– business model –
SKUs
$
EV EN C TS AR T W S HO RE LES TA AL W IL E EB
EV EN C TS AR T W S HO RE LES TA AL W IL E EB
– original initiative –
HOME SAUSAGE
CM
(questions/experiments) creating value
delivering value
LBF DOGS Five Dot Farms Heritage Farms Sonoma Farms
– supply chain – Co-Packer
ACME buns (SF) Condiments from Trader Joes’s Costco/Whole Foods
LBF HEADQUARTERS “HOME SAUSAGE”
VeggieWorks
LBF (LA)
owned by Englehart DEVIL’S SAUCE INGREDIANTS
Co-Packer
(whole foods/costco)
FRANKIES MEAT FROM FIVE DOT
LA Co-Packer
LBF DOGS Five Dot Farms Heritage Farms Sonoma Farms
– supply chain – Co-Packer
ACME buns (SF) Condiments from Trader Joes’s Costco/Whole Foods
LBF HEADQUARTERS “HOME SAUSAGE”
VeggieWorks
LBF (LA)
owned by Englehart DEVIL’S SAUCE INGREDIANTS
Co-Packer
(whole foods/costco)
FRANKIES MEAT FROM FIVE DOT
LA Co-Packer
LBF DOGS Five Dot Farms Heritage Farms Sonoma Farms
– supply chain – Co-Packer
ACME buns (SF) Condiments from Trader Joes’s Costco/Whole Foods
LBF HEADQUARTERS “HOME SAUSAGE”
VeggieWorks
LBF (LA)
owned by Englehart DEVIL’S SAUCE INGREDIANTS
Co-Packer
(whole foods/costco)
FRANKIES MEAT FROM FIVE DOT
LA Co-Packer
HEALTH & SAFETY
SALES GROWTH THROUGH EVENTS
INCREASE BUSINESS IQ
INCREASED VISIBILITY
FINANCIAL STABILITY
BRAND BUILDING
process R3
present initial research & status quo clarification immersion immersion
R4
Five Point Review
pivot point work session #1 work session #2 work session #3
R5
roadmap presented
Strategic Development
– roadmap –
– key questions –
Should LBF close SF operations?
– key questions –
Should Frankies separate from LBF?
Who is running this business?
– action plan –
1. 2. 3. 4. 5.
Relocate the hub of operations Secure a new co-packer Relocate inventory Develop a 2014 operational budget Develop a Quickbooks dashboard
– focus areas –
Q1
stabalization
– focus areas –
Q2
prep for summer
– focus areas –
Q3
capture sales
OPERATIONAL PLAN AND STRATEGIC BUSINESS DEVELOPMENT Operations & Strategy Fall 2013
Graham Gardner Payal Patel Isaac Buwembo Teresa Ann Rich Sarah White
TABLE OF CONTENTS
Executive Summary
3
History
4
Status Quo Business Design
4
Organizational Chart
7
Key Challenges
8
Client Engagement
9
New Direction: Recommended Strategies
10
One-Year Roadmap
14
Roadmap
15
December - January
15
February - March
16
Quarter 2
16
Quarter 3
17
Quarter 4
17
Learning Outcomes
18
Conclusion
21
Figure 3: Roadmap
22
2
EXECUTIVE SUMMARY Frank Further Inc., doing business as Let’s Be Frank (LBF), is a San Francisco-based company that exists to make good food fun. It offers sustainably-raised, delicious-tasting meats in an accessible package: the all-American hot dog. In a market that lets consumers choose between either the cheap, processed and unhealthy or the sustainable, delicate and unaffordable, LBF and its competitors offer something that is accessible, delicious and authentically American. The company has been operating since 2005 and in that time it has undergone a number of changes. Most significantly, operations were expanded to Los Angeles in 2007 when co-owner Sue Moore moved there from San Francisco. From humble beginnings as a small hot dog cart setup near the Giants baseball stadium to operations in two cities, a brick and mortar store in the Marina from 2009-2012, distribution in nearly a dozen grocers, an expanded catering business, and high-level press from famous celebrities, LBF has achieved notable successes. However, a frank assessment of the company concludes that business growth is largely in spite of rather than the result of effective business administration. Sue and fellow co-owner Larry Bain have a poor working relationship and have yet to make the crucial decision of who is running the company. As a result, decision making is slow, most efforts lack focus, and a number of costly missteps have occurred, including the loss of LBF’s most profitable sales location in August this year. The news in November that LBF is losing both of its warehouse spaces at the end of January 2014 and will need to find a new meat processor to produce its hot dogs came as a further shock to an already unprofitable company. LBF is fighting for its survival. The situation with LBF rapidly evolved since the beginning of our engagement in September. In our first weeks working with the company we recognized that leadership and personality issues were the most significant problems facing LBF. However, we decided to focus instead on helping the company achieve greater focus around which sales channels to nurture, expand or eliminate. With this as our original operational initiative we went through phases of exploration, investigation and synthesis. What we discovered through our research is that the leadership problem cannot be ignored, especially in light of the crises they currently face. We thus flipped and leveraged the opportunity to help Sue and Larry revisit the “Why” behind LBF as a way of developing a realistic roadmap for the next 13 months of business operations, a crucial period if LBF is to survive. In developing this roadmap we helped LBF to answer the original question in our operational initiative - which channels to expand and which to eliminate - while also bringing new clarity around roles and responsibilities, resource allocation, prioritization of tasks, and key decision points. Sue and Larry still carry forward the mission of making good food fun. We hope that our engagement has offered a model for strategy development and more objective decision-making along with a clear path forward to overcome the current crises. Much depends on whether Sue and Larry can put past disagreements aside and work together to save their company.
3
HISTORY Sue Moore and Larry Bain founded Frank Further Inc. and the Let’s Be Frank brand in 2005, drawing upon decades of experience in the food business. Larry, a former restaurateur, developed connections in the food industry while helping early waves of Bay Area sustainable restaurants form in the 1980s and 1990s. Sue gained experience sourcing meat while working as the “meat forager” for famed-Berkeley restaurant Chez Panisse. Together, they saw a unique opportunity to provide consumers with something fun, delicious and sustainable while also helping ranchers practicing sustainable techniques to expand their sales. While sustainable ranchers benefit from the higher prices they receive for choice cuts of their sustainably-raised meats, they need a market for the trimmings and other excess from the butchering process. LBF is one of a number of companies that have developed over the past two decades to source sustainably-raised meat trimmings for hot dogs and other processed products. Though more expensive than traditional hot dogs, LBF hot dogs offer consumers delicious grass-fed beef, sustainably-raised pork and organic turkey dogs at a fraction of the price of the choice cuts at their local butchers. The company is united around the concept of “Dogs Gone Good”, expressed in their mission of “making good food fun.” Though at the beginning of their engagement LBF did not have a developed vision statement, Sue and Larry see the company as part of broader efforts to support humane meat raised locally food without chemical additives or hormones by ranchers with a commitment to fair treatment of workers. Revisiting the mission and vision would become a major part of our engagement.
STATUS QUO BUSINESS DESIGN Business Model LBF offers three key customer segments - events managers, wholesale buyers, and hot dog eaters - a delicious, fun, and accessible sustainable hot dog experience. It does so through five sales channels: catering, street carts, wholesale bulk, retail, and web orders (through AmazonFresh and Good Eggs, both online grocers). LBF has attracted its customers through a mix of word-of-mouth, passionate dedication to their delicious product, and celebrity endorsements. Despite this earned demand creation, LBF has not successfully turned hype into revenue and profit growth. The company is weighed down by a costly and inefficient supply chain and a lack of business model development. LBF has recently expanded its product line to include Frankies, dog treats made from dehydrated grass-fed beef. LBF delivers “human food for dogs” to dog owners seeking the best food for their pets. The Frankies product line builds upon the infrastructure created by LBF, including the use of the “Home Sausage” distribution hub in San Francisco and existing relationships with the rancher that supplies the beef for Frankies and the hot dogs. Obviously the viability of this new product line is questionable given the disruptions to LBF’s warehouse operations. Competitive Landscape When Let’s be Frank began in 2005, there were few grass-fed hot dogs on the market. The rise of sustainable, local food movements significantly increased the number of direct competitors in retail stores. LBF’s grassfed/sustainable hot dog competitors include: 4505 Meats LLC, Saag’s Products LLC, Applegate Farms LLC, Prather Ranch Meat Co., and Five Dot Ranch LLC (the LBF beef supplier). LBF’s
4
main competitive disadvantage is high cost. On per ounce and per dog bases their retail pack of four hot dogs is the most expensive of the sustainable hot dog offerings in local markets such as Bi-Rite. LBF positions itself as the “fun” sustainable hot dog through differentiated packaging design, but it is unclear whether this is enough to overcome its higher price point. Despite many competitors, the market for organic, sustainable food items is growing rapidly. The direct to consumer cart and catered private event sales, which constitutes LBF’s main revenue source, faces very different competitive forces. In this segment of the business LBF competes directly and indirectly with caterers, food trucks and traditional hot dog carts. LBF has the advantage of brand recognition and a unique niche of high quality, relatively low cost, highly portable food. In the past LBF has succeeded by placing its carts in high traffic tourist settings, such as the Warming Hut at Crissy Field in San Francisco and at a regular food truck location in Los Angeles. At larger public events (such as outdoor concerts), LBF faces competition from carts and food trucks offering different food products. The street and public event activities help to drive visibility of the brand though it is unclear whether this translates into sales of catered private events. Los Angeles has the potential to be a much larger market for LBF growth than San Francisco. The warm sunny weather extends hot dog season and LA residents consume more hot dogs than any other city (95 million or more consumed)1. The total amount spent on hot dogs exceeds $92 million in Los Angeles2. This is a huge advantage for the LBF cart and event business in LA where celebrities and high profile individuals regularly visit carts and book events. Finances Financial clarity is a challenge at LBF. The managers lack systems to provide relevant and timely financial information that can be used for day-to-day and strategic-level decision making. For example, LA and San Francisco used different Quickbooks codes until recently and a final financial statement for 2012 has yet to be prepared. While margins on the various SKUs are being tracked, clarity on the true costs of doing business have not been achieved. Costs are not tracked consistently - if at all; LBF catering staff often fail to record wasted inventory - and inventory management is a significant challenge. Indicative of this challenge is the fact that LBF does not track meat inventory once it has left its freezer at the San Francisco warehouse. For sales via their carts all inventory is tracked via a printed sheet and a count of buns, not dogs, despite the fact that each dog type carries a different COGS. In conclusion, after eight years of operations there is no evidence of a comprehensive understanding of LBF’s financial model to truly know what drives the top and bottom line, where the biggest opportunities to reduce costs lie, and which channels are most lucrative or ripe for expansion. In a very literal sense, LBF owners and managers need a common financial language. Supply Chain and Processes LBF procures five different types of dogs in bulk packages (for direct sale and for the catering/carts sales) and two different types of dogs in retail packages (packages of four dogs sold in groceries). The company has been procuring both types of dogs from its key partner, 1 2
Benbow, Dana H. “USA TODAY.” USATODAY.COM. USA Today, 08 July 2012. Web. 18 Dec. 2013. “The Size and Scope of the U.S. Hot Dog Market 2012.” National Hot Dog & Sausage Council, Size and Scope of the Hot Dog Market. Hot Dog City, n.d. Web. 18 Dec. 2013
5
Englehart Gourmet Foods Inc., (Englehart) a meat processor and packer in Fairfield, CA. This relationship will end in January 2014. For beef purchases, LBF works directly with Five Dot Ranch, a sustainable ranch in Northern California and a defining feature in the LBF story. The products that include beef are the Frankies dog treats, beef dogs and “mutt dogs” (a combination of beef and pork). Englehart manages the procurement of the pork and turkey for LBF’s other dogs (brats and “birds”) from Heritage Farms in Missouri and Diestel Family Turkey Ranch in Sonoma respectively. The beef for the Frankies is shipped to a Los Angeles food dehydrator and then shipped back to San Francisco for delivery. In addition to meat products, LBF produces Devil’s Sauce, a shelf-stable product that is made by a copacker using the LBF recipe. The design of this supply chain is driven by Sue’s relationships with ranches and is more opportunistic than deliberate; in our assessment the design of the supply chain is far from optimal. LBF also sources ingredients such as buns from Acme Bread and sliced onions from Veritable Vegetable for hot dogs sold through cart and event sales. Other condiments, drinks and chips are procured from bulk stores like Costco on an as-needed basis. At the hub of LBF’s supply chain is its warehouse in downtown San Francisco, which is owned by Englehart. LBF rents the space at a well below-market-rate. From this warehouse, LBF distributes its products to the LA location (a 250 square foot storage space and refrigerator), makes wholesale bulk deliveries to locations including Muir Woods Cafe, and delivers retail packs to local retailers like Bi-Rite. LBF recently expanded into online markets, including AmazonFresh in LA and Good Eggs in the Bay Area. LBF received word in November that Englehart is selling the warehouse property and LBF will need to move out of the space by the end of January 2014. Coincidentally, they will also need to move out of their LA storage space at the same time (see below). Relationships and Organizational Structure Despite their small team, LBF is neither efficient nor productive when it comes to relationship and employee management, leadership and internal communications. LBF is currently lacking well-defined roles and responsibilities within its organizational structure (Figure 1) and no clear leader or manager sits at the top of the business. While Larry seems to allow Sue to run day-to-day operations, he has not fully relinquished his seat around the management table. His interest primarily lies in launching the Frankies product line for which he needs cash from LBF. Sue is unwilling to let Larry lead Frankies by himself for fear of suffering a poor return on LBF’s investment. At the same time Larry believes that Frankies is the only viable future for the company. Thus any resistance from Sue in the realm of Frankies is met with resistance by Larry in the realm of LBF. It is a highly dysfunctional dynamic. In light of this dynamic, the key challenge was helping LBF to think about simple procedures and communication routines so that both day-to-day and strategic decisions can be made from a well-aligned vision/position that inspires action by key employees.
6
Figure 1: Organizational Chart
SUE LARRY
EMMA operations manager
DIANA financial manager
OPERATORS
TIM
LOS ANGELES
SAN FRANCISCO
7
KEY CHALLENGES Let’s Be Frank is facing a number of serious and pressing challenges in the near and medium term. Fundamentally, LBF lacks effective leadership and efficient systems. It is unprofitable and lacks the capital to fund growth. Its management operates reactively rather than strategically. Compounding these underlying problems a number of crises have emerged during our engagement: Loss of the Warming Hut LBF lost its most lucrative sales location in late August. In 2011 the Warming Hut at Crissy Field accounted for over half of LBF’s revenues in San Francisco and 31-percent of total company revenue. At first the loss of this sales location was presented to our team as a clash of personalities between Larry and the Warming Hut’s administrators. Later we came to learn that LBF was cited for health code violations and asked not to return to the Warming Hut. In spite of this, health and safety upgrades have not been a focus for LBF. Retaining San Francisco locations has been a persistent challenge for LBF (though it had been at the Warming Hut for many years). Earlier this year LBF closed its only brick-and-mortar operation, a store on Steiner Street. Unlike the Warming Hut this sales location was unprofitable and its closure was necessary. Loss of Warehouse Locations In November, LBF was informed by its two landlords (Englehart in San Francisco and a separate landlord in LA) that it must vacate its warehouse spaces at the end of January 2014. The timing is coincidental but exposed a major weak point in LBF’s model: the company has stayed afloat largely due to the below-market rent it enjoys in San Francisco. At a cost of around $1,000/month LBF has more storage space than it can use. With Englehart’s decision to sell its warehouse, LBF San Francisco will need to consolidate into a much smaller space in a less central location for more money. This situation has raised the possibility that LBF will shift its base of operations to LA. Inventory Issues and Higher Minimum Hot Dog Order Requirement Englehart informed LBF that it will begin enforcing a minimum order volume in November. To date LBF has been allowed to order hot dogs at volumes well below Englehart’s minimum order requirements (3,000 pounds per order is the typical minimum). LBF does not turn over sufficient volumes to justify such a large order (its typical orders are around 500 pounds) and at present it does not have enough cash on hand to complete an order of this size. Thus LBF is forced to find a new hot dog processor (or “co-packer”). As these crises emerged our group shifted the focus of the project to work with LBF to deal with these very serious problems. In so doing we were forced to confront the lack of clear direction and strategies to guide them through challenging periods. In order to achieve longterm growth Sue and Larry will need to work together to achieve common goals. Finally, LBF funds the growth of its business entirely by cash from operations. This includes substantial internal investments in launching the Frankies brand. LBF cannot attract new loans or investment due to its poor financial state and lack of returns to earlier investors. This fact is a source of significant tension between Sue and Larry. Larry believes that Frankies should separate and form a new business entity to attract the investment needed for sales growth.
8
CLIENT ENGAGEMENT Our involvement with Let’s Be Frank began with regular, weekly discussions with Emma, the new operations manager in San Francisco, and evolved into weekly work-sessions starting in November, with both co-owners in attendance. The major stages of our engagement with LBF included: 1. Osmosis: Emma downloaded an overview of LBF’s background and we collected secondary research via media publications and competitive audits. 2. Finding the Red Flags: Within our first group synthesis, which took into consideration our initial investigation/questioning of the coowners, a handful of red-flags were uncovered. 3. Clarity: Additional meetings with owners helped shed more light on the status quo situation and the lack of clear leadership. 4. Immersion: Observation and questioning around employee processes (both day to day and long term); included ride-alongs. 5. Pivot Point: New facts emerged around supply chain losses and health and safety. At this point the news is delivered that LBF must move warehouse locations and find a new meat processor. 6. Roadmap Development: Three, 3-hour work sessions helped LBF develop a strategic plan for the next 12 months. The sessions drew upon our key learnings from the previous two months. The “Pivot Point” was a significant reorientation of our engagement with LBF. Until that time we engaged each key stakeholder during separate weekly or bi-weekly interviews. With the realization that LBF faced a number of series crises that could sink the business, we decided to host work sessions involving all three main staff members (and at one point the bookkeeper). The purpose of these sessions was to revisit the company’s mission and vision and chart a realistic roadmap for the next 12 months that would put LBF on a more sustainable path. The three work sessions centered on the following themes: identifying key strategies and focus areas; strategic roadmap development; and synthesis and tactics. Our final meeting with LBF will occur on Monday, December 16th with a final overview of our work and the presentation of our roadmap.
9
NEW DIRECTION: RECOMMENDED STRATEGIES Let’s be Frank has struggled to develop and follow focused strategies since its founding eight years ago. In addition to the lack of leadership and business intelligence there has been no clear single vision guiding the company. This has created a business that makes reactive decisions rather than intentional strategic decisions. In our first work session we worked with Sue and Larry to revisit their mission and vision as a basis for developing clear strategies to guide LBF through the challenges ahead. By creating a forum for all voices to be heard we were able to expand and refine their mission and vision: Mission Let’s Be Frank serves to make good food fun, nourishing a healthy food system by supporting the production and consumption of humane, conscientious and healthy meat. Vision Within three years reach $2 million in sales revenue and become a nationally recognized brand known for sustainable, healthy meat products. In our previous discussions with the management of LBF we recognized that many business decisions were based on emotions, gut instincts, and personal agendas rather than an assessment of economics. The first step of creating a business strategy was establishing transparent and recognizable objectives. These objectives would provide a common language and to guide decision making over the next 12 months. Through distillation of work session one the follow objectives were established: • Achieve $480,000 in event sales in 2014. • Achieve $110,000 in Frankies sales in 2014. • Attract additional investment or a buyer in the next 12-24 months. Out of these initial discussions, we moved towards working with LBF to define clear strategies for the next 12-24 months. These strategies will help LBF employees and management to better assess potential opportunities and ensure that there is management alignment when decisions are made. We believe these strategies will establish boundaries for both Sue and Larry when making business decisions and allow them to engage in future discussions less emotionally and more objectively. Four strategies emerged from the initial workshop, which we helped to distill into three final strategies: • Sales growth through a focus on events and Frankies • Financial stability through a focus on financial systems management and an emphasis on inventory turnover • Brand building using low-cost social media
10
Because these strategies were developed with the LBF management we believe the content is clearly understood and reasonable. Beyond clarity, we believe that these strategies can provide a strategic vision that can direct decision making in the year ahead. To help Larry and Sue practice using the strategies we collaboratively developed a “do not focus� list that spelled out elements of the LBF business that would be discontinued or receive less focus. Given the lack of resources and a tendency to focus on everything, Larry and Sue will need to exercise tighter discipline in the year ahead. Sales Growth LBF set aspirational goals of achieving revenues of $480,000 from the events channel and $110,000 from Frankies. These goals will be extremely challenging as they have never earned more than $200,000 through events, and Frankies has yet to be launched. While these targets are ambitious LBF will need to achieve these levels if they are to become profitable. The events channel was selected as the focus for achieving this growth because it has the highest profit margins. The focus on Frankies is based on the longer shelf life and higher margin. Over the last eight years LBF has expanded into numerous sales channels but currently they do not have the human resources to effectively capture and drive them all. It is essential to focus growth during this restructuring on the most promising sales channels. For this reason we recommend not focusing on cart, wholesale, retail and web businesses in the next 12 months. This will allow the LBF management team to focus on their most profitable and strongest segment, events. Frankies is in a different business life cycle and focus should be on expanding sales through web and successful placements in retail locations. LBF will need to track accurate sales and costing data as it experiments with this new strategic focus. The profitability of each channel should be more clear to management by mid-2014. Financial Stability LBF has struggled to maintain financial stability over the last 8 years. Due to the high price of grass fed beef and low volume ordering, profit margins on their hot dogs remain very low. It will be essential to make decisions during the selection of new warehouse space and the movement of assets before January 31st to ensure that LBF is set up to maximize their fixed assets. To grow the events business to $480,000 will require LBF to maximize the current carts and trucks to prioritize inventory turnover. Inventory minimums and low turnover has created a cash crisis for LBF. Purchase orders are due two weeks after shipping and much of the inventory is sold over one to four months, leaving cash on the shelves rather than available for additional operational needs. Through increasing revenue and working with a new co-packer to establish longer terms, LBF may be able to increase turns and cash available. Efforts that distract from making sales such as planning new ventures, a retail space or negotiating better terms on low-cost supplies (such as napkins) should be avoided during this time. Once stability has been established it will become easier for LBF to invest resources to address some of these areas. We have proposed the event profile as a practical tool for decision making. These profiles would help to establish a breakeven point and minimum order targets for events. New profitable events will help bottom line performance. However, without a clear strategy in place for determining which events to take and which customers to pursue, profitable catering may be difficult. We recommended that LBF
11
build profiles that include: • • • •
Number of dogs necessary to break even Most profitable type of events for LA and SF Maximum number of events per week, weekend Include time spent to booking, preparing, and planning events
Once a cart/event profile is completed it will likely become clear that their Linden Street cart sales location in Hayes Valley, San Francisco, is unsustainable as currently designed. We recommend that LBF stop sales in this location or modify the job to cut worker hours in order to increase margins. The Frankies business must be quickly established and developed in order for LBF to meet its ambitious targets and also begin to see returns on its investment in this line. To do this LBF needs to determine the true COGS and overheads for this product. Additionally, LBF needs to further address a mold issue with the beef Frankies. At present they are sitting on 400 pounds of processed Frankies, of which a quarter or less are ready to be sold. LBF has addressed processing issues with its supplier but will need to turn the 400 pounds of treats into cash if it is to achieve financial stability. With so much uncertainty regarding the Frankies treats, no new products should be developed or launched during the next 12 months. The core product must be proven to be stable, profitable, and salable. All focus should be on establishing retail and web channels nationwide for the Frankies treats. Brand Building LBF biggest asset is their brand. It is essential for LBF to capitalize on connections to build the brand over the next 12 months if they are to position themselves properly for potential investment or sale. LBF management has decided to pursue an online social media marketing strategy. This strategy must be further developed to ensure that social media marketing efforts lead to increased clarity of brand. Like the growth of LBF, social media and press outreach needs to move from reactive to focused, proactive, and sharp. Firstly, the online and social media identities for LBF and Frankies need to be clearly defined. Currently the Twitter accounts for Let’s be Frank SF, Let’s be Frank LA, and Frankies feed onto the Let’s be Frank Facebook page. This confuses the voice of the LBF brand and products. Through individual Facebook pages the brands can reference one another and build synergy while communicating more directly and clearly to key customer segments. Brand champions, including celebrities, should be leveraged on social media through Twitter, Facebook and Instagram. By associating with “endorsements” from celebrities LBF can increase their presence on social media. Events promotion can be attained through social media by taking interesting and notable pictures of events and posting to their pages and website. Outreach to local event planners and recommendations from past events will help to expand LBF’s reputation as a reputable events catering brand.
12
During this next 12 months LBF should not pursue sales promotions, retail channels including AmazonFresh, or in store demos. These are activities that have the potential to distract from event sales and have not proven return on investment or time. However, because Frankies is at a different stage of development, increasing visibility requires an alternative approach. Retail channels are potentially more profitable and sales promotions and in-store demos will be essential during the launch phase. Co-branded events - promoting Frankies with LBF hot dog carts on site - could be an effective way to leverage both brands and build Frankies.
13
ONE-YEAR ROADMAP A number of key considerations must be taken into account as Let’s Be Frank navigates the relocation and inventory challenges over the next two months (Figure 2). However, there are three pressing and overarching questions that have not been answered. The resolution of these questions will impact the roadmap going forward. 1. Who is running this business? 1. Should Frankies operate as a separate business entity? 2. Should San Francisco operations close? Key Decision Points:
Figure 2: Key Decisions 14
ROADMAP
(Figure 3)
December - January Sales Growth
Secure new co-packer Responsible: Larry Deadline: December 15, 2014 Complete trials of new hot dogs produced by new co-packer Responsible: Larry Deadline: March 3, 2014 • Budget: $800-$1,000 for testing batches • Human resources: • Sue to give input Capture holiday event sales Responsible: Sue Deadline: January 2, 2014 Create event profiles to build out event financial model Responsible: Sue Deadline: December 10, 2013 Key considerations: • Revenues • Staff time required • Variable cost items • Marketing time needed Prepare shelf-stable beef Frankies for sale Responsible: Larry Deadline: January 15, 2014 • Budget: TBD • Human Resources: • Martin for repackaging (2 hours per week) • Key considerations: • Review packaging
• 400 lbs of treats that need testing for mold • How to avoid future molding Financial Stability Relocate operations hub to Los Angeles Responsible: Sue Deadline: January 31, 2014 • Budget: $1,600/month • Key considerations • Is the bookkeeper position going to relocate? • Is workspace needed in LA? • Who will oversee operations in LA?
Relocate San Francisco operations Responsible: Larry Deadline: January 31, 2014 • Budget: $1,500/month • Key considerations: • Sink, prep space, and 250 ft2 of storage space for 2 vans and 2 carts. • No commitment and/or month-to-month leases. • This may be split between on and off site storage. Create Quickbooks dashboard for managers Responsible: Diana Key considerations: • Digitize costing and inventory tracking Prepare staff schedules for next months Responsible: Emma Key considerations: • Should some staff be let go to give more working hours to others to retain employees? Brand Building Establish separate but consolidated digital identities for the two products At present there are multiple digital identities for Let’s Be Frank 15
and Frankies across various platforms. For example, Let’s Be Frank has two Twitter accounts and one account labeled “Let’s Be Frank Treats”, which is separate from the Frankies account. A unified voice is key and resources are not in place to manage multiple channels for multiple products at this time. Consider selecting one channel to focus on building awareness around during these early months
Highlight holiday parties on social media February - March Sales Growth Discontinue Linden Street location With the loss of the Warming Hut, the Linden Street location (near Blue Bottle and the Proxy development in Hayes Valley) is the only regular San Francisco location. Yet, the revenues from this location are not enough to justify continued staffing.
Establish database of former clients and potential clients (such as events managers) An online email newsletter service such as MailChimp will help collect contacts and offers a free branded newsletter composition tool. Launch Frankies sales portal on Frankies website A sales form page needs to be developed. At present orders are processed via email. Conduct in-store promotions for Frankies Financial Stability Hold food safety trainings and develop guidelines for staff Despite losing its Warming Hut location due to health code violations, LBF does not place significant emphasis on health and safety trainings and procedures. Simple upgrades to the carts (such as repairing a hot water system) are not made. Emma and the catering staff have not received food
safety training. This should be a high priority and is seen as a necessary risk management task. Brand Building Begin “conversations” with brand champions LBF has lost many opportunities to amplify its support from well-known celebrities such as Oprah and Mindy Kalling. Larry is ostensibly responsible for marketing yet their ability to engage LBF supporters is questionable.
Hold social media trainings for key staff More staff need to be engaged in the social media process. Deliver first email newsletter Quarter 2 Sales Growth Peak season staffing plan and budget established
Hire an events/sales manager LBF fired its SF events manager in November. While Sue is confident that she can manage events in both locations it is clear that someone is needed in this position if they are to meet sales targets. Conduct in-store promotions for Frankies Financial Stability Mid-year financial review This roadmap can be used as a tool for adjusting strategies and tactics as necessary. If the Quickbooks reformatting task is completed soon then by the end of June 2014, LBF should have good data for this review.
Order new dogs inventory Additional inventory will need to be procured at this time. LBF may decide to cut some of its product lines, which would change the 16
budgeting around its inventory schedule for mid-year.
Review Quickbooks dashboard (and revamp if necessary) Brand Building Deliver email newsletter
Hire a social media intern Quarter 3 Sales Growth Develop new employee training procedures for events staff A significant vulnerability in LBF’s system is the fact that its systems for new employee training are not automated. Much of the institutional knowledge about managing events or sales is held by a few employees, including the hourly employees (positions with high turnover).
Secure large holiday events contracts Financial Stability Develop strategy for attracting new investment and/or buyer LBF is eager to attract new investment to fund growth beyond 2013. At this time it appears unprepared to have serious conversations about new investment given the poor state of its financial records and its lack of clearly-expressed strategy. Though the idea of new investment may be unrealistic we feel that LBF may be in a better position to attract an investor or buyer later in 2014 should it successfully execute on some of the key activities in this roadmap. Brand Building Organize co-branded/partnered event An event with a complimentary brand, such as an ice cream business, would help boost visibility and drive sales.
Quarter 4 Sales Growth Reassess space and staffing requirements
Assess wholesale opportunities In particular, analyze whether bulk wholesale sales should be added as a 2015 strategy to expand sales growth. Revisit retail sales opportunities With the new co-packer in place, assess whether expanding the relationship to begin producing retail packs again is a good option for 2015. Financial Stability Conduct an end-of-year financial review
Prepare 2015 budget Build a board of advisors An advisory board may help LBF achieve longer-term stability and would act as a useful guide for senior management. Brand Building Highlight holiday parties on social media
Deliver email newsletter
Maintain conversations with brand champions Deliver email newsletter 17
LEARNING OUTCOMES Process Timeline Our engagement with LBF continued to unfold up until the last meeting due to the rapidly changing circumstances. We found this to be very challenging to manage as we sought to provide the most value for LBF within the scope and timeframe of our project. In many ways this made the project a perfectly challenging learning case. In other ways it felt as though it we were catching up with rapidly evolving circumstances the entire semester. Throughout the course of our engagement with LBF we had a number of surprises that greatly impacted our project and class deliverable. Our first hint at the problems we would face came with the discovery that we were being given conflicting accounts of how LBF lost its most profitable sales location, the Warming Hut at Crissy Field. While at first this was sold as a clash of personalities with park management, we later learned this was due to health code violations. We were also surprised to learn more than a month into our engagement that both owners were interested in selling the business or attracting new investors within the next year, something that had not come up in initial discussions about the future of the company. From staff layoffs to the news that LBF must move out of its warehouses, the semester seemed to be a series of shocks and course changes. Most significantly, our project was shaped by the personalities running the company. Sue and Larry, with separate visions for the company, pull everyone from staff to external student consultants in different directions. We were thus pleased to receive buy-in from both Sue and Larry around our original operational initiative. As the project progressed we also uncovered some additional operational needs that we felt were possible to address within the scope of our project, such as the health and safety issues. All of this progress was thrown into turmoil prior to Residency 4 when LBF received news about the minimum orders and warehouse moves. This caused the conflicting personality to once again come to the fore, something we worked against for the remainder of the semester. At this point we pivoted our engagement from working with Emma on the original operational initiative (focusing on which channel to nurture, grow or eliminate) to working with Sue, Larry, and Emma to develop clear strategies in a workshop setting. From the understanding of the business we had achieved over the semester we were able to design workshops that triggered difficult conversations and questioned the status quo thinking of LBF management. Our new goal and measurement of success was to provide LBF’s owners with a clear strategy to help them overcome the near and mid term challenges. Beyond the large pivots weathered over the course of the semester, we found LBF to be very inconsistent in their desires and commitments. The lack of consistency and changing views of the managers often derailed past work. This was particularly frustrating as we worked closely with LBF to define and clarify strategies and objectives. The following three examples illuminate how the lack of clear leadership and transparency fostered an inability to make strategic decisions with group alignment: 1. The choice to move the operational hub to LA was proposed by LBF and agreed to in the first work session. The rationale was that there was a larger market, Sue was more operationally savvy, and warehousing space was more reasonable. As we began to create objectives and tactics in work session 3, the decision to move to LA was questioned by both Sue and Larry, a clear example of the company’s inability to make and execute on important decisions. 18
2. Despite coming to agreement on revenue targets in the first work session, in subsequent meetings Larry questioned whether the targets were realistic. It became clear that Larry had agreed to the original targets simply to bring up the point that LBF sales targets are unrealistic, reinforcing his position that more cash should be invested in Frankies. It also allowed Larry to argue for the split of Frankies from Frank Further Inc., arguing that such a split is the only way Frankies will receive the investment it needs to scale. This counterproductive position stymied efforts to build on the momentum gained from the first session. 3. In work session three, Larry brought up shutting down all operations for Let’s be Frank in San Francisco, thus making Los Angeles the only hot dog center. This would mean that Frankies would be the only San Francisco business entity. This went against earlier agreements that LBF carts were necessary to help grow Frankies through events. This was a discussion that needed to happen much earlier and would have enabled us to facilitate even richer work sessions starting from a point with all the key issues on the table. Operations vs. Strategy Business operations is key to the successful functioning of any business. While a high functioning operations strategy is not critical to maintain an operating business (as the case of LBF demonstrates) the absence of an operations strategy puts any business in a precarious position and more vulnerable to external factors and susceptible to internal missteps. Without a coherent business strategy in place it becomes difficult to define an operations strategy. Business strategy must guide operations, and not the other way around. Enacting a clearly articulated business strategy requires a clear vision of where a company is going and how it might achieve its goals. In the case of LBF, neither business nor operations strategies were clearly defined. For 8 years they managed to stay in business by acting and reacting without a guiding rudder. What has kept them in business is a great product that customers want and a complete hot dog experience that few other companies offer. Because they do little to no marketing and sales beyond word-of-mouth promotions at events LBF’s products could be said to sell themselves. What this suggests is that over an eight year period LBF missed out on countless opportunities to scale the business either through increased sales growth, market expansion, channel growth, brand awareness, or franchising, to name a few. With a product so desirable that celebrities and iconic personalities like Oprah Winfrey invite LBF to cater personal parties LBF should be further along in its development. Instead it feels like an early-stage startup floundering with inexperienced management. Even if LBF operations were highly functioning without a defined long-term and short-term business strategy in place, energy spent by staff and management is at risk of not being captured and leveraged towards a common vision. When we first started learning about LBF and the competing visions of the co-founders in conjunction with the obvious operational issues, it became clear that no coherent business strategy existed. As we started framing our initial thinking around an operations initiative we found ourselves positioning the initiative through proposed business strategies. It became clear that an operations initiative within a dysfunctional or nonexistent business strategy was a mute point. Through focusing our efforts on developing a strategy with LBF and balancing the immediate needs of relocating the warehouse and staying cash positive, the links between strategy and operations became clear.
19
Strategy Development The development of business strategy requires a company to think beyond margins, day to day events, and quarterly objectives. A clear guiding strategy allows a company to make strategic decisions based on alignment. A long term vision can help to create short term common goals for employees and owners by providing everyone with a common goal and guiding light. Once LBF was notified of their evictions and significantly increased minimums, we felt that it was essential to clearly articulate a single business strategy before addressing the operational needs. Although we had already uncovered target operational processes to investigate, the needs of LBF had completely changed. These changes enabled the team and LBF to envision a complete redesign their entire business. For a successful redesign, LBF would need to create a clear vision and singular strategy that could align the co-owners and employees and ensure that the extremely limited human and capital resources were efficiently managed and utilized. With only a month left in our engagement we determined that in-person 3-4 hour long workshops would allow us to target ingrained thinking and work with LBF to develop a strategy, objectives, and tactics. Through these workshops we sought to engage LBF in difficult conversations, address the operational hub placement, and define a clear strategy for LBF to pursue in the coming months and years. One way to achieve business intelligence is through concise financial metrics that account for day-to-day operations to show the input and output. By accurately and thoroughly determining inputs, the output data can facilitate strategic conversations based on facts. Because LBF did not have clear financial models and the inputs were inconsistent and questionably determined, it was very difficult to have strategic conversations based on financial data. For example, during the first work session the unit profit margin of Frankies was debated. There were at least three different margin calculations, from three different people, one of which no longer worked with LBF. In work session three it was established that Frankies COGS calculations did not include the cost of repackaging due to a mold problem, highlighting the significant challenge of accurate financial management. The lack of business intelligence affects the entire organization. In difficult, personality driven conversations the lack of clear data and the inability to build new models compounded the challenge of de-personalizing highly emotional conversation topics. Accurate data could have allowed us to build clear financial models based on true cost and revenue figures. Through attempting to develop these models we saw exactly what it means when a business uses inappropriate or questionable inputs and does not standardize its accounting systems (LBF LA and San Francisco had used different accounting codes, something they are working to fix). The outcome of any financial modeling exercise using inaccurate inputs is irrelevant and discussions about questionable data are unhelpful at best. Having accurate data would have allowed us to engage LBF on a deeper more strategic basis. We raised this point with LBF at various points in the engagement. During the last work session we pointed out that their inability to present us with useful financial data is a sure sign that they are unprepared to attract new investors at present. Strategic Conversations and Organizational Leadership Having recognized the divergent visions early in our engagement with LBF we knew that our operations initiative would have to involve Sue and Larry in difficult conversations about their business. An open question throughout our project was how best to engage both co-founders and in what forum. Originally we sought to separate the personal conflicts and attempt to focus key actors – Sue, Larry and Emma – solely on business decisions. One of the key recommendations from the French business leaders was to separate the relationship 20
challenges between Sue and Larry from the business problems. Although business is built on relationships, the French business leaders concluded that we would not be able to resolve eight years of Sue and Larry’s differences nor would we be able to make the key decisions that needed to be made for them. Instead, they suggested we reframe discussions on business metrics in an attempt to increase business intelligence. These recommendations reinforced our original thinking about our project. When our project shifted focus towards strategic planning for 2014 and addressing the warehouse relocation and meat processor issues, the personality issues again came to the forefront. No longer could we ignore the poor dynamics between Sue and Larry or their inability to make strategic decisions. Having gained a deep understanding of LBF from the interviews with the owners and staff, review of the existing financials, observations, staff shadowing, operations audit, and secondary research, we understood that it would be difficult to have conversations based around sound data. Not only was the data unreliable but it also opened the discussion to the often-divergent interpretations of key information. We knew that such discussions would serve only to distract from the critical issues confronting the business, such as the need to select a new meat processor. Because of this dynamic, strategic conversations we facilitated were framed around identifying key questions that needed to be answered and organizing key decision points in terms of priority. The outcome of these discussions is a decision tree reflected in a strategic roadmap that LBF can revisit after our engagement has ended. Throughout the process Sue and Larry remarked that they have never thoughtfully reflected on their business in such a manner and have long neglected to think about the strategic direction of the business, goal setting, establishing budgets, and generally approaching business decision-making more holistically. We designed the sessions to walk LBF through the steps of linking mission and vision, to key strategic objectives, to defined and time and dollar-bound tactics with assigned decision making responsibility.
CONCLUSION Our engagement with Let’s Be Frank has given us deep insights into business operations. From selling hot dogs on the streets of San Francisco to engaging the co-founders in discussions about the future of their business, our team has engaged the business at many levels. In some way our experience with LBF is similar to that of Sue and Larry: our ambitious were confronted by the difficult reality of running the day-to-day operations of a small business (in two expensive cities no less). However, we kept moving forward with our initiative and engaging the LBF team with energy, passion and good humor. The challenges that the business faces are very serious and all of us were exposed to the difficult position of delivering difficult information and frank assessments to business leaders facing the very real prospect of closing shop. It is an uncomfortable position but an excellent learning experience. Ideally, our engagement with LBF would have begun with an in-depth discussion to revisit their mission, vision and strategic direction. We would have been able to take them further towards a more stable business. LBF is not an ideal situation but it is a real business. We believe that we helped them to better understand what decisions they need to make, what tools they need to make them, and how to make more strategic business decisions in the future. At the same time we were also able to help them through myriad operational challenges. We hope that our engagement has placed the company in a better position to confront these challenges and to successfully navigate their present crises. They have an incredible product and an admirable mission. Let’s Be Frank deserves to succeed. 21
Larry
Sue
LISTEN ACTIVELY
Larry
Sue
START WITH AN AGENDA
Larry
Sue
SET UP WORKING SESSIONS
Larry
Sue
Larry
Sue
Larry
Sue
Larry
Sue
VISUALIZE THOUGHT PROCESS DOCUMENT SHARING EVENT PROFILES
ROADMAP THANK YOU.
BUDGET FINANCIAL MODELS
THINGS THAT NEED TO BE IN PLACE FOUNDATIONS OF THE BUSINESS
MISSION Let’s Be Frank serves to make good food fun, nourishing a healthy food system by supporting the production and consumption of humane, conscientious and healthy meat.
MOVING INTO THE FUTURE
STRATEGIES Sales Growth Brand Build Financial Stability
VISION To grow into a nationally recognized brand known for sustainable, healthy meat products.
OBJECTIVES Attract additional investment or a buyer in the next 12-24 months. Achieve $480,000 in event sales in 2014. Achieve $110,000 in Frankies sales in 2014.
KEY DECISION POINTS A number of key considerations must be taken into account as Let’s Be Frank navigates the relocation and inventory challenges over the next two months. However, there are three overarching questions that have not been answered. The resolution of these questions will impact the roadmap going forward. Who is running this business? Should Frankies operate as a separate business entity? Should San Francisco operations close?
Where is the hub of operations? Where will operations staff be located? Where are inventory storage needs greatest?
ACTION PLAN Relocate the hub of operations Secure a new co-packer Relocate inventory Develop a 2014 operational budget Develop a Quickbooks dashboard for managers
What assets are needed to meet sales targets? What assets can be repositioned? What assets can be sold? What additional assets should be procured?
Which dog should be ordered first once new co-packer is secured? Should additional retail inventory be procured for sale through Amazon/Good Eggs? What are potential advantages of discontinuing certain dog types?
What are the key criteria for selecting a new co-packer? What are potential advantages of ending the relationship with 5 Dot Ranch? What are potential advantages of outsourcing beef procurement to the co-packer? What are potential advantages of using the same co-packer for dogs and Frankies?
Figure 3: Roadmap 22
Figure 3: Roadmap 23