The Empire Builders Podcast

Stephen Semple and David Young
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  • ENTREPRENEURSHIP
  • UPDATED WEEKLY

Reverse engineering the success of established business empires.

  1. 3D AGO

    #244: Pace Salsa – The OG American Salsa

    In 1947 Dave Pace spiced up America with Salsa and this turned into a 90 Billion Dollar category. Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not so secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [ECO Office Ad] Dave Young: Welcome back to the Empire Builders Podcast. I’m Dave Young here talking to Stephen Semple. And the listeners may not know this because we only release these every week or so, right? Stephen Semple: Mh-hmm. Dave Young: But we often record them one after the other. And we just got done recording the episode about Doritos and Tostitos. And now you’re telling me that we’re going to talk about dip, Pace Salsa. Stephen Semple: Pace Salsa. Yeah. Dave Young: So the picante sauce people. Stephen Semple: Correct. Correct. Absolutely correct. Dave Young: And that’s great with Doritos. Stephen Semple: I never thought about it being with Doritos. Dave Young: Really? Stephen Semple: Tostitos, I would, but not Doritos. Dave Young: How about both? Stephen Semple: Okay. Dave Young: I say you can dip a Dorito into anything. I’m in that camp. I’m firmly in the camp that anything dippable is- Stephen Semple: You’re all-inclusive in your attitude towards Doritos and dip. Very open-minded. Here’s the thing I’m going to say. If someone has not listened to the Doritos, Tostitos story, you really should go back and listen to it before listening to this one because there’s certain things that kind of come together in terms of what’s happening in the world. Dave Young: Like chips and dip. Stephen Semple: And these stories are kind of linked even though this story starts in 1947. Well, the Doritos story starts in the late ’50s. They still have kind of a bit of a shared history. Dave Young: These stories that are on a collision course, a deathening. Stephen Semple: They are. And this story’s also not just about pace salsa, but it’s really about the origin of the salsa in the United States as a category, which is a $90 billion category. And the business was started by David Pace in 1947 in San Antonio and was sold to Campbell Soup in 1995 for $1.1 billion. Dave Young: All right. Stephen Semple: So not a bad little payday. Dave Young: Not a bad deal. Stephen Semple: Yeah. So now David Pace was from Louisiana and he moved to Texas after World War II. He had been running a small food business processing sugar substitutes, which were popular both during the war and shortly after the war with rationing because of the sugar rationing. But as rationing was coming off, what he knew is there was going to be less and less of a need for these sugar substitutes. So he was looking for a new idea. And so we have to remember, it’s 1947, food’s kind of boring in the United States. It’s not diverse. It’s bland. It’s meat and potatoes. The condiment that was used to improve food was ketchup. That was the condiment to improve food, right? And Mexican food was not really a thing. About the only thing that people knew about Mexican food, it was spicy. Here’s the part that I came across that really surprised me the most. In New York City, one of the most diverse cities in the world, and certainly the most diverse city in the United States, there was just one Mexican restaurant in the city and New York at the time. Dave Young: In the ’40s? City. Stephen Semple: In the late ’40s, ’47. Dave Young: Okay. Wow. Stephen Semple: There was only one. That was it. Now, you could get Mexican food in the South because let’s face it, 100 years previous, a lot of parts of the South were part of Mexico, right? Dave Young: That’s right. Stephen Semple: As we like to remind ourselves. So here he is in- Dave Young: Well, Tex-Mex started just spreading in. Stephen Semple: Yeah. So here he is in San Antonio. He was stationed in Texas during the war and he’d settled in San Antonio, but he had never had Mexican food because now he’s off the base living in San Antonio and he tries salsa for the first time. And he’s like, wow, this is great. And he decides he needs to bring it to the market. A couple of challenges he ran into. First is how to make it. There’s lots of recipes around. He wanted to make his own version to sell the non-Mexican, so he wanted to tone down the intense flavors. He also needed to be able to jar it so it had shelf life. Here’s one of the fun challenges he ran into. A couple of the recipes he worked with would ferment once put in a jar. Well, what happens in a jar when something ferments? Dave Young: Botulism? Stephen Semple: No, kaboom. They blow up. Dave Young: Kaboom. They blow up. Okay. Yeah. Stephen Semple: So exploding jars, exploding jars of salsas, not really the objective. Dave Young: That’s never a good look either. Stephen Semple: Not really. But he gets it figured out and he brands it as Pace Picante Sauce. So it was first of all, promote it as a sauce, not a dip. And he starts selling it locally. He advertises it in the newspapers, but again, not as a dip as a sauce, like a marinade, something you brush on meat before baking. That was how it was being positioned. Dave Young: Well, it’s still, that’s the label on the jar is Pace Picante Sauce. Stephen Semple: Yeah. Dave Young: I’ve always wondered about that. He did that so he didn’t have to… Well, go ahead. Stephen Semple: But that was just kind of how he thought about it. And so for over a decade, he works on building up a following in Texas. It was building slowly. He liked spicy food, but most people didn’t, because even though he took the spice down, it was still spicy. Now he hires his son-in-law, Kit Goldsbury, and Kit hates spicy food, like can’t stand it, but still thinks he can sell it. And Kit starts at the bottom working every job and works his way up. And there’s a point where Kit becomes more senior. And Pace is now in five states and is making some money. They’re having some success. Dave Young: Good. Stephen Semple: But Kit’s goal is he wants us to become coast to coast. He wants to turn this into a big thing. But here’s what he notices. It’s too hot for northerners, but northerners want flavor because they’re eating Doritos. They’re eating nacho Doritos and cheese Doritos. They’re eating those things. So it’s not like they don’t want flavor. They just don’t want the heat. Dave Young: Yeah. Stephen Semple: There’s a marker for something interesting, unique, and different, but to go national, he needs to mute the heat. Dave Young: Needs to call it mild. Stephen Semple: Right. And around this time, Tostitos takes off and which is being used for dipping and it’s a massive success. So he decides to lean into the dip angle because he saw what was going on with Tostitos and he said, “You know what? We need to make this as a dip, not as a sauce, but I still need to take down the heat.” So he hires tasters to try all the jalapenos out there to find out which is the one that would work the best. Here’s the problem. Taster’s results were really inconsistent. He goes, “Okay, so I’ve still got to solve this heat problem.” So he hires a food scientist to engineer a heat-free jalapeno. Dr. Rasplicka, I think is how you pronounce his name, who basically created this measurement system for capsaicin, which is about how hot it is. And from this, they were able to figure out how to remove the heat because they were able to identify each one, able to identify the source of it and create this non-heat version of salsa. Dave Young: Okay. Stephen Semple: Now, you jump the gun on it a little bit, as you often do. So remember, while Americans didn’t want heat, they wanted something interesting. So of course they didn’t call it bland. What did they call it? Dave Young: Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this. [Using Stories To Sell Ad] Dave Young: Let’s pick up our story where we left off and trust me you haven’t missed a thing. Stephen Semple: Well, Americans didn’t want heat. They wanted something interesting. So of course they didn’t call it bland. What did they cal

    17 min

  2. FEB 11

    #243: Doritos & Tostitos – A Risk That Paid Off

    Arch West had the heart of an entrepreneur and liked to take risks. Unfortunately he worked for Frito-Lay and had bosses to convince. Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not so secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [AirVantage Heating & Cooling Ad] Dave Young: Welcome back to the Empire Builders Podcast. I’m Dave Young and Stephen Semple is here with another Empire Builders story. And today, whispered in my ear as the countdown started that we’re going to talk about Doritos and Tostitos. And my brain instantly had electric shot go through it because are they the same? Are Tostitos and Doritos, is it the same company? Is Frito-Lay- Stephen Semple: Same company. Yeah, yep. Frito-Lay. Dave Young: Yeah. How about Takis? Stephen Semple: Oh, I don’t know. Dave Young: They get bought up yet? Stephen Semple: I don’t know. But [inaudible 00:02:04] did, they were actually created by Frito-Lay. Dave Young: By Frito-Lay. Again, back to my childhood, we’d go to the lake in the summer and always had bags and bags of nacho cheese flavored Doritos. Stephen Semple: There you go. Dave Young: And my mom used to say, “We’re going to eat so many of these. There’s just going to be corners poking out of us.” Oh my gosh. They’ve been around a while. Stephen Semple: They have been around a while. Yeah, they were launched in 1966. Dave Young: Doritos or … Stephen Semple: Doritos was done first and it was launched by Frito-Lay in 1966. Dave Young: All right. Stephen Semple: Yeah. Today, Doritos is part of Pepsi. And the estimated sales coming from Doritos is like 2 to $3 billion a year in sales. That’s a lot of cheese nachos. Dave Young: It is. Stephen Semple: It’s one of the top snack brands in the world sold in over 100 countries. So now while it’s a product inside of a big company, there’s a reason why I feel like it’s a bit of an empire building story because it’s an interesting little story of risk taking an entrepreneurship inside of this big corporation. That’s why I felt like it still kind of fits. Dave Young: Okay. Stephen Semple: And it’s all because of the actions of a guy by the name of Arch West, who’s a Frito-Lay executive. And when you hear this story, you realize he’s got a heart of an entrepreneur and is a bit of a risk-taker. Dave Young: Arch West. Stephen Semple: Arch West. So Arch came from nothing. He was raised in a youth home. He went to the military. And after the military, he gets into food marketing and he becomes a VP at Frito-Lay. Now, our story starts in the late 1950s. And like all good stories, it starts with a visit to Disneyland at Anaheim because that’s where all great stories start. Dave Young: So Arch goes to Disneyland. Stephen Semple: So Arch goes to Disneyland. And in Disneyland, there’s a restaurant called Casa de Fritos, which of course has been created. I don’t know if it’s still there, but at the time Casa de Fritos, which was basically created for distributing Frito’s products. It’s like this made up Mexican restaurant in the international food area of Disneyland. And remember, this is the ’50s. Dave Young: So Frito’s was in existence. Stephen Semple: Yes. Fritos was in existence. Dave Young: The little curly corn chip thingies. Stephen Semple: Correct. That was in existence. Dave Young: So I keep thinking like Lay’s Corporation- Stephen Semple: Frito-Lay had already merged at this point. Dave Young: So Frito became Frito-Lay? Stephen Semple: Yep. So it was Frito-Lay, wasn’t part of Pepsi yet, but it was Frito-Lay. Dave Young: Yeah. Stephen Semple: And they had this restaurant in Disneyland called Casa De Fritos for distributing Frito products. And as I said, it’s this made up Mexican restaurant, because remember this is the 50s in Disneyland. So how authentic is it? Probably not at all. Dave Young: Probably had Speedy Gonzalez and his friends. Stephen Semple: Right- Dave Young: … Taking orders. Sure. Stephen Semple: As you can imagine. But as the story goes, what was happening was they were throwing out … At the end of the day, if tortillas were left over, they were throwing them out. And a Mexican delivery guy said, “You shouldn’t be throwing these things out. You should cut them up and deep-fry them and serve them as tortilla chips.” Dave Young: Yeah. Stephen Semple: So Arch tastes these tortilla chips and he was like, “Wow, these have a really interesting flavor.” And he thinks to himself, I think there’s an untapped opportunity here and we can make something of this. So first he’s got to sell the ideas to his bosses. So Arch West makes a presentation to the executives and they’ll look at him and say, “Yeah, leave development to R&D. They create the stuff you sell it.” Dave Young: Stay in your lane, buddy. Stephen Semple: Stay in your lane, buddy. Now remember I said at the beginning, Arch is a risk-taker and has the heart of an entrepreneur? So what does Arch do with this no? Dave Young: I mean, he’s going to take them home and fry them. I don’t know. Stephen Semple: Yeah, he ignores it. He takes some discretionary funds that he has and he applies them to developing the chip. Dave Young: Okay. Good for Arch. Stephen Semple: He does this for three years. Dave Young: Three years- Stephen Semple: … Inside of Frito-Lay, he’s developing these chips with these discretionary funds for three years because he can’t make them the way they made them in the restaurant because it’s got to be shelf stable. So there’s kind of a bit of a challenge to making them. So after three years, he creates this secret shelf staple tortilla that he now has to get approved by the bosses, the very same bosses who three years ago told him, stick in his lane that he’s used company funds to develop. Dave Young: Oh, Arch, I love you. Stephen Semple: Right. Do you see why I believe this story deserved to be here? So he has this plan to convince bosses. He arranges to have the chips secretly supplied to the bosses before the meeting and he arrives late on purpose because he figures they’ll all try them. And his hope is, well, they better like them. Dave Young: They better like them. Yeah. Stephen Semple: So it turns out the board likes them. And at this point, he already has a name for them because he wanted it to sound like something easy and he wanted to have this foreign feeling. And he also liked this idea of combining Fritos and Cheetos because Cheetos had already been out there. So Fritos, Cheetos, Doritos. Dave Young: Doritos. Stephen Semple: Yeah. And they decide to launch it. So they launch it in 1966. Doritos is launched and it’s the only tortilla chip around. And the Baby Boomers are coming of age. They want to market this chip to the Baby Boomers. So if you’re going to market to it, what do you call it? You call it the With It Chip. This is the With It Chip because that’s the with it generation. Dave Young: Because it’s with it. Stephen Semple: Yeah. Yeah, yeah, yeah. So just tell people it’s with it and it’ll all work out because they’ll all think it’s hip and cool. Dave Young: Yeah. I can see that happen. Stephen Semple: Yeah. Bombed- Dave Young: … Calling it riz. Stephen Semple: Yeah, it bombed because here’s the problem. The chips were plain and chips at the time are used for dipping and dips were popular at parties, but that was with the Boomers’ parents, not the kids. So it was not so with it actually. Turns out to be not with it at all. So there was this great disconnect because the kids are like, “We don’t do dip.” The parents were the ones doing dip and the parents didn’t want to do … It was this complete failure in terms of positioning. So around this time, Wayne Calloway joins the company. Wayne doesn’t see that product as a failure because he looks at it and he says, “Look, here’s the problem. Boomers don’t want to use it as a dip, but they still want the flavor, so we need to add flavor.” And around this time- Dave Young: “We need to make the dip into a powder and apply it to the chips.” Stephen Semple: Right. And around this time, Frito-Lay ha

    18 min

  3. FEB 4

    #242: Nintendo – Video Games Starting in 1889

    Mario Bros. is the biggest franchise of all time. Bigger than Star Wars, Marvel… bigger than Harry Potter. Nintendo is an empire. Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is… Well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [Travis Crawford Ad] Dave Young: Welcome back to the Empire Builders Podcast. Dave Young here with you, and Stephen Semple’s alongside, with another empire-building story for us that- Stephen Semple: An exciting story. Dave Young: It’ll take you back to childhood, but it doesn’t take me back to childhood because I’m too goddamned old. Stephen Semple: Well, it depends how you look at this, this might be- Dave Young: No, I suppose. I suppose the company [inaudible 00:01:55]. Stephen Semple: It might be older than your childhood, but depends what we decide to talk about. Dave Young: Yeah, it’s just like when the big games came out, the… So we’re talking about Nintendo today. Stephen Semple: Correct. Correct. Dave Young: And I had Atari and things like that. And my kids all had the Nintendo. I actually have a Nintendo Switch, but I didn’t get that until I was… Stephen Semple: It also originally started as an arcade game, if we go back, because we are going to go back far enough. Dave Young: Well, that’s true. That’s true. Stephen Semple: Yes, yes. But if we actually went back to the company, Nintendo, we would be going back to 1889. Dave Young: Okay. So not so much my childhood. There you go. Stephen Semple: 1889. Yeah. And we’re really not going to talk so much about the origin and Nintendo as a company, but really, the origin of the video game business, and more specifically Donkey Kong, and went on later to become the Mario Brothers franchise. That’s really what we’re going to talk about. Dave Young: Now, hold on. Hold on. Hold on. Now, I don’t know everything, but I’m pretty sure video wasn’t around in 1889. Stephen Semple: It was not. Dave Young: There was no video games. Stephen Semple: No, there was not. So that’s why we’re really going to be talking about more of the recent history of Nintendo. Dave Young: A real Donkey Kong, climbing ladders and throwing barrels. Stephen Semple: Okay. That’s it. That’s it. Dave Young: Or a monkey, a gorilla. Yeah. Stephen Semple: And here’s the thing, the Mario Brothers franchise is huge. It’s one of the biggest franchises in history. There’s been 800 million video games sold worldwide, making it the bestselling video game of all time. It’s bigger than Pokemon in game sales alone. The estimated lifetime sales across all revenues for the Mario Brothers franchise is $60 billion. Bigger than Star Wars, bigger than Harry Potter, bigger than Marvel. Dave Young: Wow. Stephen Semple: The movies alone sold over a billion dollars. There’s theme park now. It’s huge. It’s absolutely massive. And the Nintendo company is very old. It was founded back in Kyoto, Japan in 1889 by Fusajiro Yamauchi. That’s it, Yamauchi. Dave Young: Oh. Stephen Semple: Boy, I’m going to struggle with these names. Dave Young: What were they doing back then? What was the company doing? Stephen Semple: The first product they did was a playing card called Hanafuda, and it was very, very successful. So they actually started- Dave Young: As a gaming company. Stephen Semple: … in game business doing playing cards. Dave Young: Okay. Stephen Semple: Now, during the 1950s, during Japan’s economic recovery, because if you remember, the economy was decimated in World War II, and through the Marshall Plan and whatnot, there was this rebuild going on. And during that time, they had a new leader, Hiroshi Yamauchi, who decided to explore all sorts of new businesses. He was doing all sorts of stuff. They had taxis, they had love hotels. Yes, you heard it right, love hotels. Dave Young: Love hotels. Stephen Semple: Instant rice, and of course, toys. And most of the things they did failed, except toys held a promise, so they continued to lean into toys. So it’s April 1978, so this is basically really where our story starts, and Taito, a competitor, releases a game called Space Invaders. Dave Young: Oh, right. I remember Space Invaders. Sure. Stephen Semple: Remember Space Invaders? And of course, this is back in the day of arcades, and you’re putting money into the games. This is so big in Japan, there’s 100 yen shortage. It would be like being in the U.S., and we run out of quarters. Dave Young: Right. Stephen Semple: It’s so big. So Nintendo, because it’s having some success in the game space, decides to make a knockoff of Space Invaders. So it’s October 1980, they create this knockoff called Radar Scope, and they decide also to ship it to the U.S., because they’ve started up a U.S. division. And it takes four months for the game to travel from Japan to the United States, and once it arrives, the trend has changed, it’s no longer Space Invaders, it’s now Pac-Man is the big game. Dave Young: Okay. Stephen Semple: So they’re left with these 2,000 unsold cabinets sitting in the United States. Enter Shigeru Miyamoto, who’s a graphic designer with Nintendo, and he has an idea, and he says to them, “Look, let’s reuse the cabinets, and let’s just create a new game. Let’s do that.” And it’s like, “What the heck? Let’s give this a try.” So Shigeru grew up in rural Japan, and this deeply influenced how he looked at games, because he grew up in a place where there was no television, none of these things, and he would go and he would play in like a cave that was nearby, and he would create all of these stories and characters. And this is the ’80s where the games do not have characters or a story. Dave Young: Okay. Yeah. Stephen Semple: They didn’t have that. Dave Young: Space Invader, you’re just knocking down… Stephen Semple: Right. Pac-Man, the same thing, there was no story. Pong, all that stuff, no stories. He takes a look around and he realizes that Nintendo has the rights to use Popeye, so Shigeru makes a suggestion to create a game using Popeye, where they already have the rights, and he moves ahead and does that. And so he also decides to make a game where characters move up rather than scrolling left to right, and there’d be different levels, which was also a relatively new idea. And he created this whole thing where they could jump, and using just a joystick in the buttons that already existed. So they started to create this game, but they hit a snag. Just before the release, they discovered Nintendo only had the rights to use Popeye for playing cards. Dave Young: For playing cards. Darn it. Stephen Semple: Now, turns out this was a gift from heaven, and the best thing that could ever happen in Nintendo. Dave Young: So it would’ve been Bluto up at the top, and Popeye trying to get up there, climbing the ladders and- Stephen Semple: And saving- Dave Young: So sort of a nautical theme? Stephen Semple: And saving olive oil. Dave Young: Yeah. Stephen Semple: Because remember, he would always capture olive oil. Dave Young: Yeah. Stephen Semple: And Popeye was this love triangle, right? Dave Young: Yeah. Stephen Semple: So what does Shigeru do? Replaces- Dave Young: Bluto becomes- Stephen Semple: … with- Dave Young: … the gorilla. Stephen Semple: Right. Popeye becomes Mario. Dave Young: Yeah. Stephen Semple: And olive oil is Princess Peach. Dave Young: Okay. Stephen Semple: It’s the same story. Dave Young: Yeah. Beautiful. Stephen Semple: It’s exactly the same story. And if you think about it, even the whole idea of this gorilla capturing the princess kind of sounds like King Kong, doesn’t it? Dave Young: A little bit. Sure. Stephen Semple: A little bit. And of course, they can’t use the name King Kong, so it’s Donkey Kong. And the reason why Donkey Kong is, he went looking through English dictionaries, and there’s all this stubbornness, and all this other things that go along with it. So we went, “You know what? This monkey, this Kong is kind of stubborn.” So Donkey Kong is the name of the game. Dave Young: Did they run into any issues with the King Kong folks? Stephen Semple: Nope. Dave Young: No? Stephen Semple: No, because you think about it, it’s a completely different name, Donkey Kong, right? Dave Young: Yeah, but it’s still a big gorilla with the word Kong in it. Stephen Semple: Yeah. Nope, no. It was different enough. Dave Young: [inaudible 00:09:14] just because it’s stubborn, and it sort of went with the word Kong? Stephen Semple: Yep. So it was different enough. It was all great. And the original character was not Mario. Dave Young: Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this. [Using Stories To Sell Ad] Let’s pick up our story where we left off, and trust me, you haven’t missed a thing. Stephen Semple: And the original character was not Mario. The original character was Jumpman. Jumpman. Dave Young: I kind of remember that. Stephen Semple: Jumpman. And the game allowed them to reuse the cabinets, and just do it. And think about it, the objective of this, because he was also just a very junior graphic designer, and the objective on this was, “Hey, if we can sell these 2,000 unsold cabinets sitting in the U.S., that’ll take the financial strain off of our U.S. operations, and it will be great, it will keep them

    20 min

  4. JAN 28

    #241: P.F. Chang’s – From Scottsdale To The World

    300 hundred restaurants in 22 countries might not sound like a billion dollar empire, but you would be wrong. Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is… Well, it’s us, but we’re highlighting ads we’ve written and produced for our clients, so here’s one of those. [OG Law Ad] Dave Young: Welcome back to the Empire Builders Podcast. I’m Dave Young. Stephen Semple is here, and we’re going to talk about the building of another empire. And I’ve got to admit, I don’t know a whole lot about this one. I’ve maybe… Stephen Semple: Oh, wow. That’s exciting. Dave Young: We’re going to talk about P.F. Chang’s. I’ve maybe eaten at one of them, I would say less than half a dozen times in my life. Stephen Semple: Okay. Dave Young: And I think it’s just more of a convenience and proximity issue. I’m never really near any of them. Stephen Semple: So while they’re big, they’re not massive. They’re 300 restaurants in 22 countries, so they’re not like many of the other things we’ve talked about where there’s thousands of them. Dave Young: Right. Stephen Semple: So no, they’re not as prevalent. But look, 300 restaurants is still pretty successful. Dave Young: Yeah, that’s a lot. How did they get started? I’m not going to guess. I’m going to let you tell me. Stephen Semple: Okay. The business was founded by Philip Chiang and Paul Fleming. And Paul Fleming, you might recognize because he’s of Ruth’s Chris Steakhouse fame. Dave Young: Oh, okay. Stephen Semple: They got together, and they founded P.F. Chang in Scottsdale, Arizona- Dave Young: That makes a lot of sense. Stephen Semple: … in 1993. Now, Philip spells his last name C-H-I-A-N-G. So at a certain point, he changed his spelling just to make it easier. Drop the I and make it easier. Dave Young: Drop the I and made it just… Spell it the way it sounds. Stephen Semple: … Spell it the way it sounds, make it easier for the U.S. market. And the company has been bought and sold a few times over the years, but the first acquisition from the founders, from Philip and Paul, happened in 2012 by Centerbridge Partners in a deal worth a little bit over a billion dollars. Dave Young: Wow. Stephen Semple: They did okay. They walk away with some cash. Dave Young: Now, was it before or after they started putting it in supermarkets? Stephen Semple: I do not know the answer to that question. Dave Young: Probably predates. Stephen Semple: I’m going to suspect after. Dave Young: Okay. Stephen Semple: But the story starts with Philip’s mother, Cecilia Chiang. Cecilia was born in Beijing in 1920 to a really wealthy family. She grew up in a palace in China, ate high-end food, full staff, chefs, the whole nine yards, part of the aristocracy. And during the Chinese Civil War and the Japanese occupation, her family fled China and relocated in Japan, and there, the family opened a restaurant. Now in the 1960s, she travels to the U.S. Cecilia travels to U.S. to help her sister who came to America because of the economic challenges in Japan, and her sister had opened a restaurant in San Francisco and needed help- Dave Young: Okay. Stephen Semple: … and Cecilia came over to help her. But that venture failed, but Cecilia still remained in the U.S. And look, Chinese food in America at that time was not good. If you look at just about every food that has come to United States, the first people who brought it, whether it was Italian, whether it was Mexican, whether it was Chinese, the first immigrants were the people who were poor. Dave Young: Yeah. What years are we talking about here? Stephen Semple: 1960. Dave Young: Okay. Stephen Semple: So the first immigrants who came were the people who were poor, so therefore, typically the food is not the great food, it’s not made with the great ingredients. And so here she is, she’s looking around and she’s saying, “Look, there’s this poor Chinese food, all basically from the Canton region.” And most of it has been also turned into an American version, because basically, again, people were making it with whatever was available, so it really became very Americanized. Dave Young: Right. Stephen Semple: And Cecilia saw that, and what she wanted to do was introduce America to a more refined Chinese food, what she had experienced growing up as a wealthy person in China. So in 1961, she opens a sit-down restaurant with food from Northern China called The Mandarin. Dave Young: Okay. Stephen Semple: And it opens not in Chinatown, because here’s the thing that she recognized, context is everything. If she opened it in Chinatown, people’s expectation would be it would be the same as all the Chinese restaurants in Chinatown. Dave Young: All of them. Right, right. Stephen Semple: So what she did, she opened it on Polk Street, not far from Pacific Heights in San Francisco. Dave Young: Okay. Stephen Semple: Bit of a bold move, but she wanted to be seen as different, and that was how you did it. Dave Young: Makes sense. Stephen Semple: Now, the menu had some things that were unfamiliar, like pigeon, and it did not have some things that were expected like chow mein. And she struggled initially, because America was not really ready to try new things. Now, after two years of struggle came her breakout moment. The restaurant was visited by a guy by the name of Herb Kane, who was the most influential columnist in San Francisco history. He was a writer for the San Francisco Chronicle. But here’s the interesting thing, not a food critic. And he comes in the restaurant, falls in love with it, and gives it a great review. And overnight, the place becomes famous. You couldn’t get into it. It was visited by the likes of Julia Child, James Beard. It was totally on the radar. And I actually think the review may have even been more powerful because he was not a food critic. Dave Young: Sure. Yeah. Stephen Semple: But it also goes to show you… We talk about influencers, influence and all these other things, most restaurants be like, “We’ve got to get the food critics in here.” This guy was just a columnist who came in to try out their food- Dave Young: Right. Stephen Semple: … and it made them famous. And one of the things he loved was Peking duck, and so today Peking duck is pretty normal, it was really new back then. And suddenly, authentic Chinese food started to pop up. This really started it. In the late 1960s, Chinese restaurants in the United States doubled to about 10,000 of them. 1966, the first sushi restaurant opens. She opens the second restaurant, and Philip… And we’re talking about Philip Chiang? Dave Young: Right, right. Stephen Semple: Philip, her son, joins the business, and opens The Mandarin Cafe in LA, where he starts modernizing Chinese dishes for American diners, so starts doing a bit more of a fusion, right? Dave Young: Mm-hmm. Stephen Semple: Now, it’s here that Philip meets Paul Fleming, from Ruth’s Chris Steakhouse. Dave Young: Right. Stephen Semple: And Philip starts to build a bit of a friendship with Paul, and wants to work with Paul, wants to leverage his knowledge. Because after all, Ruth Chris is an upscale restaurant, and there’s this rise of casual chains, but Paul is not super excited, because none of them are Chinese, nor is Cecilia. She’s like, “I don’t really want to do this.” Philip is determined, he stays in touch with Paul. So 1979, things really start to change, because the restaurant called China Coach is opened by Wolfgang Puck, and it grows very quickly to 50 restaurants. And it’s the early ’90s, and Cecilia is ready to sell the restaurants. Dave Young: Stay tuned, we’re going to wrap up this story and tell you how to apply this lesson to your business right after this. [Using Stories To Sell Ad] Let’s pick up our story where we left off, and trust me, you haven’t missed a thing. Stephen Semple: And it’s the early ’90s, and Cecilia is ready to sell the restaurants, which basically frees Philip to make the changes he wants to do. He cycles back to Paul. Paul’s now looking at it going, “Well, there is this place for this growth and all of this.” So they decide to start something new. And Philip wants to bring other Asian cuisines, he wants to take it beyond Chinese. Dave Young: Okay. Stephen Semple: So he wants to add other Asian foods to it. So he spends three years developing the menu, and they changed the spelling of his last name to make it easier. And in 1993, here’s the other thing I found really, really interesting, they chose to open in Scottsdale in 1993. And here’s where Philip learned something from Cecelia, she did not open in Chinatown, she opened somewhere where there was not Chinese restaurants. At the time in Scottsdale, it’s described as a Chinese food desert at the time. Virtually no Chinese restaurants in 1993. Now, many people would go, “Well, you want to open up somewhere…” Nope, open it in Scottsdale. Opening weekend, they had 1,000 people, some waited for hours. Dave Young: Wow. Stephen Semple: Lined up around the block. Now, what really made them successful is Paul brought his ability to be able to scale a business, upscale dining, and really grow the business. And this is what allowed them to quickly… They quickly drove to 200 locations in a few years. And in 2012, 19 years later, they sold it for $1.1 billion. Dave Young: A billion bucks. Stephen Semple: Yeah. And there was also a point in there where they went public, gave them a

    17 min

  5. JAN 21

    #240: Wham-O – Meat Slingshot to Toy Empire

    When no one wants your Meat Slingshot, what do you do? Make a better flying disc and name it after a pie plate, naturally. Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not so secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is… Well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [ECO Office Ad] Dave Young: Welcome back to the Empire Builders Podcast. Dave Young here with Stephen Semple and today’s topic, Wham-O. It’s from Wham-O. In all the toy stores, I’m trying to think. Slinky wasn’t Wham-O, was it? Stephen Semple: No, Slinky was not Wham-O. Dave Young: Yeah. I’m trying to think of what Wham-O was. Stephen Semple: Frisbee’s. Dave Young: Frisbee’s. Stephen Semple: Hula Hoops. Dave Young: Okay. Stephen Semple: All sorts of crap, right? Dave Young: I didn’t realize the Frisbee was a Wham-O product. I mean, I remember the name. I remember the ads and it’s a cool name. Stephen Semple: Yeah. Well, it’s so funny. Wham-O was Frisbee, Hula Hoops, Slip ‘N’ Slide, Super Ball, all of those- Dave Young: Probably lawn darts. Stephen Semple: All of those sorts of things were Wham-O. But what I find funny is before getting on, we were talking about this whole thing of sounds and things like that and communication. And then all of a sudden it’s like, “Oh, we’re going to talk about a company whose name actually has that real kinetic feel of Wham-O.” Dave Young: Mm-hmm. I love a name that is also a sound. And if we have time, I’ll tell you about a client I’m working with that we changed the name of the company to make it a sound. Stephen Semple: Oh, that’s cool. Dave Young: Yeah. Stephen Semple: That’s awesome. Oh, the other ones that they did, Hacky Sack and Silly Strings was a couple of the other ones. Dave Young: Were they responsible for lawn darts? That’s my question. Stephen Semple: I’m not sure if they’re responsible for lawn darts. So since it didn’t come up- Dave Young: Maybe not. Yeah. Stephen Semple: … I guess probably not. The company started in 1949 out of, basically a lot of these things out, of the garage in South Pasadena. And it was Richard Knerr and Arthur Melin, who are basically two university graduates, started this company. And their first product was a slingshot, was a wooden slingshot made from ash wood. And the name Wham-O was actually inspired by the sound of the slingshot hitting a target. Dave Young: You release it… Yeah. Stephen Semple: Yeah. Yeah. Dave Young: Very satisfying. Stephen Semple: But here’s the funny thing is, it wasn’t originally… The idea behind making it was not actually a toy. They loved training falcons, and it was to train falcons for hunting. Dave Young: A slingshot? Okay. Stephen Semple: They would shoot the meat into the air. They got frustrated that the regular slingshot wouldn’t fire it the way they wanted to do it, so they made their own. Dave Young: So they made a meat slingshot. Stephen Semple: Made a meat slingshot. Dave Young: It turns out there wasn’t a huge market for meat slingshots. So you pivot and put it in the hands of children eventually. Stephen Semple: It’s the 1950s, dude. Dave Young: Uh-huh, that’s right. “You’re going to put an eye out.” Well, somebody already did. Stephen Semple: Be careful with that hamburger you’re firing out. Dave Young: But that was their fault, not ours. Yeah. Those were the days, right? Stephen Semple: Right. Dave Young: When the manufacturer could say, “Well, that’s your fault. You shouldn’t have been an idiot.” Stephen Semple: “What’d you expect a rock to do?” But again, so many businesses, it started with them just solving their own problem. And their own problem was they wanted this thing. But what they found out, they created one that was so good that all of a sudden was like, “Wow,” people became interested in this. Dave Young: It the wrist rocket? Stephen Semple: You know what? I was able to find- Dave Young: I don’t know if that’s the same kind of- Stephen Semple: I wasn’t able to find pictures of the original thing around, because it didn’t do particularly well, but it kind of put them onto a path. Because very quickly they added blow guns and boomerangs. Dave Young: Nice. Stephen Semple: Right? But the whole idea was these types of things. And they get to the stage with these various products. So they’ve got the slingshot, they got the blow gun, they got the boomerang, they got these little niches going on and they’re selling basically $100,000 a year of this stuff. But they’re thinking to themselves, “If we’re going to really make this a business, we need a bigger idea.” And I’m going to say, if you’re going to really make this a business, you need an idea which is not going to put somebody’s eye out. Dave Young: Probably. This is, again, like you said, the 1950s. Stephen Semple: 1950s. Really, no seat belts, like, “Come on now.” Dave Young: The BB gun’s already invented. Stephen Semple: You know, it’s funny, when you think back to how we were with safety and things like that, one of my really fond memories… Now this wouldn’t have been the ’50s, this would be the ’70s, but one of my really fond memories of being a kid was we’d be hauling stuff somewhere and we had this old green wood trailer with oversized tires on it that bounced like crazy when you’re driving down the road. And one of the funnest thing is we would go somewhere and coming home, all the kids would pile into the trailer in the back as we’re driving down the road. Dave Young: You’d be the ballast to hold down the sheets of plywood. Yeah. Well, who needs tie downs when you’ve got 200 pounds of children? Stephen Semple: And the weird thing is, it’s not like anybody thought that was weird. Dave Young: No. Stephen Semple: That was what you do. Dave Young: Yeah. And if you weren’t on the trailer, you were sitting on the edge of a pickup with your back to the road. Stephen Semple: Exactly. Exactly. Anyway, back to Wham-O. They’re needing a bigger idea. And while they’re on the beach, they come across this flying disc called Whirlaway. Dave Young: Okay. Stephen Semple: Right? And they decide… They also found another one called Pluto Platter. So it didn’t work. It wasn’t really selling. And so Wham-O, they buy the rights to this. They go, “Look, we’ll buy the rights to this.” They make a few couple of design changes. And Morrison saw this people also tossing these metal pythons, right? Dave Young: Oh, okay. Stephen Semple: And so that was actually where he came up with a little bit of the design change. He kind of looked at that and went, “Oh, this is much better than this Pluto Platter thing.” Dave Young: You drop the edge down and balances itself a little bit better. Stephen Semple: Yeah, yeah. And one of the pie plates they came across, guess what the name of the pie plate was? Dave Young: Frisbee maybe? Stephen Semple: Bingo. Dave Young: Yeah? Okay. Stephen Semple: Frisbee. Dave Young: Okay. So they buy that too or just- Stephen Semple: They just trademarked that because it wasn’t trademarked. So they went and trademarked the Frisbee name. And in the first two years, they sell a million Frisbees. Dave Young: Wow. Stephen Semple: Right? And what they did to promote it, so here’s the really cool idea, they go to university campuses and they also gave it to people and people, guess what, immediately found on university cool ways to do tricks and stuff with the Frisbee. So that then got it going. And look, this was pre social media days. Imagine what you’d be able to do today in terms of demonstrating all this crazy stuff on social media. Dave Young: Well, you’d have to get people off their phone. Stephen Semple: Yeah. But what they have now is they have a way of creating ideas. And what they realized was they had to look for things and just make them better. So they created this open door policy. They would listen to anybody, “Come pitch an idea, we’ll listen.” So the next one was a neighbor had come back from Australia with this bamboo exercise hoop, and you had to use it doing a movement like a hula dancer. Dave Young: Yeah. Okay. Stephen Semple: And so they do a handshake deal. And if it’s a hit, we’re going to give you royalties. And instead they make it out of this lightweight, colorful plastic, and they put little beans inside so that it makes a sound. Dave Young: Absolutely. Stephen Semple: It also has a little bit different feel to it. They took this idea to parks and they demonstrated it. And what am I talking about, Dave? What’s the name of the toy? What’s the name of the toy? Dave Young: Oh, it’s the Hulu Hoop. Yeah. Stephen Semple: Bingo. Yeah, it’s the Hulu Hoop. And in 1958, they launched the Hula Hoop, and it’s the biggest toy fad in history. And I think it still is. Dave Young: Oh yeah, I think. Stephen Semple: I think it still is. Dave Young: Yeah. Stephen Semple: And they were farming out the product they couldn’t keep up with production. Now, here’s where a little problem happens for them. Remember that handshake deal? If this is a deal, we’re going to pay your royalties? Dave Young: Yeah, yeah. Stephen Semple: They didn’t pay any royalties and they got sued. Dave Young: Shoot. They should have paid the royalties. Stephen Semple: On top of that, knockoffs happened, right? Dave Young: Yeah. Stephen Semple: Because it was pretty easy to cop

    27 min

  6. JAN 14

    #239: Cup O’ Noodles – Same Ramen Different Name

    Momofuku Ando is the father of Instant Ramen. Feeding Japan after the war. But how do you get Americans to eat it? Dave Young: Welcome to The Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is … well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [AirVantage Heating & Cooling Ad] Dave Young: Welcome to the Empire Builders Podcast. I’m Dave Young. Stephen Semple’s right there standing by, and he just told me what we’re going to be talking about and, man, it took me back to college days. In fact, I was looking at photos over the weekend. I have some photos of when I was in college, and this is way back 20 years before the turn of the century, to tell you how long ago this is. Stephen Semple: I hate how you put it that way. Dave Young: This is 20 years before the turn of the century. That’s a lifetime ago. But there were days in college where it’s like, “Well, gosh, Mom and Dad haven’t sent me any money and I haven’t gotten the job that I told myself I’d get,” so you go to the store, and what do you find? It’s either ramen or, if you want an upgrade, Cup O’ Noodles. And the Cup O’ Noodles, as everyone that’s ever been poor knows, is a noodle soup in a cup, and you take the lid off, put some water in it, throw it in the microwave, voila. Am I right? Is that what we’re talking about, or is this some new form? Stephen Semple: No, no, that’s what we’re talking about. That’s what we’re talking about, not some new Tesla called Cup O’ Noodles. No, no, you’re right, but I want you to hold onto that thought of it as being an upgrade from ramen, because we’re going to revisit that. Dave Young: Not an upgrade? Stephen Semple: We’re going to revisit that whole idea, because that’s brilliant. It was started in the 1950s and it was a new idea then, but today there’s over a hundred billion servings of instant noodles eaten every year. And it’s estimated that Cup O’ Noodles sells between 18 and 25 billion servings a year. It’s inside of a larger organization, so it’s hard to know exactly, but that’s the estimates I’ve come across. Dave Young: Dude, that’s like feeding the planet three times in one day. Stephen Semple: Right? Isn’t that crazy? Dave Young: Yeah. Stephen Semple: So, empire? Yeah. Dave Young: Yeah. There’s some guy sitting on top of that noodle money somewhere, and I guess we’re going to hear the story. Stephen Semple: So in the 1950s in the United States, food is boring. Eating out was like literally going to diners, and international food really only existed in big cities that had Chinatowns. Dave Young: Yeah. Stephen Semple: And, following World War II, there was actually a strong anti-Asian feeling in the United States. Meanwhile, back in Osaka, Japan, there’s a food crisis after the war because basically Japan has been decimated, and bread is being distributed by the U.S. and it’s really plentiful, but people wanted more traditional meals. Dave Young: They’re not used to bread. Stephen Semple: Right. It’s not part of what they normally eat. So Momofuku Ando is a 48-year-old businessperson. He’s lost his company. He went to jail for tax evasion. All sorts of bad things went on, but he’s out of jail and he’s looking to start his new business, and he sees people lined up for ramen, so there is a ramen tie in here. Dave Young: There you go, yeah. Just to be fair, I wasn’t talking about ramen from a store or from a vendor. I’m talking about those little bricks of Top Ramen. Stephen Semple: Yeah, yeah. Hold onto that. Hold onto that thought. We are going to come back to that, yes. So, ramen was created when noodles basically came over from China, and 1910 is the earliest record we could find of a ramen shop in Japan, so it looked like it was around 1910. Dave Young: Yep. The Japanese didn’t have noodles till 1910? Stephen Semple: They didn’t have the type of noodles in ramen, yes. Dave Young: Okay. See, I mean, we could go a whole nother direction on this if you wanted to, in the Japanese industrialization of them going around the world and bringing all kinds of new technology back to Japan in the early 1900s. Stephen Semple: Yes. Dave Young: Turns out, including noodle technology. Stephen Semple: Including noodle technology, and we forget how closed Japan was. Dave Young: Oh, yeah. Yeah. Stephen Semple: Basically, the only thing that was imported was silk. Right? That was about it. Very, very closed economy, and then yes, lots of … And when things changed in Japan, boy, they changed in a hurry. It went from basically medieval to industrial in like, that. It was crazy. Dave Young: Yeah. Stephen Semple: Yeah. Dave Young: I mean, you and I are both whiskey fans, and we know that the story of Japanese whiskey is the same story. The Japanese guy goes to Scotland, falls in love with Scotch whiskey, figures out how to make it, comes back to Japan and builds the Japanese whiskey industry. Stephen Semple: Yeah. Dave Young: Let’s go back to noodles. I’m sorry. I will distract us all day long. Stephen Semple: No, but it is an interesting thing. Now, the main drawback to ramen is it’s hard to make at home. The noodles need to be fresh. They’re hand-cut. They’ve got to come from shops. And so what Momofuku decides is he wants to make a ramen product that is tasty, non-perishable, easy to make, affordable, and ready in five minutes with hot water. Dave Young: Wow. Stephen Semple: That’s his goal. Dave Young: That’s a goal. Stephen Semple: On top of that, he has no culinary training. So he invests every last penny into this, because he needs something he can put into a grocery store as well on the non-perishable, because there’s few refrigerators or ovens in Japan at this time. Dave Young: Okay, yeah. Stephen Semple: And the key is the broth, and it can take days to make the broth. So here was his question. If everyone loves ramen, why is it so hard to make? And so he tries drying the noodles, then he gets the broth dried into the noodles, and he spends several years working on this and nothing seems to work. And one day, he notices his wife tempura-frying food and the batter dehydrates immediately the moment it hits the oil, because what does oil do? Removes water. So now what he does is he drops the noodle into this high-heat oil, and it creates a shell. He then takes fresh noodles, cooks them in the broth until it’s saturated, drops it into the oil, and the water is cooked out. It works. Dave Young: Wow. Stephen Semple: It works. He’s now got this dried noodle. Now he needs to get it in the store. So he starts with chicken ramen, and that’s more expensive. It’s about six times the price of regular ramen, but what he finds is people are willing to pay for the convenience. So in 1961, it hits stores in Osaka and it sells like crazy, and it’s called Magic Ramen by customers. Dave Young: Magic Ramen. I like that. Stephen Semple: Yeah, and he gets to the point where he borrows a million yen to open a factory. In the first year they’re doing 13 million packages, and the second year, 50 million packages a year. Now, to put that in perspective, 50 million packages a year, the TV dinners at that time is one half the number of sales of the amount of ramen that they’re selling in Japan, of this instant ramen. Dave Young: Wow. Okay. Stephen Semple: It’s 1962, and this idea is getting very copied. There’s now 70 companies in the space in Japan in a few short years. And some are also cheaper and the economy in Japan is still recovering, so Momofuku decides he’s going to spend a couple of million bucks and he’s going to bring this product to the United States. Dave Young: Okay. Stephen Semple: Now, the timing is really bad. In 1968, there’s a hoax letter written to the New England Journal of Medicine by Dr. Kwok that MSG is unsafe and The New York Times reports on it, and this becomes a placebo effect on all Chinese food. Dave Young: What year was this? Stephen Semple: ’68. Dave Young: ’68, okay. Stephen Semple: The letter was written on a bet by Dr. Howard Steele, who was a pediatric who was having a hard time getting published, and there was this bet that, “Oh, I bet you if you wrote something this way, it would get published,” so he creates this hoax and it gets published. Dave Young: And people still believe it? Stephen Semple: Yeah. He created this fake research facility with a made-up name, and it’s amazing. Sounds kinda familiar for the world we’re in today, and MSG is declared unsafe for years later. Dave Young: Well, my wife thinks MSG doesn’t agree with her. Stephen Semple: Well, some people, it may not. Dave Young: Maybe it doesn’t, but I don’t know. Stephen Semple: But again, that could be just a food intolerance, right? Dave Young: You don’t know, yeah. Stephen Semple: Yeah. So Momofuku travels to the United States. Here’s one of the things he figures out. He runs into a bit of a challenge with the U.S. market. He realizes he needs to do sampling, because it became successful in Japan because it was a familiar food that became convenient, right? So it was only one step away, a familiar food that became convenient. It was not a familiar food in the United States, so he decided he needed to do sampling, so he goes over to the U.S., sets up sampling in grocery stores. This anti-Asia movement is so strong, people won’t even try it. It’s too new. Dave Young: Yeah. Stephen Semple: Won’t even

    22 min

  7. JAN 7

    #238: Google – Do No Evil…

    Larry Page said in the early day, a guiding principle is Do No Evil. I wonder if we can say that today or is it just business as usual? Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So, here’s one of those. [Out of this World Plumbing Ad] Dave Young: This is the Empire Builders Podcast, by the way. Dave Young here, Steve Semple there. I wonder, Stephen, if we could do this whole episode without mentioning the name of the company that we’re going to be talking about. I ask that for the simple reason of they already know. They already know what we’re talking about. They already know we’re talking about them. They probably knew we were going to talk about them. Stephen Semple: Because of all the research I’ve done on my computer. Dave Young: No, because they’re listening to everything. They probably already know the date that this is going to come out and how long it’s… I don’t know, right? When they first started, and I don’t think we felt that way about them, and I can remember back in the early 2000s, just after the turn- Stephen Semple: In the early days, they had a statement. Larry Page was very famous. Dave Young: Yeah, “Do no evil.” Stephen Semple: “Do know evil. Do no evil,” and that was a very, very big part. In fact, in the early stages, they made a bunch of decisions that challenged the company financially because they were like, “This is not good experience for the person on the other end.” I wonder if anybody’s guessed yet what we’re going to be talking about. Dave Young: Well, then you go public, and it’s all about shareholders, right? It’s like the shareholders are like, “Well, we don’t care if you do evil or not. We want you to make money.” That’s what it’s about because you have [inaudible 00:03:01]. Stephen Semple: All those things happen. Dave Young: Yeah. Stephen Semple: This company that we’re talking about, we’ll go a little while before we’ll let the name out, was founded… On September 4th in 1998 was when it was actually founded. Dave Young: Oh, ’98. It goes back before the turn of the century [inaudible 00:03:14]. Stephen Semple: Yeah. It was founded by Larry Page and Sergey Brin, who met at Stanford. Interesting note, the Stanford grads also created Yahoo. Dave Young: Okay, yeah. Stephen Semple: That’s giving you another little clue about the company that we might be talking about. Dave Young: In the same geek club. Stephen Semple: Yeah, so 1998. I was thinking back, one year after I graduated from university, Windows 98 is launched and, believe it or not, the last Seinfeld episode aired. Dave Young: Are you kidding me? Stephen Semple: No, isn’t that crazy? Dave Young: ’98. Stephen Semple: Yeah. Dave Young: I mean, I was busy raising four daughters in ’98. Stephen Semple: Yeah. Today, this company, as you said, because you didn’t want me to name the company, has more net income than any other business in US history. It has, now, I got to let the cat out of the bag, eight and a half billion searches a day happen. And yes, we’re talking about the birth of Google, which is also now known as part of the Alphabet group. Dave Young: Alphabet, yeah. It’s funny how they got to get a name that means everything. Did they have a name before Google? I know Google was like… Oh, it’s a number really, right? It’s a gazillion, bazillion Googleplex. Stephen Semple: As we’ll go into a little bit later, they actually spelled it wrong when they registered the site. That’s not actually the way that the word is spelled. I’ll have to go… But yeah, the first iteration was a product called BackRub was the name of it. Dave Young: Backrub, okay. Stephen Semple: Alphabet also owns the second largest search engine, which is YouTube. Together, basically, it’s a $2 trillion business, which is larger than the economy of Canada. It’s this amazing thing. Going back to 1998, there are dozens of search engines all using different business models. Now, today Alphabet’s like 90% in the market. Up until this point, it’s been unassailable, and it’s going to be really interesting to see what the future of AI and whatnot brings to that business. But we’re not talking about the future, we’re talking about the past here, so back to the start. Larry Page was born in Lansing, Michigan. His dad is a professor of computer science. His mom is also a computer academic. This is in the ’70s. Between 1979 and ’80, his dad does a stint at Stanford and then also goes to work at Microsoft. Now, Larry and Sergey meet at Stanford, and they’re very ambitious, they’re equal co-founders, but Larry had this thing he also talked about where he said, “You need to do more than just invent things.” It wasn’t about inventing things, it was about creating things that people would use. Here’s what’s going on in the world of the web at this time to understand what’s going on. Here’s some web stats. In 1993, there’s 130 websites in the world. In 1996, three years later, there’s 600,000 websites. That’s a 723% growth year over year. The world has never seen growth like that before. Dave Young: Right, yeah. It was amazing to experience it. People that are younger than us don’t realize what it was. Josh Johnson, the comedian, has a great routine on trying to explain to people what it was like before Google. You needed to know something- Stephen Semple: What it was like for the internet. Dave Young: Yeah. You had to ask somebody who knew. If you needed the answer to a question, you had to ask somebody. And if they didn’t know, then you had to find somebody else, or you had to go to the library and ask a librarian and they would help you find the answer- Stephen Semple: Well, I don’t think it’s like a- Dave Young: … maybe by giving you a book that may or may not have the answer. Stephen Semple: Here’s an important point. I want you to put a pin in that research. We’re going to come back to it. I was about to go down a rabbit hole, but let’s come back to this in just a moment, because this is a very, very important point here about the birth of Google. Larry and Sergey first worked on systems to allow people to make annotations and notes directly on websites with no human involved, but the problem is that that could just overrun a site because there was no systems for ranking or order or anything along that lines. The other question they started to ask is, “Which annotations should someone look at? What are the ones that have authority?” This then created the idea of page rankings. All of this became messy, and this led to them to asking the question, “What if we just focused on ranking webpages?” which led to ranking search. Now, whole idea was ranking was based upon authority and credibility, and they drew this idea from academia. So when we would do research, David, and you’d find that one book, what did you do to figure out who the authority was on the topic? You went and you saw what book did that cite, what research did this book cite. The further you went back in those citations, the closer you got to the true authority, right? Do you remember doing that type of research? Dave Young: Yeah, sure. Stephen Semple: Right. They looked at that and they went, “Well, that’s how you establish credibility and authority is who’s citing who.” Okay. They decided that what they were going to do was do that for the web, and the way the web did that was links, especially in the early days where a lot of it was research. Dave Young: Yeah. If a whole bunch of people linked to you, then that gives you authority over the words that they used to link on and- Stephen Semple: Well, and also in the early days, those links carried a lot of metadata around what the author thought, like, “Why was the link there?” In the early days, backlinks were incredibly important. Now, SEO weasels are still today talking about backlinks, which is complete. Dude, backlinks, yeah, they kind of matter, but they’re… Anyway, I could go down a rabbit hole. Dave Young: Yeah. It’s like anything, the grifters figure out a way to hack the system and make something that’s not authoritative seem like it is. Stephen Semple: Yeah. It’s harder that you can’t hack the system today. Anyway, but the technology challenge, how do you figure out who’s backedlinked to who? Well, the only way you can do it is you have to crawl the entire web, copy the entire web, and reverse engineer the computation to do this. Dave Young: Yeah. It’s huge. We’ve been talking about Google’s algorithm for as long as Google’s been around. That’s the magic of it, right? Stephen Semple: Yeah. In the early days, with them doing it as a research project, they could do it because there was hundreds of sites. If this happened even two years later, like 1996, it would’ve been completely impossible because the sheer size to do it as a research project, right? Now, they called this system BackRub, and they started to shop this technology to other search engines because, again, remember there was HotBot and Lyco and Archie and AltaVista and Yahoo and Excite and Infoseek. There were a ton of these search engines. Dave Young: Don’t forget Ask Jeeves. Stephen Semple: Ask Jeeves? Actually, Ask Jeeves might’ve even been a little bit later, but yeah, Ask Jeeves was one of them once when it was around. Dave Young: There was one that was Dogpile th

    26 min

  8. 12/31/2025

    #237: Chocolate Chip Cookies – An Empire???

    When your year’s earnings are stolen and you need a quick way to make some cash on the cheap, you invent chocolate chip cookies. Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Steven’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [North Texas Gutters Ad] Dave Young: Welcome to the Empire Builders Podcast. Dave Young here, along with Stephen Semple. Gosh, Stephen just keeps coming up with topics that are just so near and dear to my heart, and I think I might know the essence of this. Is it an empire? We’re going to talk about the birth of the chocolate chip cookie. Stephen Semple: Sure, but what’s the empire? There’s a lot sold? Dave Young: There’s a lot of… Boy, if you would have invested in chocolate chip cookies back in the day, think how much you’d have today. I’m guessing this has to do with Toll House- Stephen Semple: Yes. Dave Young: … and the inn… Was it an inn or a woman’s name? Stephen Semple: Yes. Inn. Dave Young: It was an inn. They’ve told the story I think on the bags or something. Anyway, have at it. I’m all in on chocolate chip cookies. Stephen Semple: So it’s the late 1920s and cookies have actually emerged as a business. The National Biscuit Company, Nabisco- Dave Young: 1920s. Stephen Semple: … yeah, has been a top seller for the last 20 years with their Oreo, mainly bought in stores, not made at home. Basically, to really understand the birth, we’ve got to go back to Whitman, Massachusetts, to Ruth Wakefield, who taught Home Ec, and she was also college-educated and she was interested in cooking. Ruth, her husband Ken, quit their job, invest their life savings into converting a 19th-century old home into a restaurant. They want to create a restaurant of their dreams, has these seven tables, doing traditional New England food, even has a kid’s menu with a dessert menu, but by the time they open the doors, it’s 1930. They’ve invested two years in doing this. Dave Young: Oh, no. And? Stephen Semple: And they’re down to their last few dollars. Now, they had picked a location with lots of traffic. They had picked a location that was basically where wealthy people traveled from Boston to Cape Cod and went through this area. They called the restaurant the Toll House. Now, because it was located on an old toll road, it was not the toll building, but it was located on an old toll road. Dave Young: Sure. Stephen Semple: Things started slow, but word got out and it started to get busy and they were known for their desserts, including the simplest. They did this butter pecan cookie that came with ice cream. Soon, customers are requesting the cookie without the ice cream. So they add cookies, they add these cookies as a standalone dessert. It’s 1935. It’s Labor Day. It’s the end of season. They’ve got lots of cash. They’ve done really well, and they are robbed. Dave Young: Oh, no. Stephen Semple: All their money is gone. They’re now at this crisis point because they’re the end of the season- Dave Young: Were they keeping all their money in a cookie jar? Stephen Semple: Perhaps. Basically, it’s the end of the season, they have no money, and they need to make something that is affordable, but it won’t cost much to make so they can create cash. They start with the butter pecan cookie, but then, she has this idea of a chocolate cookie. Dave Young: Yeah, pecans are expensive. Stephen Semple: Right, right. So Ruth says, “Okay, here’s what I’m going to do. I’m going to take a baker’s chocolate bar. I’m going to cut it up and add it to this cookie.” That was the idea. Now, they’re made out of baker’s chocolate, which is unsweetened, and it didn’t work out so well, and so they then started taking a Nestle semi-sweet bar and they took basically an ice pick to that and chip it away and let small pieces into it, which then created this sweetness without it being overly sweet. Dave Young: Yeah, because you’ve got the sweetness of the sugar and the dough and all of that working for you, too. Stephen Semple: Yeah, and they called them chocolate crunch cookies. Dave Young: Chocolate crunch cookies. Stephen Semple: Because remember it was the pecan. They were still a pecan with the chocolate chips. Dave Young: Oh, okay. Stephen Semple: And people started asking for the recipe. In fact, Boston Globe newspaper published the recipe and the recipe went crazy. Now- Dave Young: Sure. Stephen Semple: … enter Edouard Muller, who’s the Nestle CEO, and he’s in the US office. Sales are down 60% because war breaks out in Europe, not down in the US, but he wants to break into the US market because the US market is small for them at that point. He sees this sales spike in the Northeast. He’s like, “There’s this 500% increase in sales around Whitman, Massachusetts area.” Dave Young: Of Nestle chocolate. Stephen Semple: Right. He’s like, “What’s going on with that?” So he approaches them about buying the rights for the recipe. Dave Young: Okay. Didn’t know you could do that, but sure. Stephen Semple: Well, and in many ways, one could argue it was published by the newspaper, so it was in public domain, but he approaches them and he says, “Look, I want the rights to this recipe.” They pay her a dollar for it, plus hire her as a consultant, publish the recipe on the package and share the name of the restaurant so it also promotes the restaurant. That’s the deal they cut. Dave Young: Toll House. Yeah. Okay. Stephen Semple: Nestle changes how their bar is made, making it easier to cut up, and they rebrand and sales drop. Dave Young: Sales dropped? Stephen Semple: Yeah. Because what they find is the texture’s all wrong, people can’t break it along the lines of the bar and all this other stuff. So they have this crazy idea: why not just sell the broken pieces? Dave Young: Sure. Stephen Semple: And they start off calling them Nestle Toll House Morsels. Dave Young: Yeah, brilliant. Stephen Semple: The other thing he does is he gets it out of the candy aisle and puts it in the baking aisle. Because that was the other problem is it was sitting in the candy aisle. Dave Young: It’s where it belongs. Yeah. Stephen Semple: Put it in the baking aisle. Sales soar. Now remember the story of Ruth chipping off the chocolate? So why’d they call them morsels? People, because they knew the story, were calling them chips. Dave Young: Chips. Chocolate chips. Stephen Semple: Right. Now global sales in Nestle in 1945 rise 125% to 225 million, which would be about four billion today. During the war, they advertise, “Bake for your soldiers overseas,” and offer this as a recipe. Now, following World War II, we come into the convenience age and we have the new Nestle CEO, Carl Abegg, who does pre-made cookie doughs, and he launches those in 1955. And here’s the thing. When we talked about this as being the birth of the chocolate chip cookie, up until 1950, the bestselling cookie was Oreo. Dave Young: Really? Okay. Stephen Semple: Yeah. 1955, Oreo is no longer the favorite cookie that has been for decades, is now the chocolate chip cookie. Dave Young: In a package like Chips Ahoy or something? Stephen Semple: Yeah. Well, just like chocolate chip… Yeah, just basically that ends up becoming the category. Dave Young: But you couldn’t make Oreos. Stephen Semple: Well, that’s true. That’s true. But the point is, it starts to shift. Now Nabisco starts to also want to enter the race with something new. Lee Bickmore wants to get into this game, but now not with a prepackaged chocolate chip cookie. The problem was, how do you make something shelf-stable, can’t use eggs and butter, they are hard and not chewy but they still taste good, they’re crispy rather than chewy? He does this test market with children and parents, and they also remove the nuts from the original recipe. So now what they’ve got is they’ve got this hard, crispy cookie with no nuts in it, and they decide to package that up. Well, what’s a great fun name to put on it? Chips Ahoy. Dave Young: Chips Ahoy. Yeah. Stephen Semple: Right? Fun way to emphasize a large number of chocolate chips. Dave Young: And it’s all chips. Yeah. Stephen Semple: Yeah. They advertise on kids’ shows and magazines. They have a cookie man as the character, and they advertise there’s 16 chips in it. Dave Young: So kids are breaking them apart, counting them. Stephen Semple: Yeah. That was Nabisco entering the race, and then basically Nestle does these attack ads saying the real Toll House cookie needs to be baked at home, and so this whole chocolate chip cookie war happens. But the part I wanted to talk about on this was what I thought was really interesting was the evolution of this idea of a chocolate chip. Dave Young: Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this. [Using Stories To Sell Ad] Dave Young: Let’s pick up our story where we left off, and trust me, you haven’t missed a thing. Stephen Semple: What I thought was really interesting was the evolution of this idea of a chocolate chip. It came from this person having this restaurant, making the desserts, hit this point where, holy smokes, we’ve got to come up with something that is small-priced, that we can easily make, that we can create some cash, and she just decides, “Well, I’m just going to hack some stuff off of this bar of chocolate.

    20 min
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About

Reverse engineering the success of established business empires.

Information

  • Creator
    Stephen Semple and David Young
  • Years Active
    2021 - 2026
  • Episodes
    246
  • Rating
    Explicit
  • Copyright
    © The Empire Builders Podcast
  • Show Website
    The Empire Builders Podcast

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