How Danny Meyer Built Shake Shack

i discovered shake shack when i first moved to new york city in 2014. every day after work i'd make a pit stop at its grand central location before taking the 4-5 train back to brooklyn my order was the same every day a cheeseburger with shack sauce pickles and onions and an order of fries it took about a week before the cashiers remembered my order and it was by far the busiest restaurant in the terminal it's hard to think of a bigger restaurant success story over the last decade than shake shack by now the story is pretty well known shake shack began as a hot dog cart in 2001 in madison square park by famed restaurateur danny meyer the menu was hand written on a single sheet of paper in about 10 minutes and is about 85 percent intact today but there's so much more to the story like for three years after 9 11 that hot dog cart paid the bills at the crown jewel of meyer's restaurant empire or how about the time they wasted over a million dollars developing a line of french fries only to throw them away out of pure pride there are three numbers to look out for in this story 700 000 the amount danny cobbled together to open his first restaurant 25 million the only outside investment the company ever took and the share price at the end of its first full day of trading thanks so much okay my pleasure are you rolling i'm doing it we're good we're live today there are 320 shake shacks around the world generating nearly 600 million dollars in revenue here's how danny meyer built the team that built shape check for cnbc make it i'm nate skidd this is founder effect it's hard to tell the story of shake shack without learning a little bit about one of the most influential restaurant groups in the world union square hospitality group home to the likes of 11 madison park and gramercy tavern danny meyer's origin story is the stuff of legend in his early 20s the night before he was going to take the test to get into law school his uncle asked him a simple question do you want to be a lawyer don't you and i said no and he got really angry with me and he he said you are going to be dead a hell of a lot longer than you're going to be alive and i'm just glad i would have made the world's worst lawyer well there's a big difference i think from you know hearing a piece of advice and following through on it well i took the lsats the following morning i'm sure i didn't do a great job i do know that i never applied to one law school but the monday after that saturday i did apply to the new york restaurant school and i convinced one of my best friends from college to join me i said you be the money guy i'll be the food guy we'll get this thing figured out after just two classes his buddy dropped out but felt so bad for leaving danny hanging he pulled some strings to get him an interview for a position as a day manager at a manhattan restaurant called pesca the here was the interview he looked at my feet and then he looked at my face and he said you'll do and how important was that experience just to learn the business to learn if you like the business before jumping all in well i think it was incredibly important because one thing that i haven't shared is that for the three years before taking the lsats i was working as a salesman selling electronic tags to stop shoplifters and i was the top salesman in the company and believe me at the age of 23 24 25 making a lot of money on commissions with nobody to spend it on except myself and i knew i could put that money into this restaurant but i needed to learn whether i actually liked working in a restaurant as much as i liked dining in restaurants i i could not get this bug out of my system it's just like i had to do it [Music] in 1985 at just 27 years old danny landed a sweetheart deal on a 14-year lease the location was on east 16th street in a neighborhood the new york times called a squalid haven for drug users meyer cobbled together seven hundred thousand dollars between his savings from his days as a salesman and a loan from his mom and aunt and uncle meyer bought out the remaining 13 years of an existing 20-year lease and his rent was under 40 000 a year i honestly have no idea how i paid it back because i didn't know what the heck i was doing i was buying wine inventories like crazy didn't even know how to you know do a budget for the restaurant what i did know how to do was to make people feel a little bit better when they left than however they felt when they came and i was a revenue fiend i loved watching our revenue grow week after week month after month early on danny had grand aspirations to be the chef to cuisine at union square cafe but reality struck in the form of a disastrous dinner service he quickly learned that running a successful restaurant in new york city was a fist fight sometimes literally and when there was a drunk patron in the dining room um walking around with his tie tying around his head complaining that we didn't have baked potatoes the waiter called me out to cut the guy off and he and i got into a fistfight and lo and behold the restaurant critic of the new york daily news unbeknownst to me was not only reviewing us that night but was watching this whole fight take place instead he put his focus on his strengths taste making and building the right team by 1990 union square cafe and its founder became the darlings of new york city's restaurant scene but even with his outside success it would take 10 years before he would even consider opening a second restaurant i was hyper focused on making sure that that i would never go bankrupt like i'd watched my dad do twice growing up and and i always associated his two bankruptcies with expanding his business so the best way not to fail was to just never expand but in 1992 a call from an up-and-coming chef named tom colicchio changed his mind well of course you're going to say yes so together we opened gramercy tavern once i figured out that it was not expansion that had led to my dad's business bankruptcies but more importantly that he had not succeeded all the time he had great ideas but he didn't always succeed at surrounding himself with a team of people who could complement his strengths but also step in where he had deficiencies my job is if i want to grow is continually to delegate things to people who can do something as well or better than i can but the story of shake shack is bigger than danny meyer it's longtime ceo randy grudy is the engine behind it doing it we're good we're live it's just 23 he accepted a position as a general manager of one of the top restaurants in seattle when he got a phone call the day i was moving to seattle the owner of the restaurant in seattle said hey there's this guy his name is danny meyer just read an article about him you should go meet him oh i absolutely remember the day i was sitting in my basement office at gramercy tavern one day in 1990 and i got a message from my assistant saying that a famous restaurateur from seattle called and mr candles said to me you and i don't know each other but i'm about to do you the biggest favor of your professional life and meanwhile this is this is not danny meyer we know today this is a guy who owned two restaurants union square in gramercy he wasn't the danny meyer right but i called and i called and i couldn't get past his assistant and finally after about 10 calls he said okay danny will give you 10 minutes he met me and he said to us so what do you want kid and i was like i don't know man i heard you're pretty cool i just want to get to know you and we just hit it off i went to seattle with this vision in my mind to this guy named danny that i just really hit it off with and about two years later i called them and i said hey for a lot of reasons i think i'm coming back to new york what do you think and uh you know he kind of told me young man you are not prepared for this you're definitely not qualified but i'm going to make you the general manager of tabla 24 years old wow why did he do that i'm not sure danny has a knack for recognizing talent and putting it in a position to succeed although randy must have stood out amongst his peers shortly after starting tabla he broke five bones in his foot in a basketball game randy shows up the day after his surgery with a stool and he said i'm just gonna be the maitre d on a stool for the next six months i had to learn how to lead differently i think that fundamental change in my life that moment of breaking my foot also taught me i have to figure out how to shift as a leader and how to do things that don't require me to just be physically successful the leader's whole job is to make it fun to come to work understanding that work can be really hard because you're solving problems all day but you want someone who you say to yourself if we put this person in the lead people really good people really talented people are going to be more excited than ever to be on this team that's when magic can really happen [Music] while randy was ascending the ranks to director of operations at union square hospitality group danny was working on a community project of sorts an art installation was looking for a hot dog cart but danny wanted to use the cart for a social experiment he wanted to see a fine dining hospitality could work on blue collar cuisine in the summer of 2001 danny opened a 400 square foot kiosk serving chicago style hot dogs and i wanted to see if our workers at the hot dog cart who were out of season coat checkers waiting for the weather to get cold if they could remember everybody's favorite preferences amongst these toppings that's the only reason we did it did you let them know that that was the test absolutely i i said i want to see if people can feel hospitality even at a hot dog cart do you ever make a profit on the hot dog cart itself well we lost money in year one we lost money in year two but it was year four that we said okay enough of this hot dog cart let's turn this into a permanent kiosk well something scrumptious is shaking in madison square park it's the new shake shack that's now open for business in 2003 danny gifted the kiosk to madison square park while maintaining ownership over the business that occupied it it's true he wrote the shake shack menu in 10 minutes on a single sheet of paper the food would be prepared out of a spare kitchen inside the 3 star michelin 11 madison park which was just across the street 11 madison park which would many years later go on to be the number one restaurant in the world was was really really struggling we gave the original business of shake shack to the investors at 11 madison park because we were cooking the food out of the 11 madison park kitchen and because the 11 madison park investment was taking so long to to repay imagine that a restaurant that would go on to earn three michelin stars bankrolled by a hot dog cart we're forming our burgers by hand freshly ground overnight in the private dining room kitchen of the three star michelin now 11 madison park we're doing all these things we're literally wheeling raw meat through the dining room of this fine dining restaurant to get outside to shake shack and all it is is a little 400 square foot kiosk and everybody was pitching it people the chef from 11 madison the pastry chef from webmaster everybody from everywhere was like oh my god this thing is really busy we're gonna keep cooking burgers and it just started to happen by 2004 shake shack was one of the most popular restaurants in new york city and the makeshift operation was busting at the seams i mean i remember the days people joke at this but our refrigerator in the beginning was like that plastic one your grandma had and then when we really got busy we we asked coca-cola to give us one of those ones you see in the corner deli so we had two fridges now and like that's what shake shack was people think it was this like destined to be no we just thought we'd sell a few hot dogs and people just kept telling us they like it you know it was hundreds in the beginning in a day then it became thousands and then it became five thousand or 10 000. at a certain point he said you know what this is what i want to do full-time and i was shocked because i thought everybody only wanted to be in the fine dining restaurant business you know the ones that win james beard awards and randy said nope this this is the one and i said to danny you know i think i want to put away my suits and ties and chateau margot and think about this 2007 i was walking home one day on the upper west side where i lived today and i saw for rent sign and you know in new york real estate there's usually not a for rent by owner sign i was hyper focused on making sure that that i would never go bankrupt bankrupt like i'd watched my dad do twice growing up growing up i i had this voice in my head at this point we had never done anything more than once you know i was having nightmares about this this is going to be the beginning of the end are you sure this is safe and randy said trust me this this is going to work i remember we did the pro forma for that first that second shake shack and we said if it could do half the sales as the original at madison square park this might be an interesting business in year one it did more sales than the original in madison square park what were the sales do you remember it was somewhere in the five to six million dollar range which was more than that at the time which that was crazy five dollar burger joint doing that kind of sales but let's be really clear let's be really clear at that time in our wildest imaginations we might have had imagined that there could be four or five shake shacks in the world in 2009 the company set out to raise some funds to expand they needed capital we knew we needed money we knew we wanted to grow we raised our first 25 million dollars it was basically friends and family we never took any more money in 2011 in the middle of opening the third shave check this one inside of city field danny and randy took a meeting that would take the company international it's in the harvard business review you know no one would ever tell you to make this decision to go international in your first 10 shacks and we did it and what that did is it forced us to grow up [Music] the wins came easy in those early days but the mistakes were costly and extremely public pete wells the new york times critic gave shake shack a one star review he loved everything except for those french fries can't danny meyer get one of his chefs to teach him how to make french fries and we said you bet that's right not good enough we're gonna do it and we spent almost two years more than a million dollars which was a lot at the time of the size of that company and we created what i believe today was the best damn fresh-cut french fry in america and everyone hated it randy and i were both so invested in the success of fresh french fries we thought that was going to be a game changer we had converted many many many shake shacks by the time we finally allowed our ears to hear the music then there was the time they were publicly rejected from opening a restaurant in the area north of little italy by the community board this was in the early days first few shacks when we were starting to grow but just a little bit and i went up to the community board and i stood there that day and i said we're gonna build a shake shack and we love shake shack and everything's great and i mean people were angry and we had never felt anything but love for shake shack and meanwhile for the first time a community was saying like we don't really want you here right now more recently shake shack asked for and received a 10 million ppp loan that was meant for small business as soon as we received the money it became very clear those following days that the people who this was meant for weren't getting it and they were getting blocked out and danny and i called each other it was a saturday i'll never forget it and we said wait a second this isn't meant for us we're going to give it back [Music] on january 30th 2015 shake shack went public i mean think about the trajectory it took us almost five years to open the second by 2010 we only had four but no one in the board meeting from 2011 to 2015 ever said hey maybe we're going to ipo this thing those words were never never uttered until the year 2014. the stock was initially offered at 14 the very first trade sold at 21 and by the end of the first full day of trading shake shack was at 47 the ability to recognize talent has seems to have played an outsized role in both union square hospitality group leading into shake shack well i think there's something to that and i think a lot of this gets back to my own uh you asked me what was the biggest mistake i made in opening unit square cafe the best thing i ever did at union square cafe was recognizing that i should not be the chef you don't have to be the guy that does everything you don't have to be the best actor right and the director you can be the executive producer who spots the ideas who spots the talent and who gets gets the movie made [Music] there is no doubt that danny meyer has a talent for building successful restaurants sixty percent of restaurants fail after one year eighty percent after five but danny's track record is too good to be attributed to luck a lot of his success seems to come from his ability to get out of his own way and trust the team he built to do their jobs better than he ever could [Applause]

Channel: CNBC Make It

Views: 639,445

Rating: 4.9034514 out of 5

Keywords: CNBC Make It, Make It, CNBC, How To Make It, Entrepreneurs, Starting A Small Business, Business Success, Small Businesses, Finance Tips, Career Tips, Work Hacks, Lifehacks, Money Management, Career Management, Managing Business, shake shack, every item at shake shack, danny meyer

Id: WonYbl47vBU

Length: 19min 45sec (1185 seconds)

Published: Sat Mar 20 2021