Dan Morrell: In 1963, Bob Rosenberg’s (MBA 1963) father asked him to become CEO of Universal Food Systems—which included a regional brand known as Dunkin’ Donuts. He was just 25 at the time. He recalls this moment in his new book, Around the Corner to Around the World: A Dozen Lessons I Learned Running Dunkin’ Donuts. “Up until that point,” he writes, “the only thing I had managed were a couple of donut shops—replacing managers for their summer vacations—and a short stint supervising a cafeteria. My father’s request was breathtaking and anxiety-producing.”

Over the next 35 years, Rosenberg would turn Dunkin’ Donuts into a global icon—which last year sold to Inspire Brands for a stunning $11.3 billion. And in this episode of Skydeck, Rosenberg offers a frank assessment of family donut chain wars, details near-death takeover moments, and expounds on why a donut and a cup of coffee represent much more than a simple morning pick-me-up.

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Hanna: Your book opens by setting the scene almost like an HBS case. It’s June 1963, you've just graduated, and your father, William Rosenberg, is asking you to assume the top leadership role of Universal Food Systems, which is a collection of eight small food businesses. And one of them is Dunkin’ Donuts. What did you consider when you were trying to figure out whether you should step into his shoes?

Rosenberg: I knew I'd be joining the family business, but had no idea that I'd be asked to assume responsibility for the overall business. When I went off to school, early on, the business was an industrial feeding business with lots of these trucks that went around to factories. The partners didn’t get along— my father and his brother-in-law, who was a CPA; my dad was an 8th grade-educated entrepreneur. And my uncle began taking the money from the partnership that broke up in 1955 and started a competitive chain called Mr. Donut. My dad was so upset at the fact that my uncle had almost overtaken him in terms of size of the donut shop business that my second year of business school, I accompanied my dad to a meeting with a private equity firm in New York.

My dad was asking a million-and-a-half dollars for the business. He wanted out. He wanted to sell. Couldn’t get that. Earnings were only a hundred thousand dollars and didn’t warrant that kind of price. And I think it was against that backdrop that he then turned to his 25-year-old son, fresh out of business school, cocky, and asked him if I could straighten out the problem, fight off Mr. Donut, and sort of equitize his investment. I took six weeks to think about what to do and whether or not my ideas and hunches that I had in business school might well in fact apply, decided that the problem with the business really lay with strategic decisions being made at the top of the business. And I thought that I really had an opportunity to help fix the business and sort of satisfy my dad.

Hanna: Can you paint us a picture of what your first ten years on the job were like? What went well and what didn't go so well?

Rosenberg: While in school I basically had a hunch that young businesses, new businesses, can starve because they don't have enough resources either in money or people, but they also can falter and go out of business because of indigestion—having too many things on their plate and not able to handle way beyond their capabilities.

And it was the latter condition that I thought existed for Universal Food Systems and decided basically, along with the management team at the time, to scale back all of those businesses, focus on the diamond in the rough that we had within our midst, the Dunkin’ Donuts business, polish that up, standardize the format, standardize the menu, the configuration, pricing, focus on certain markets to build brand and basically starve the other businesses of resources and ultimately exit them. So that was the first five years of my administration, and it worked out extraordinarily successfully. So within five years, we had gone from about 100 Dunkin’ Donuts shops to something on the order of almost nearly 300 shops. Earnings had grown from $100,000 pretax profits to $800,000 pre-tax profits. And in order to satisfy my dad, decided to have a public offering in 1968, which was quite successful.

We were the third company to go public in the food service industry at that time, basically after McDonald's number one, Kentucky Fried Chicken number two, and we were number three. And before I knew it, I was sitting on top of a company that was worth in public market terms in 1968, 1969 dollars, something like $150 million for a business that a few years earlier we couldn't get a million-and-a-half dollars for. And that’s when the trouble began. Basically I changed the mission of the business from being a focused coffee and donut shop company to becoming a franchise business. Feeling that a 60-time multiple was extraordinarily intoxicating, focused on the wrong thing, started another chain, a fish and chips chain, figuring that if I could grow earnings of 50 percent compounded with a donut shop chain, just imagine what I could do with several other franchise businesses. Bad idea. It did not work and earnings stagnated. Stock price fell. And basically the board had pretty much gotten fed up with the lackluster progress and had decided that maybe they should seek a new CEO.

Luckily, months before that, we really had come to understand, or at least I did as CEO, some of the problems I had in terms of wrong strategy and changed it, and asked for another quarter to see if, in fact we had to solve the problems. We had gone back to the basic business we had before and started to focus again basically on a much narrower strategy. And it worked and we began to start to grow the business once again, and really never looked back.

Hanna: What did you discover about yourself going through that?

Rosenberg: I actually had a transformational moment. I was reading David Halberstam’s The Best and the Brightest, which was a story about the Kennedy and Johnson's administration of the Vietnamese war. Basically Halberstam’s contention was that although the US administration was manned by the best and the brightest our country had to offer, they really weren’t going into the hamlets and towns where the war was being waged and were losing the hearts and minds. Halberstam claimed that the problem lay in what he called hubris, which is the Greek word for arrogance. And as I was sitting in my wing chair in my living room, it occurred to me that Halberstam could just as well have been talking about me. And I basically began a transformation and went to my team, asked them to help. We apologized to our franchisees and invited them in, began to visit stores, we set up better processes for the board in terms of planning. It was a real transformational moment for me personally, and it began to transform the company.

Hanna: It's interesting to me hearing you talk about the David Halberstam book and then reading your own book just to see all of the different places where you found insight and inspiration. You know, Munchkins, the wife of a Hartford, Connecticut, franchisee owner, started making these and he invited you down to check it out because people were going nuts for them. And then you guys took that and ran with it. Another moment that really hit me was when you were in the Philippines, you saw that the wives of some of the Dunkin’ Donuts owners were selling donuts off site, which sort of troubled you at first because of issues of quality control and branding. But then you saw the potential in that, and it led to the creation of kiosks in places like college campuses and subway stations. And that became an enormous source of growth. I just wonder, do you have anything to say about this process by which you find and act on new ideas?

Rosenberg: It really did come from, I think, the Halberstam book, because what it indicated to me was the importance of listening and the wisdom of crowds. There was something that struck me. I can’t tell you where I read it or how I heard of it, but Niels Bohr, a very famous physicist and philosopher, said there are two kinds of truths. There’s the simple truth. And that’s easy to see because on the other side of that is a lie. But then there’s the big truth. And that’s a lot harder to see because on the other side of that is another truth. And that has always been sort of my way of acting, that I was always open to another truth, that there may well be a better way, and that the arrogance that I had as a youngster slowly but surely started to shed away as I began to realize the wisdom that came from my teammates, that many people had better ideas than those that came out of either my head or out of headquarters.

Hanna: About 25 years after you took the reins, you became the target of a hostile takeover. It sounded like a real day by day, week by week, very stressful experience.

Rosenberg: It was. It was a very trying time. It was a frightening time. We were basically struck by a greenmailer at the very end of the 80s, which was the end of the hostile takeover boom. We were one of the last companies to be put in play. The family had sold off a lot of its holdings, so we didn’t control the stock. And luckily, through the advice and again, listening to a classmate of mine from business school—a guy that sat next to me, a guy by the name of Peter Solomon (MBA 1963). Basically, he was providing me step by step, in addition to my bankers at Goldman, steps to take in order to be able to keep the company independent. And it was a matter of moves and countermoves over a seven- or eight-month period that were very challenging and at one minute to midnight we luckily found a white knight that had worked and had acted for other businesses under similar circumstances and had bought them. And they had flourished under their tutelage and under their leadership—Allied Lions, subsequently to be called Allied Domeq, a large conglomerate from the UK that bought the company.

I think in the book, page by page, a page turner in terms of how we were going to escape the claws of this hostile predator who in fact, had bought Lincoln Savings in New York and Union Oil in Canada. And within a year or two from the time that we were successful in terms of wrenching the business away from him, winning the bid at auction, Lincoln Savings lost $100 million dollars and this fellow lost his oil company. And was forced into retirement. And quite truthfully, had he been successful, it’s very doubtful that Dunkin’ Donuts would have survived his ownership. Looking backwards, it was a near death, Perils of Pauline kind of escape from the jaws of death.

Hanna: You gave so much to the business over the years. What did Dunkin’ Donuts give to you, do you feel?

Rosenberg: Joy. Joy, pride. My goodness. It was an endless gift. The camaraderie and the friendship of my teammates, the satisfaction of me reaching millions of people around the world who start their day—we put a smile on their faces and a skip in their step and sort of fuel their biorhythms throughout the day in terms of snacking, which is a natural need for consumers around the world. I can’t tell you how many people can tell me stories about how when they were children, they went with their parents and picked out their favorite doughnut. That’s a warming notion to know that, you know, you might say, well, it’s just coffee and doughnuts, but really it’s a lot more than that. We play a role in people’s lives and the world would be, I think, a poorer place had it not been for us.

And the second thing that gives me a great deal of satisfaction is the franchise opportunity that got created as a result of the business. Dunkin’ did all of his business through franchising, bringing in independent businessmen to join us in that quest. And as we refined the business and kept modifying it over time, it became more and more scalable for those franchisees. So some people are a family that own two or three units and some own hundreds of units. And it’s a massive pathway to success. most people don’t realize that, it’s an underappreciated idea that a franchise is a great way for an entrepreneur to get started, that some of these Dunkin’ Donuts franchisees are worth tens of millions of dollars and they are the pillars of the different communities that they are in, the backbone of a community. And also the opportunities for countless people to build their careers.

So I would say the satisfaction from all the customers, the satisfaction from building a franchise network that enables families to live far better than they would have had it not been for us. And also the career opportunities—we have lots of people who went on to become real entrepreneurs, successful CEOs of other food service companies. If you look around the restaurant industry, you will find it populated with Dunkin’ executives who left us better than they found us, and went on to bigger and better careers elsewhere, all of which is hugely gratifying.

Skydeck is produced by the External Relations department at Harvard Business School and edited by Craig McDonald. It is available at iTunes and wherever you get your favorite podcasts. For more information or to find archived episodes, visit alumni.hbs.edu/skydeck.

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