Master of None by Clifford Hudson

Author:Clifford Hudson
Language: eng
Format: epub
Publisher: Harper Business
Published: 2020-10-13T00:00:00+00:00

Chapter 6

Innovation Is Not a Luxury

When I took over as CEO in April 1995, Sonic was a fairly strong company, fundamentally speaking. We had gone public in 1991 at $12.50 a share, and I became CEO in 1995 at $25 a share. While that sounds really strong, doubling in four years, we had in fact hit $32 a share in January of 1992. So, in reality, the stock had been stagnating for around three years when I took the helm. Our profits per share had grown nicely throughout this time, but our rate of growth was slowing each year and we were operating below market expectations.

More succinctly, while our earnings grew every year, our rate of growth was contracting so our price-earnings ratio (the multiple of earnings the market pays for growth) was also contracting. In a three-year period, our absolute earnings per share had doubled twice, but the price of our stock had declined.

We had plans underway to grow the business, but the main initiatives I wanted to see get some traction at that point had a very long arc to them. They weren’t things that would bring a return in one or two quarters—they were objectives that would need buy-in at all levels, from store managers to franchisees to corporate employees and even the board. They were objectives like store-level retrofits, new store construction, and development of new products, all of which would take time and none of which were quick fixes. If I was going to make it for the long haul, our team needed to build consensus. And I needed to be flexible, open to innovations I could not possibly have foreseen or imagined.

As I eased into my first months and years at Sonic, I realized how important innovation would be to my success, to our success. In a business the size of Sonic, innovation isn’t some kind of luxury, something you have as a cute tagline or bullet point. Innovation, and diversity of business, must become a way of life. It has to become the expectation, the norm. You have to be looking for it all the time, because if you’re not ready, if you’re not continuously in search of innovation, it may surface for a moment, but it will appear in your competitors’ businesses!

* * *

I remember when I was first approached by one particular franchisee. He explained that there were some officers in the company on his back. They wanted him to change the direction of his store because it didn’t fall within the accepted norms of a Sonic location.

One of the main challenges of operating a franchise business is trying to discern when a franchisee’s innovations would make brilliant additions to the franchise community and when a franchisee’s innovations need to be nipped in the bud. Franchisees are businesspeople, and they are always coming up with new ideas—some of these ideas will work well on a large scale, while others, if only done at a handful of stores, threaten to dilute the brand.

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