We were looking at business models wrong. Yes, their purpose is to make your company stand out from the competition and provide value to customers – to get the job done. And leaders need the foundation of a solid business model to make critical decisions when creating and structuring their operations.
But the process of creating business models has encouraged a narrow, technocratic approach that is efficiency-driven and focused on making money for short-term investors. It wasn’t a good idea in the past and it’s certainly not sustainable now.
Instead, design your business with meaning that is relevant in the long term. Before you crunch the numbers, you need to determine why your company will matter—to all of your stakeholders. This is the only way to achieve a business that creates long-term value for investors and is sustainable for customers and employees.
Adding meaning to your model
In my experience, most business models cover the basics well: how the company will serve customers better than competitors. But they don’t really explain why the company matters. Why should anyone care that your company exists? Why do they have to go past your competitors to get to you? What is your true differentiation in the eyes of your target customers?
Without good answers, you are unlikely to stand out in the market for long. Once the shine wears off or competitors match your prices, you will lose both customers and employees. This is bad for both your long-term competitive position and society.
Adding more value beyond dollars makes sense for every component—investors, employees, and the community. A successful business model connects with customers, employees and investors and builds a compelling long-term vision. And the only way to do this is with empathy and imagination to gain a deep understanding of your target customer’s needs.
The longer I’ve been in business, the more convinced I am that the world pays us not to do what others are doing, but to understand where things are going and be there when the future comes. So the key is continuous transformation.
This is what happened with Au Bon Pain, a company I helped take public in the early 1990s. By listening to customers, our team turned a low-margin French bakery into a profitable French bakery. All that was needed was to recognize that customers didn’t really want bread and croissants – what they wanted were sandwiches, and bread and croissants were a powerful authority in offering a better sandwich.
In the mid-1990s, our intensive listening taught us that certain customers wanted more than fast food. They wanted “real food” served by people who respected them in an environment that engaged them. And that training turned the restaurant industry upside down. Instead of the currency of fast food—highly processed food for not much money—we offered an experience that gave customers a greater sense of self, for just a little more money. They wanted to go to a place where they could feel better.
We used this paradigm to transform Panera, which was a small subsidiary of Au Bon Pain. That paradigm also fueled the fast-casual part of the broader restaurant industry, which has grown into a $100 billion segment ($170 billion now) with Panera as the poster child. Then, between 2012 and 2014, we transformed Panera again around loyalty, an omnichannel digital experience, and “clean food”—each theme that has become a driving force in the restaurant industry.
None of these transformations could happen without listening to customers with empathy and clarity. At the time we sold Panera for $7.5 billion in 2017, it was the restaurant industry’s best-performing stock in two decades—with an annualized return of more than 25%.
The key to all of this was that we learned – and transformed based on that learning. And we made the necessary changes only because our ownership structure and past success freed us from the pressure to maximize short-term efficiency. Because we cared most about our long-term relevance and relevance, we delivered what really mattered to our customers.
Moving beyond numbers to Concept Essence
I have been in the restaurant industry since the 1990s and have been closely involved in the development of three iconic restaurant brands: Au Bon Pain, Panera and now Cava. Along the way, I encouraged our management teams to build their business model around what I call “conceptual essence.” This is a document explaining why guests should choose to visit your establishment. This is a live performance art script that every restaurant requires. I see it as a targeted go-to-market plan. The essence of the concept explains not only how the company will stand out to guests, but why it matters at all – and to all stakeholders, not just customers. This is a key element of an effective business model in the long term.
When we developed Panera in the mid-1990s, we used the conceptual core as our North Star. We didn’t start with a detailed business plan, with projections of capital, operating costs and likely revenues. Instead, we developed a core concept focused on what we would do for our guests.
We started by focusing on bread, which was to be “our passion, soul and expertise”. Next, we wanted to ensure that our food was as good as our bread. After all, we believed that many people were looking for more than a transactional, low-cost bakery cafe. We have tried to “build trust through relationships with customers and communities”. Instead of a cold commercial fast food joint, we wanted “a club that allows our customers to feel good about themselves.” We emphasized that everyone associated with the bakery must be “from our customers and communities” so that “our bread can be trusted”. We also looked for a “daily oasis for our customers” where they could linger to get work done or hang out with friends.
Developing a clear gist of the concept in writing is essential for two reasons. One is that recording forces you to get the specifics right. A vague or clichéd word will dilute the power of a strong statement – you need something clear and compelling. If it doesn’t excite you as a vision, it certainly won’t excite people enough to visit your business.
Second, it provides a template for all subsequent work by providing clarity of direction. Not just for you, but also for your managers, employees, product developers and designers. Anyone you hire to bring the vision to life can compare their plans to the essence of the concept and adjust them accordingly. He inspires the core discipline to keep everyone’s eyes on the prize of delivering that unique and much-needed customer experience. Without it, employees will go back to what they were doing before and you will no longer stand out in the market.
Like any good plan, it also forces you to make compromises. They are inevitable in any plan that matters, so be sure to make compromises you can respect. Regrets will undermine your work in the long run because you won’t push the heart of the concept with the strength and determination needed to make it actually happen in a consistent way.
Once you make the essence of your concept real, however, you need to remember that this is a go-to-market plan. Values matter more than specifics. You need the essence of the concept to ignite the empathetic imagination that keeps people curious. When your employees see multiple customers doing something unusual, they’ll wonder what’s behind that behavior—for example, when we introduced sandwiches because we saw customers bringing in sandwich toppings to add to our bread. They will continue to discover and innovate today what will matter tomorrow. A purposeful approach generates sustainable value by engaging stakeholders in the long term, to the benefit of all.
Our decades-long commitment to the essence of the concept fuels our authority and authenticity with customers. We created an experience that respected them and that they respected. All these efforts made them come to us for what they lacked. And the essence of our concept gave stakeholders a purpose greater than themselves.
There’s nothing wrong with analyzing the market, evaluating the revenue and costs, and evaluating the competition. You have to do this work along the way, and a technocratic approach still helps when you’re looking for efficiency. But you won’t be effective without a business model that matters. You need to infuse your company with more meaning. Your customers, employees – and ultimately your investors – will thank you.