Follow the Flour

    

I love it when a story proves my point – not all my points, mind you. It disproves all of the badmouthing I have done to investment bankers and venture capitalists whose usual mode of operations is to suck the hard earned value someone has created out of the business and leave the stakeholders high and dry. Not these guys, however. “’We don’t want to turn around stuff and fire a bunch of people. There are a lot of guys that can do that. We’re looking for people that are product experts and want to go from growth to fast growth.’” Valor Equity Partners is run by a guy with a resume one would normally connect with vultures – Georgetown, University of Chicago, Goldman Sachs. What makes Antonio Gracias unique is that he has operations and lean in his DNA.

He ran a manufacturing company then invested in Tesla was it was nothing. Get this: “As Tesla’s Roadster started to come to market around 2008, production costs soared. Each vehicle cost Tesla $120,000 to build, an untenable price for a car that sold for $110,000. At Musk’s request, Watkins [Watkins is one of Valor’s top guys working for Gracias] ran a detailed analysis and talked to individual engineers to find places to save money. He teamed with Tesla’s executives to revamp the supply chain. Much of the manufacturing had been sent off to Asia; Watkins recommended bringing it back in-house to reduce shipping costs and delays. From October 2008 to June 2009, the Roadster’s production cost fell to almost $80,000. Tesla became a viable company.

Amazing, huh? An investment banker suggesting production be brought back from Asia – and reducing the overall cost by a third.

Valor is described as “a tightly knit group that includes software experts, number-crunchers, and lean-manufacturing gurus. They’re the type of people who see a line of customers at a coffee chain and talk about stalled value streams. ‘We are manufacturing guys from the 1990s,’ says Gracias.” Now these guys are plowing their money and operations into mundane stuff like Dunkin Donuts and Little Caesars Pizza – and they are making a lot of money.

What is great about this story – and where it makes many of my previous posts look intelligent – is that they are not about innovation and they are not particularly high tech. 99 business wizards out of 100 would tell you that they only way to grow your pizza or donut business profits by 20% is through some exotic innovation. These guys do it by focusing on operations.

Mark Vadaro is Valor’s operations specialist. He’ll make donuts for two weeks and pizza for a month, standing alongside the regular staff. He institutes ‘follow the flour’ programs at the pizza and donut stores, examining how much work employees have to do to make the end product.” How great is that? ‘Follow the flour’ is a mantra that contains more wisdom than the accumulated thinking from Harvard and just about every other business school in the last thirty years.

Bring manufacturing back from Asia; follow the flour through the donut shops and pizza parlors, and grow both the top lines and the bottom lines. And on top of that, open up a factory to make even more money selling to other Dunkin Donuts operations.

This story just proves there is so much opportunity in even the most mundane, old business. Any leader spending money on technology, betting the farm on some game-changing innovation, or outsourcing to Asia without first getting the business truly lean should have his or her head examined. Lean principles are based on an entirely different economical – and operational – philosophy, and there is no business on earth that is not radically improved by simply looking at it, and managing it, by those different principles. And these guys prove it.

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