Case Number 2
What Is OUR Business?
For as long as Bill Callahan could remember, he had always worked—indeed lived—in a retail store. His father had owned a small meat market in South Philadelphia, and young Bill had played there as a toddler and gone to work there as soon as he was old enough to hold a broom. He had worked in the market on weekends while going to school and college; and when he went into the army, he found himself almost immediately running a Post Exchange. And Bill loved every minute of it—indeed, his idea of heaven was a huge supermarket in which all the cash registers rang all the time.
Bill had known since he was eight or nine that he would own and build a retail chain—and he started on this goal the day he was discharged from the army in the mid-1960s. But he also knew that his chain would be quite different from any other. For Bill had deep convictions as to what makes a successful retail business. “No retailer can carry better or even different goods,” he argued. “What he can do is first make shopping more enjoyable, friendlier, and more fun; and secondly, make the retail store a place where people like to work and a place the employees consider their own personal concern.” This, according to Bill Callahan, meant three things: First, no chain could contain more than a handful of stores—no more than what one owner-manager could manage by example, by frequent visits of inspection, and by personal control. Second, each store had to have a center of strength, something that made it distinguished. And finally, the key people in each store—the manager and the department managers—had to have a personal stake in the store’s success. Callahan’s first store was a medium-sized supermarket on the outskirts of a metropolitan community; he got a very cheap rental, as the former operator had gone bankrupt. Within three months, Callahan’s store was flourishing. “All I did,” said Callahan, “was to think through the areas in which a supermarket needs excellence—its meats and produce—for everything else is packaged by the manufacturer. So I personally ran the meat and the produce departments, until they were outstanding. Then I thought through how to give distinction to a small store—and I started the first flower-and-plant department in a supermarket in my area. This completely changed the store’s physical appearance and attraction, and the department also makes a good deal of money. Finally, I knew why people come back to a store—they like the way they’re treated. So I stressed being friendly, being friendly, being friendly, until every employee got the idea.” Nine months after the first store opened, Callahan opened the second. He moved over to the new store as manager and gave his successor at the first store a substantial share in the store’s profits, with smaller shares for the department managers—all the way down to the women at the checkout counters. Within three years, Callahan had eleven stores in the same metropolitan area.
Then, instead of opening more supermarkets, he decided to start a new chain—a chain of garden centers. He repeated the pattern there—and then shifted to home-service centers for the do-it-yourself home owner, built around hand tools and small power tools. His next venture was a chain of greeting-card stores—small, high-turnover, and run by one person. Thirty years after he had started with his first store, Bill Callahan incorporated as Callahan Associates, with four chains, a total of forty stores, and in excess of $150 million in sales. Each of the chains had its own general manager who had started out as a checker or clerk and worked his or her way up through store management. Together with Callahan, a financial executive, and a human resource executive—all former store managers who had started at the bottom—they constituted the company’s executive committee. The general managers of the chains had a small profit participation in Callahan Associates and a substantial participation in the profits of their own chain. Each store manager under them had a smaller share in the chain’s profits and a substantial share in his or her store’s profits—and so on, all the way down, with every employee with more than eighteen months of service participating in some sort of profit-sharing plan.
Callahan deeply believed that the company had to expand to give people promotional opportunities. And since he also believed that no one chain should grow beyond the point where one person could easily manage it and know every nook and cranny of it, this meant going purposefully into new businesses every six or seven years. Accordingly, he started in the fall of 1995—almost exactly thirty years after he opened his first store—to look around for the next business to go into. He finally picked two as most promising: a chain of “outdoor-wear stores”—blue jeans, boots, Western shirts, and so on; and a chain of simple restaurants featuring steak, roast beef, chicken, and so on. However, he knew that he should tackle only one of these at a time. Callahan had learned how difficult it is to get a new venture going and knew that he himself would have to spend most of his time on it for the first two or three years.
It was the policy of Callahan Associates to make all major decisions unanimously in the Executive Committee. In the past that had been very much a formality—the members followed Callahan’s lead. But when he brought up the new expansion plans, Callahan unexpectedly ran into serious opposition. Everyone agreed that it was time to get a new venture going. Everyone agreed that they had to concentrate on one venture. Indeed, everyone seemed to agree that the two areas Callahan had picked offered excellent opportunities. But half the group was bitterly opposed to going into anything that had to do with “fashion” (the outdoor-wear business), and the other half was as bitterly opposed to going into a “personal service” business (restaurants).
“We know a good deal about food and home products,” said the first group. “Our customers are housewives and home owners. ‘Outdoor wear’—that’s kids to begin with, and it is style and promotion and sex appeal—not our bag.” “Restaurants,” the others argued, “are not for us. We know how to sell things to people, but restaurants sell service and atmosphere and have to cook and cater to guests—not our bag.”
“All right,” said a thoroughly exasperated Callahan, “you have told me what our business is NOT—but how does one go about deciding what it is or should be? You all agree that the market opportunities are good in both areas. So what we need to think through is what it is we are, we can do, we believe in.”
How could one go about thinking through these questions?