The Backlash To The Profits-First, Profits-Only Model Of Silicon Valley Is Growing. Here’s A Midwestern Example.

Mike McFall was wrapping up the first round of edits on his second book when I reached him. The co-CEO of BIGGBY Coffee, a franchise operation with more than 300 locations across the Midwest, McFall published Grind, about how to bootstrap your company to a positive cash flow, in 2019. His second book will be about transitioning to sustainable business models.

But his deeper purpose these days is to spread a new truth about what he believes is the future of business: “It’s about trying to have an important conversation in the world,” he said. “Companies in the future are going to become nurturing environments.”

For the past six years, he, co-founder Bob Fish and BIGGBY have been undergoing a transformation, to a company whose purpose is to help employees the lives they love, via expensive investments in coaching, curriculum and sabbaticals for everyone who has been at the company for five years. The changes apply most directly to the franchise headquarters company, which employs 100 people, but the material is available to franchisees.

There is some proof of success to McFall’s heretical approach: BIGGBY is growing fast, adding about 1.5 new locations a week. Systemwide retail revenue is about $250 million, he says. And it makes some sense that in an environment of extreme labor shortage, management would have to adapt drastically.

“Often people will go through all this and decide they want to do something else,” McFall said. “They get a healthy high five and we offer them any support we can provide them.”

“What it means is that the employees who decide to make BIGGBY part of their lives – they’re superstars.”

The Transformation

In a 25-year career working his way up from a minimum-wage barista through the ranks of BIGGBY, McFall wasn’t always a nice boss. He bootstrapped the company along with Fish. And he hit rough patches, weeks and months when it seemed BIGGBY wouldn’t grow. “You keep knocking your head against the brick wall,” he said. “Eventually, the brick wall falls down.”

The transformation began when McFall met consultant Nathan Havey on a camping trip. McFall calls Havey “a beautiful person.”

The changes have been costly – for instance, normalizing compensation to be fair to everyone took a big study and then a commitment that raised annual costs more than $500,000 a year.

The operations company, Global Orange Development, and to the extent franchise owners buy in, BIGGBY operations themselves, are now focused on a new culture.

Conscious Capitalism

BIGGBY has joined the conscious capitalism movement, which, like impact investing, is a reaction against the libertarian doctrine of shareholder primacy. Shareholder primacy took hold in the 1970s, led by Milton Friedman. It’s appealing, on the surface, the idea that the invisible hand of the market should ultimately be in charge to distribute wealth. It just hasn’t worked out very well, as widening income divides, social unrest and climate change attest. Free to choose, human beings too much on the short-term.

And sadly, it turns out that if you tell CEOs that they don’t have to care about anything but money, a fair number of them will believe you, probably because it is easier. Libertarian ideology met the venture capital-fueled tech advances coming out of Silicon Valley in the 1980s. Many of the millionaires and billionares haven’t looked back since – much to the chagrin of the rest of the business world, who were running slow-growth companies with roots in their communities. It’s there, in the Midwest and other second-tier cities, where the backlash to the consumption, wealth-driven model is growing.

“I think the Silicon Valley culture has put the concept of return on capital on steroids,” McFall said. “As long as you can develop a business model with a good return on capital, you’re going to grow, you’re going to punch out … and take your $100 million.”

“But where’s the human element in that? I’ve known people who have done that. They’re not any happier than when they started. That’s the God’s honest truth.”

“People ask me all the time, when am I going to have my liquidity event? That’s not what it’s about for us.”

Employee-Centered Approach At Startups?

When I pressed him for the bottom line: what is the retention rate at the company? Does his firm, and do franchises, have the employees they need? he said he doesn’t track those statistics specifically and instead looks at the expansion rate to judge the viability of the employee-nurturing approach. “I don’t want to mitigate the fact that staffing has been a major puzzle for the past year and a half or two years, but I don’t think making a massive investment people is going to hurt you,” he said.

He also acknowledged that it’s not clear whether an employee-centered approach can work at a startup. “I was a maniacal entrepreneur. I wasn’t good to people,” he said. “Sometimes I have a real dilemma. I cannot say that stuff isn’t necessary at the start.”

I liked him for acknowledging that, in what seemed a candid Midwestern burst. (He also teaches at the University of Michigan’s Center for Entrepreneurship).

Here are four interesting tactics that BIGGBY uses to create a better environment for employees, both the 100 who work for the franchise operation, and the 3,200 who work at the franchised locations.

Four Tactics To Change A Culture

• At every 5 years of employment, employees get a 3-month paid sabbatical. “We also have incredibly generous PTO. The best gift you can provide somebody is time, so people manage their lives and keep their stress levels low.”

• Standardized compensation. The company conducted a two-year study, which resulted in changes that have taken four years to implement completely. “25 years of history, you get off in the weeds,” McFall said, noting that he believes people promoted from within often end up on the short end of compensation.

• “We provide individualized coaching for every employee, meant to support you in building a life you love.” The company employs four full-time coaches who meet with employees once a month. The idea is to help people develop not only in their career, but first and foremost as a human being. “It’s not about becoming better in your role.”

• Access to a four-part curriculum of six-week classes, called “The Life You Love Curriculum.”

The four parts:

Having a sense of belonging

Spiritual, emotional and physical vitality

Exceeding your basic needs

Invest 10% of your income in your future

Swimming Against The Tide

McFall acknowledges that he’s up against the business norm, the profits-first, profits-only mentality that came from Wall Street and Silicon Valley. That mindset isn’t healthy, he says.

“What we’re doing is not sustainable from a human perspective,” he said. “But change is happening. But change is so f*** slow.”

“It’s essentially going to take the employees to demand it. And powerful equity partners to demand it.”

That’s how he sees his role as the company evolves, and he steps aside for other leaders – more diverse ones – to take his place. Next up, he says, the company will develop a way to share ownership with employees.

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