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Thursday, January 20, 2011

Segmentation and execution matter

My favorite meeting place here in Silicon Valley is any place named “Panera”: the food is fresh (if overpriced), the atmosphere is bright and cheerful, and — most importantly — the Wi-Fi is free.

Even now that Wi-Fi is free at Starbucks, I prefer Panera because they are less cramped and they have things that I actually want to buy to rent the table. There are three I use regularly near my home, in addition to several in San Diego and one in Santa Monica. I was at one last night and will be at a different one tomorrow morning.

Ron Shaich, founder of Panera, was interviewed this morning in the WSJ about how the created Panera and its predecessor, Au Bon Pain. He bootstrapped his first bakery chain, then merged it with a struggling supplier called Au Bon Pain. The merged company IPO'd in 1991.

To have something that was more suitable for suburbia he then acquired a small sandwich chain and renamed it Panera. To pay for the growth, he sold off Au Bon Pain.
So with his Harvard MBA, Shaich turned around and grew two existing concepts through superior execution. Although the competencies were similar, he found it essential to keep the two organizations (and concepts) distinct:
Q. After Au Bon Pain went public in 1991, you decided the company needed a new focus. How come?

A. The very thing that had made Au Bon Pain a success was limiting it. We could go to Rockefeller Center or World Trade Center and offer real food to people that could be served quickly, like turkey with smoked brie. It did extraordinarily well in high-density markets, but it wasn't mass-market.

Q. Why did customers like Panera?

A. We changed the environment [of fast dining] away from formica chairs bolted to the floor. And we changed the bread itself. We make fresh dough, every night. We have thousands of bakers. Those details really matter.
Chronic (aka serial) entrepreneurs seem to bore of old challenges and be always chasing the next big thing. But in this case, Shaich shows the importance of keeping the two businesses distinct, and not trying to achieve synergy (or brand extension) by blurring the lines.

Also, in Silicon Valley we tend to think of entrepreneurial advantage in terms of superior technology, IP or other formal entry barriers. In this case, both the Au Bon Pain and Panera concepts were something anyone could have had — the vision is much more incremental than Ray Kroc or Harland Sanders.

The success of Panera Bread Company (PNRA) was a function of willingness to bet on the vision, the ability to execute it consistently — and the ability to generate (or acquire) the capital necessary for expansion. As technology-based industries become more mature and more crowded, these previously underestimated success factors are increasingly important.

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