad and I said, I want my inheritance, whatever it's going to be. I want the opportunity to use it. And I had about $25,000. My dad essentially lent me, gave me $75,000. And that $100,000 became the grub stake, the equity, that allowed us to build that first 400-square-foot cookie store.

• 8:16Guy Raz?

  Wow.

• 8:17Speaker 01

  In downtown Boston.

• 8:18Guy Raz?

  What did you name the store?

• 8:19Speaker 01

  We named it The Cookie Jar. And I can remember, we took the Tall House recipe right off the bag.

• 8:25Guy Raz?

  Yeah.

• 8:26Speaker 01

  I bought a small mixer, and I would pass out cookies in front of the store as we were building it. And I'd start to adjust the recipe based on what I learned talking to customers.

• 8:34Guy Raz?

  And you were the baker? You were making the cookies yourself?

• 8:38Speaker 01

  Yeah, we opened, there were three employees. I mean, it was me and two folks. I will never forget that day. It just seemed like people never stopped walking, coming in and purchasing. We had 50,000 people a day going by and I'll never forget it. I got to the end of the day.

• 8:54Guy Raz?

  50,000 people a day walking past that store, just foot traffic.

• 8:57Speaker 01

  Yeah, but I got to the end of that, that first afternoon. We opened at 1 o'clock, Guy, and by 6 we closed and my back was hurting, my legs were hurting. And I counted the money and I realized we had only brought in $400. I mean, you forget when we talk about business, what it is to sell 400 batches of cookies at a buck each and the amount of energy and work that goes into it.

• 9:20Guy Raz?

  I mean, that, that sounds pretty good, though. I mean, especially for the first day.

• 9:24Speaker 01

  Well, you know, Guy, the reality of the cookie business, and basically any business, is you got to pay the rent. The staff is essentially going to be there. So the question is, what's your volume? And I was there maybe four or five months. You know, we were surviving, weren't making a lot of money. It was a fun gig, but I wanted more.

• 9:46Guy Raz?

  What was your vision for Cookie Jar? Did you imagine it being like that cookie company you worked for in Ohio? That it would be a big chain of cookie stores? Was that what you were thinking long-term?

• 9:57Speaker 01

  You know, it's so funny. I have never started with a tight goal in mind. What I have always done, and to this day still do, I see an opportunity, I wade out into the water and I try to figure out where that opportunity is going to take me. It's a little like body surfing. When you go on vacation, you go to the ocean. You know, you get out far enough away from shore, you start to watch the waves come in, and then you choose a wave and you think that's going to be a powerful wave. And then you get on that wave and you see where it takes you and you start to navigate and negotiate your way to shore. And so for me, the cookie store was not an end, but a means to take me to the next place.

• 10:42Speaker 01

  I just loved the process of figuring it out. I loved the doing of the work. I was working 100 hours a week and, and it never felt like work. It was joy.

• 10:56Guy Raz?

  But you also said just a minute ago that you, that it wasn't enough, that you wanted more. So what, like, what was your plan to take the Cookie Jar, you know, to the next level?

• 11:06Speaker 01

  Well, it was really interesting. I mean, I saw these 50,000 people a day going by, but nobody bought cookies before 12 noon. And I thought to myself, wow, what can we do with this? And I thought, you know, why don't we put in French baked goods? They seem to be growing in popularity. People were buying croissants and the like. And I went to a local, to a company called Obon Pen.

• 11:30Guy Raz?

  It was a small, just a local Boston chain, like, two or three locations?

• 11:34Speaker 01

  Yeah, at that point, well, they had three locations, and I became their licensee for the one square block around my little cookie store.

• 11:42Guy Raz?

  In other words, you sold, what, their croissants?

• 11:45Speaker 01

  Well, I actually converted my store to where it had two logos. It had the Obon Pen logo, and it had the Cookie Jar logo. And you could get French baked goods that we baked on-premise, or you could get the cookies in the afternoon.

• 12:00Guy Raz?

  Wow.

• 12:01Speaker 01

  And the thing started doing very well. But as an operator, and I'm an operator, an operator's a guy who runs these businesses, you know which of your vendors are any good and which aren't. And these folks at Obon Pen, it was very clear to me they were out of control.

• 12:16Guy Raz?

  Huh.

• 12:17Speaker 01

  I loved their product. Their product was great. But as a business, they were disorganized. They, sometimes they delivered, sometimes they didn't. Sometimes they billed me, sometimes they didn't. To this day, I'm sure I still owe them money. They just didn't have the basic processes and disciplines. And that's typical in many small businesses. And I saw a powerful opportunity. And I thought to myself, wow, I really could straighten this business out. I really could operate this. So what ended up happening, Guy, I became friends with the gentleman who was running the three Obon Pens, a guy who later became my partner, Lou Cane.

• 12:54Guy Raz?

  Lou Cane, right.

• 12:55Speaker 01

  And it was clear to him and to me that Obon Pen was not going to be able to continue growing, or staying in business there. And so I came to them and said, look, I think I can fix this.

• 13:10Speaker 01

  You give me 60% of the company. You and your investors keep 40%. I'll put my cookie store, which was making money, in with your three Obon pens and we'll create a new company. And it was in that process that we created what it became.

• 13:24Guy Raz?

  So, so, once you did the deal with, with Lou and Obon Pen, what did you do? Like, how did you even start?

• 13:31Speaker 01

  Well, I knew, I knew how to fix their business. I was committed to doing whatever it took to, to get this thing off the ground. So after we took over Obon Pen, it was a mess. You know, we didn't have a way. We were making spinach croissant. We'd buy the spinach frozen. We didn't have a way to, to get rid of the water. And somebody came up with the idea, well, let's buy a dozen dryers.

• 13:55Guy Raz?

  Like hair dryers or?

• 13:57Speaker 01

  No, clothes dryers. And we'll, we'll put the spinach in the clothes dryer and that will dissipate the water from, from, you know, frozen spinach. Well, that was a great idea.

• 14:07Guy Raz?

  You put frozen spinach into clothes dryers?

• 14:11Speaker 01

  Well, we let it defrost first, Guy. But we put defrosted spinach in, in clothes dryers, letting it run off the water. It was a great idea until one day we blew the top off the, the dryer and ended up with spinach in, in all 3,000 square feet of the production space.

• 14:28Guy Raz?

  I, I used to love those spinach croissants at Obon Pen.

• 14:31Speaker 01

  You didn't know how they were made, did you?

• 14:33Guy Raz?

  Wow.

• 14:34Speaker 01

  But I can literally remember, Guy, we didn't even have the ability to maintain our equipment. And I would use my auto mechanic to help fix the equipment. I didn't know who else to call. And we had a dough divider that was essentially being held together with baling wire and paper clips. My auto mechanic was trying to keep it going. And we were using a hanger as the handle on this dough divider. I was in a bakery at about 3:00 in the morning. And all of a sudden, you see sparks come off this dough divider. And this guy, the individual who was working on the dough divider, jumps like a deer

• 15:19Speaker 01

  that had been shot, and he falls on the ground like a raggedy handoff.

• 15:22Guy Raz?

  Wow.

• 15:23Speaker 01

  And I and everybody else in the production area came running over to this guy. And I can just remember thinking to myself, please, dear God, let this guy survive.

• 15:32Guy Raz?

  Yeah.

• 15:33Speaker 01

  You know, it certainly flashed in my mind bakery shut down, you know, baker killed.

• 15:38Guy Raz?

  Yeah.

• 15:38Speaker 01

  I could imagine all-- and we're all over there in this, this ex-Vietnam veteran, tattoos all over his body, working in the bakery, comes over and starts to do mouth-to-mouth resuscitation on him, pounding on his chest. And then, all of a sudden, this guy who's on the floor opens one eye and he says, will you please take your tongue out of my mouth? And that's, that's when I knew we were going to be OK.

• 16:03Guy Raz?

  When we come back, Ron took Obon Pan from a small business in Boston to a publicly traded national chain. And then, how he put all of that success on the line to grow another company, Panera Bread. Stay with us. I'm Guy Raz, and you're listening to How I Built This from NPR.

• 16:41Guy Raz?

  Hey, welcome back to How I Built This from NPR. So something you're going to notice about Ron Sheik and the story of how he eventually builds Panera Bread is just how many times along the way, he sees new opportunities or has to improvise and adapt. Again, and again, and again, Ron comes to a point where he has to make a big pivot and transform his business. And in 1985, three years after Ron acquires a small French bakery in Boston called Obon Pan, a business that's really struggling, he manages to turn things around with his partner, Lou Cane. But it's still a small business. In fact, Ron himself works at the sales counter during the day.

• 17:26Guy Raz?

  But doing that actually helps him figure out, almost by accident, his next opportunity.

• 17:33Speaker 01

  In 1984, 1985, I would be in a restaurant working. And I'd have a customer walk up to me, guy, and say, "Could I have that baguette?" And I say, "Sure," and they say, "Slice it." I'd hand them the loaf, and they'd pull out a bag from the local supermarket, from the local stop and shop, and they'd put roasted turkey and maybe cheese on it. And you know, you didn't have to be a Harvard MBA to say, "Wow, the real thing here is that the baguette is not the end. It's the platform to sell sandwiches." And my whole view of business, if you really focus on listening, you will see amazing things, you'll learn amazing things.

• 18:16Speaker 01

  And these customers, in their behavior, were showing us the opportunity. And so in 1985, we created the first French bakery cafe in the Copley Place Mall in Boston.

• 18:29Guy Raz?

  So you decided that you were going to make this a new experience, a new Oban Pan experience, where people could come and eat lunch and buy bread?

• 18:38Speaker 01

  Yeah, we were going to go from being simply a bakery to a bakery cafe.

• 18:41Guy Raz?

  Right.

• 18:42Speaker 01

  And almost instantly, this broken-down company became very hot. People wanted this. I can remember the second day that we opened in Copley Place, we had 50 people in line before we opened the doors.

• 18:58Guy Raz?

  And what were you serving there?

• 19:00Speaker 01

  We were serving sandwiches and some soups made on our bread and croissant, but they were differentiated kinds of sandwiches. They were roast beef and bourson on a real French baguette. It would be roasted turkey and brie cheese. And I think what Oban Pan was providing, and I don't think we had the language for it back then. But what the bakery cafe was, was an alternative between down and dirty, fast food

• 19:30Guy Raz?

  Yeah.

• 19:30Speaker 01

  and fine dining.

• 19:31Guy Raz?

  Yeah.

• 19:31Speaker 01

  And for people who were working in white collar jobs, increasingly in urban settings, this was the first example of what we later came to call fast casual. This was an attempt to do something that was better, but in a quick service mode.

• 19:47Guy Raz?

  So, so once you sort of stumbled on this idea of creating cafes and bakeries, it was after the races. You just, I mean, at that point, it was clear that you were going to begin a pretty rapid expansion?

• 19:59Speaker 01

  Well, Guy, you know, as soon as we came up with this idea of a bakery cafe, we saw all kinds of interest in it. We became hot. You know, every major office building wanted a French bakery cafe. And we found, we developed big competitors. Pepsi came after us. They decided this was going to be the third leg of Pepsi food service. And they created something called La Petite Boulangerie. Sara Lee came after us. They bought a chain called Michelle's Baguette. And they were going to open 400 stores.

• 20:30Guy Raz?

  Wow.

• 20:31Speaker 01

  There was a company in your part of the world, down in DC, called Vida France.

• 20:35Guy Raz?

  Oh, yeah.

• 20:36Speaker 01

  And they were off and running. And we were, quite frankly, the smallest of them. And the interesting part to me, Guy.

• 20:42Guy Raz?

  Yeah.

• 20:43Speaker 01

  Is every one of these large competitors had people with resumes that would run rings around our guys. All of them had far more money and announced they were going to open more stores.

• 20:53Guy Raz?

  Yeah.

• 20:54Speaker 01

  But every one of them hit the wall. What they didn't have is our people were much more connected. Our guys weren't worrying about their next career move. Our guys were committed in this deep and profound way to making this concept work. So we ended up out operating all these larger companies. And by 1991, we were validated when we went public. Morgan Stanley took us public. And we really had won the battle to be the dominant bakery cafe operator in America.

• 21:27Guy Raz?

  All right, so something, something happens early in this period, shortly after you go public, which is Obon Pan acquires this small chain of St. Louis-based sandwich shops called the St. Louis Bread Company. What's the story there? Why did you buy this, like, small chain in St. Louis? Was it, was the idea to, to turn them into Obon Pans?

• 21:47Speaker 01

  No, you know, I, I talk to everybody in our industry and there's nobody I don't learn from. And I was asked by an investment bank to meet several gentlemen who owned a company called St. Louis Bread Company. And it hit me, these were 19 stores in St. Louis, doing volumes almost as much as we did within Obon Pan, but doing so in suburban St. Louis. And it struck me, this was an opportunity to acquire St. Louis Bread Company. And maybe we could build it into 300, 400, 500 stores in the suburban marketplace, while Obon Pan was our urban strategy. So in November of 1993, we bought the St. Louis Bread Company, those 19 stores, for

• 22:32Speaker 01

  $23 million.

• 22:33Guy Raz?

  You are looking at this thing and you're thinking, hey, wait, we can use this as a way to get into the suburban market. What was the St. Louis Bread Company doing that was different than Obon Pan? Why would it have appealed to, to suburban consumers more than Obon Pan?

• 22:48Speaker 01

  Well, it's interesting, Guy. The St. Louis Bread Company was in location sites that were significantly larger. And that enabled it to have, shall we say, a gathering place or chill business. St. Louis Bread Company was generating volumes nearly as high as Obon Pan, but doing so in real estate that cost half as much.

• 23:09Guy Raz?

  Is the, is the chill business, like, literally, like, to chill out? Is that what you mean, when you say that?

• 23:14Speaker 01

  Yeah, we, we call it the gathering place or chill business.

• 23:17Guy Raz?

  Oh, okay, I got you.

• 23:18Speaker 01

  It's called third place. But basically, it's, you know, when you, when you, when you don't want to go back to the office, when you want a place to, to read a magazine, to do your bills, to go on Wi-Fi, where do you go?

• 23:28Guy Raz?

  Yeah, it's like the Starbucks. This is the Starbucks model, right?

• 23:31Speaker 01

  Yes, though, the difference between us and Starbucks, in Starbucks, they're tight spaces, so you generally go in with your headphones on and try to separate from everybody else. Panera, because we have the space. It's the kind of place you really do want to sit and do an interview. It's the kind of place that for a Bible study group or a team meeting, you can fit six, eight, 10 people at a time.

• 23:53Guy Raz?

  All right, so you acquire St. Louis Bread Company. It's going to be the sort of the suburban alternative to Obon Pan. And you were not going to give it the name Obon Pan. It was going to be St. Louis Bread Company? Or did you initially, did you immediately realize you were going to rename this thing?

• 24:10Speaker 01

  Well, we renamed the concept Panera Bread in all markets other than St. Louis. But we renamed it Panera Bread because as we went to new markets, people often thought St. Louis was more associated with Clydesdale horses and beer than it was with bread. And so, we wanted an empty vessel, a personality we could form. And our view was, we had bought this, there's something good happening. Let's take a couple of years and study it.

• 24:39Guy Raz?

  So what'd you do at that point?

• 24:41Speaker 01

  So, we went off and I literally spent two years on the road with yellow legal pads, talking to people. And it was very clear to me, I'm always searching for what's the deeper trend. Post-World War II, fast food was special. You fast forward to 1990 with 60,000 drive-throughs in America, fast food had become self-service gasoline stations for the human body. And the reality of it was that there were many consumers that were holding their noses when they wanted the fast food. They wanted more than a lot of food cheap. And it was very clear to us, the same phenomenon was happening in bread. And you start to see the growth of specialty bread in the East Coast and the West Coast.

• 25:22Speaker 01

  And we began to understand that this phenomena offered a powerful opportunity. Somebody was going to dominate specialty food. And with the power of combining it with a specialty bakery, we saw the potential to do it.

• 25:36Guy Raz?

  So, out of curiosity, in that, by 98, you're watching St. Louis Bread Company Panera really start to grow. Do you remember how many stores you had at that point? Did you expand beyond those original 19?

• 25:48Speaker 01

  Yeah, by 1998, we roughly had 150 stores. And I was having one of those moments that all CEOs have of self-reflection. And frankly, I was kind of bummed. I was looking at Panera Bread as one of four divisions in this multi-divisional restaurant concept.

• 26:08Guy Raz?

  You had Obon Pan.

• 26:09Speaker 01

  I had Obon Pan, Obon Pan International. I had Panera, and I had Obon Pan Manufacturing. And I was with a friend, and I said, you know, for every 100 people who talk about having a nationally dominant concept, one ever makes it. To do so is so difficult. But I said, this one has that potential. And my friend looked at me and said, Ron, what would you do if Panera owned Obon Pan, not Obon Pan owns Panera? And I said, you know, I'd take all the resources we had, put it against Panera, becoming a nationally dominant brand. And I'd take myself and the very best people we had, and I'd go down there and make it happen.

• 26:48Guy Raz?

  You were proposing to sell Obon Pan?

• 26:52Speaker 01

  I was proposing to sell everything other than Panera.

• 26:56Guy Raz?

  Except for Panera.

• 26:57Speaker 01

  Take all the money and all the human resources and myself and go down and make this happen.

• 27:02Guy Raz?

  So basically, you were saying, these, out of the four sub-businesses, let's get rid of these three, take the cash, and pour it into Panera, because that's the place, that's the thing that has the potential.

• 27:13Speaker 01

  Yes.

• 27:14Guy Raz?

  So you go to your board, and you say, let's do this. And your board is looking at you like you're nuts, because they actually got into this business because of Obon Pan?

• 27:22Speaker 01

  Literally, that's what happened, Guy. It was a huge boardroom struggle, because I had two votes, our venture capitalist had three, and all of them had invested in Obon Pan. Let's just say there were very heated discussions. And if I hadn't pulled this off, I probably wouldn't have stayed as CEO of Panera.

• 27:41Guy Raz?

  I mean, you had, I guess, when you sold Obon Pan, it was like 250 stores, something like that?

• 27:47Speaker 01

  About 250 stores, Guy.

• 27:48Guy Raz?

  And Panera only had 180, so you were, you really were downsizing, but you thought, we need to downsize in order to explode in growth.

• 27:58Speaker 01

  But I wasn't downsizing, I was focusing. I could see the potential of Panera. In retrospect, it looks brilliant, because the stock has been up 100-fold since then. But going through it was horrible. I mean, those businesses, Obon Pen, was like my first child.

• 28:14Guy Raz?

  Yeah.

• 28:15Speaker 01

  I birthed it, I grew it, I lived it, I loved it. But sometimes, you just have to march forward.

• 28:24Speaker 01

  You have to know what matters, and Panera's what mattered, and you have to get it done. And so, we lived through the sale of all three other businesses over a year and a half. And we changed the name of the public company from Obon Pen to Panera, and off we ran. And back then, you could have bought our stock for $3.50 a share.

• 28:44Guy Raz?

  Why didn't you tell me, why didn't you call me then, Ron?

• 28:47Speaker 01

  You know, Guy, I was telling everybody. Nobody wanted to listen then.

• 28:50Guy Raz?

  $3 a share?

• 28:51Speaker 01

  And it ended up selling for $315 a share.

• 28:54Guy Raz?

  My God.

• 28:55Speaker 01

  The truth is, nothing's proven until it's done.

• 29:00Guy Raz?

  So you are taking a big risk in 99 when you sell Obon Pen. By 2003, Panera's doing $1 billion in sales. Are you doing a victory lap? Are you like high-fiving people and saying, "See, I told you"?

• 29:17Speaker 01

  Guy, I never do a victory lap. The reality is, the time to worry about tomorrow is today. And my job is to discover what's going to happen tomorrow. I have what's called a retailer's nightmare. I have a fear that somehow, some way, nobody's going to show up tomorrow, and then what? You know, I get up on a stage, right? And I speak in front of 5,000 Panera people.

• 29:41Guy Raz?

  Yeah.

• 29:42Speaker 01

  And I sit there and I think to myself as I'm speaking, "My God, these people are counting on us to make the right decisions."

• 29:47Guy Raz?

  Yeah.

• 29:48Speaker 01

  Their mortgages, their kids' education, their livelihoods, their lives, their careers are counting on us to make the right decisions. So I'm continually asking myself, where are we going to be in three and five years? What do we need to do to get there? How do we make sure we don't make a mistake? How do we care for this? How do we steward it in the right way?

• 30:06Guy Raz?

  What's interesting to me is that this growth was just explosive in the early 2000s. And I guess by 2009, Panera was opening like a news store every five days.

• 30:16Speaker 01

  Basically, every three days.

• 30:18Guy Raz?

  I mean, it's insane. It's in the middle of the worst financial crisis. How did that happen? I mean, how did the financial crisis and the collapse of the economy not affect you guys?

• 30:29Speaker 01

  Our whole view was to make smart bets. And one of those smart bets comes from a contrarian perspective. Pre the recession, pre the Great Recession, the whole world was in a go-go kind of context. Everybody was levering up their balance sheets, putting on debt, borrowing money to buy back stock, grow, grow, grow. At that time, we held back. Real estate costs were high. We didn't lever up. When the recession hit, as Warren Buffett put it, that's the time you make a fortune. Our concept was still strong. People were still visiting us. We decided to invest our resources in growing even more quickly during the recession. Real estate costs were down 20%.

• 31:14Speaker 01

  Construction costs were down 20%. Simultaneously, most of our competitors were ripping costs out of their P and L, trying to chase their costs down as their sales were descending. It was a vicious cycle. We said, this is a time to build competitive advantage. And ultimately, we tripled the stock through the recession.

• 31:31Guy Raz?

  Ron, I don't want to end without asking you about Lou Cane, your longtime business partner.

• 31:40Speaker 01

  Yeah.

• 31:41Guy Raz?

  Because it seems like you guys had this amazing, like, very successful partnership. And I know Lou passed away in 2000, but how did you guys do that? Like, how did you? Because most people, most partnerships break down. People fight. They get jealous, angry, they get resentful. Like, did you have an agreement? How were you able to work so well together?

• 32:04Speaker 01

  Well, first off, I'll describe Lou. Lou was our version of Blake Carrington from Dynasty. He was direct from Central Casting. And he looked the part. People loved Lou. And Lou probably was at his best in relationships, in building relationships. And I was the guy who really thought deeply about the business, who ran the business and made it happen. And Lou and I's partnership worked because we understood each other. I owned, you know, six times more stock than him. But most of the community at that point undoubtedly thought the company was Lou's. I was 20 years his junior.

• 32:46Speaker 01

  I was the guy who, you know, worked with Lou. He was Harvard College, a major fundraiser for Harvard. He was on the commandant staff in the Marine Corps. And Lou was able to, through his relationships, develop their real estate. And he had the real estate and I could turn it into something. And so we were perfect for each other. And both of us, till the day he died, took care of each other.

• 33:14Guy Raz?

  That's pretty amazing. So last year, Panera sold, was acquired, sold to a German company, JAB Holding. So it's now a private company again.

• 33:26Speaker 01

  Yes.

• 33:27Guy Raz?

  Why did you sell?

• 33:28Speaker 01

  Real simple. Because what had allowed us to have this powerful success was his ability to make long-term transformative, smart bets. The reality is, in the public marketplaces, I was deeply worried we would not be able to continue to do that.

• 33:42Guy Raz?

  When you were on Wall Street, answering to Wall Street, you could not do that?

• 33:45Speaker 01

  No. You know what the truth is? I probably could, because I voted 17% of the stock and I had this reputation, this credibility. The problem was, what happened if I wasn't there?

• 33:55Guy Raz?

  Yeah, I see.

• 33:56Speaker 01

  And I'm 64, I'm not going to be here forever. How does Panera continue to do the things that had created value? There's a pervasive sense of short-termism that has invaded our markets. The reality is, when you have such short-term pressure on our CEOs, they react. And what that ends up meaning is cost-cutting. And they avoid the kind of transformative events that drove the success of Panera. Anything of value, when you have 100,000 employees, as we do, and you have as many stores as we do, takes time, takes years. And so the reality is, as a CEO, as a leader, I've got to figure out where the world is going. I've got to know how the world is unfolding. And I've got to make sure my company is positioned as the world arrives there.

• 34:40Speaker 01

  You can't do that so easily in a public company.

• 34:43Guy Raz?

  You, toward the end of 2017, you announced that you were stepping down as the CEO. Are you finally, now that you are kind of slowing down and stepped out from the day-to-day stuff, able to enjoy? I mean, you also became a rich guy. You didn't grow up that way. Are you able to enjoy some of that?

• 35:04Speaker 01

  You know, money is freedom. And so I wouldn't be foolish and tell you I don't enjoy it.

• 35:10Guy Raz?

  Yeah.

• 35:11Speaker 01

  You know, I've often been on these panels where I'm the token entrepreneur at business schools and the like. And people say, "Oh, isn't it so wonderful? Look at what you created." And they usually talk about the money.

• 35:23Guy Raz?

  Yeah.

• 35:23Speaker 01

  And I tell them, "Look, you don't understand. You know, if you don't like the people you work with, if you don't like the doing of the doing, the creative process of it, you're never going to get there." It's not about going to lunch at the club. It's not about the financings. And you better be clear about the entrepreneurial life. The business owns you, you don't own it. And this business was with me, it still is, every minute of my life, when I'm in the shower, when I'm sleeping. It's the way you develop it, and that's the way you grow it, and that's the way you run it. And if you're not willing to pay that price, you don't want to do what this is all about.

• 36:01Guy Raz?

  Ron Sheik, he was CEO for 36 years before officially handing over the reins of Panera Bread in early 2018. Late in 2017, after Panera went private again, and 20 years after selling Obon Pan to focus on building out Panera, the company actually bought back Obon Pan. The two brands are once again part of the same family.

• 36:29Guy Raz?

  Do you, how often do you eat lunch at Panera?

• 36:34Speaker 01

  I'm in a Panera, oh, I don't know, four or five times a week now.

• 36:38Guy Raz?

  Four or five times a week?

• 36:39Speaker 01

  Yeah, and my kids are in another four or five times. So we still love Panera.

• 36:55Guy Raz?

  And stick around because in just a moment, we're going to hear from you about the things you're building.

• 37:04Guy Raz?

  Hey, thanks so much for sticking around because it's time now for how you built that. And today's story comes from Tyson Walters, who lives in Los Angeles with his dog Harley.

• 37:15Speaker 02

  My Saint Bernard, she's actually nine years old now. She was the true inspiration behind the product.

• 37:22Guy Raz?

  Now Harley, like a lot of dogs, is lovable, but also like a lot of dogs, she sheds all over the place, which initially was a big problem because Tyson wanted to take her everywhere, not just to the park, but to friends' houses.

• 37:36Speaker 02

  So there was a lot of conversations to people before I brought her over, as in, you're going to vacuum when she leaves, or even riding in cars. No one wanted to ride with me because they knew they're going to be full of hair.

• 37:49Guy Raz?

  And Tyson started to take this problem very seriously.

• 37:52Speaker 02

  I researched and researched, like, what could I do? And there was no solution, so I kind of started to create it.

• 37:59Guy Raz?

  Now, this was around 2011, when Tyson just got out of college and moved back in with his parents. And they didn't want Harley shedding all over the house either. So they thought, maybe we can design some kind of bodysuit for her.

• 38:14Speaker 02

  You know, something to really get all that hair and keep it in, and something that was punchable for the dog, too. So, you know, the first idea started from just a blanket and kind of messing around with that and trying to make some leg holes, everything from like more of a net.

• 38:31Guy Raz?

  And you can probably imagine how this all went down. Tyson and his mom worked with an old sewing machine in the living room. They tried a bunch of different designs.

• 38:41Speaker 02

  And we finally kind of came up with, it just looked like a baggy shirt that the dog wore.

• 38:46Guy Raz?

  But the shirt was too baggy and the fabric wasn't breathable enough. And so Tyson and his mom had basically hit a wall. So he went on Craigslist and he found a professional seamstress.

• 38:58Speaker 02

  She could see it in her head better. And then she would recommend different materials, too. So that's when she started bringing in the stretchy material, kind of like the Under Armour and Nike athletic shirts you see. That's when it finally came together.

• 39:10Guy Raz?

  And what they eventually came up with was this form-fitting suit, kind of like body spanks for dogs. Different colors and nine different sizes, from Chihuahua to Great Dane.

• 39:24Speaker 02

  Most dogs were actually OK with it. The fabric's so stretchy, it really doesn't hinder their movement at all. It's very lightweight. And I would double check with vets and stuff like that, and they would all give it the OK as well.

• 39:36Guy Raz?

  But remember, the whole point is to keep your dog's hair from winding up all over your house or your car.

• 39:42Speaker 02

  All the hair is just contained pretty much in a suit. So you just take it off outside, you can shake it out.

• 39:48Guy Raz?

  And while you're at it, you can shake off all the weird looks you're going to get from your neighbors.

• 39:53Speaker 02

  Most people's reaction is they laugh. They laugh and say, what is this?

• 39:57Guy Raz?

  And you have to see this to believe me, because when I looked at all the pictures of these dogs in their spanks, I almost wondered whether they were kind of embarrassed. Anyway, Tyson called his dog suit the Shed Defender. He found a manufacturer in San Francisco, and things really took off when a website called Dodo.com posted a piece about them.

• 40:19Speaker 02

  It gave us a real big boost once we launched. And it's all been free advertisement.

• 40:23Guy Raz?

  Tyson has sold more than 20,000 of these Shed Defenders, and his company has grossed more than $1 million since he got it going back in 2016. And by the way, it is not just an indoor suit. A lot of owners use the Shed Defender outside to keep their dogs clean and free of ticks. And if your dog needs to go, well, there's also a zipper.

• 40:48Speaker 02

  So you just partially unzip it. The space is wide enough for the dog to Use the restroom and then, once they come back in, you can just zip it on up.

• 40:58Guy Raz?

  You can find out more about Shed Defender on our Facebook page. And of course, if you want to tell us your story, go to build.npr.org. We love hearing what you're up to. And thanks for listening to our show this week. If you want to find out more or hear previous episodes, you can go to howibuiltthis.npr.org. Please also subscribe to our show at Apple Podcasts or however you get your podcasts. You can also write us at [email protected]. You can tweet us, too, at How I Built This. Our show was produced this week by Casey Herman. Ramtin Arablouei composed the music. Thanks also to Neva Grant, Sanaz Meshkhanpour, Thomas Lu, Noor Kutsi, and Jeff Rogers.

• 41:41Guy Raz?

  I'm Guy Raz, and you're listening to How I Built This from NPR.