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The HaBO Village Podcast

Could a Business like an In-N-Out Burger Start and Succeed in Today's World? [Podcast]

Episode 159: Michael and Kathryn take you on a ride into a thought experiment where they debate on whether or not they think a business like an In-N-Out Burger could survive and thrive if it started in today's world. Humor and hypotheses abound in this fun and relevant dialogue about niche markets!

aiming for your goal

 

In This Episode You Will...

  • Discover Michael and Kathryn's love of strawberry milkshakes.

  • Find out how In-N-Out Burger started and what's unique about their business model.

  • Uncover what it means to niche down in your industry so you can scale your business.

“The argument that still holds weight is that you have to find an audience that you can afford to advertise to. So if there's 20 million people in the market, even so, I still have to narrow that if I'm going to launch a company and make some kind of dent. So from a marketing perspective, you HAVE to narrow or you can't afford to grow."

- Kathryn Redman

 

21 point vision checklist

References:

 

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Michael:
              Hello, and welcome to the HaBO Village podcast. I'm Michael Redman.


Kathryn:
               And I'm Kathryn Redman.



Michael:
              This is the podcast that is built for you small and medium-sized business owners who are looking to build companies that you love being a part of, and then have a profitable, successful thing. We talk about great culture and cashflow. We talk about Passion and Provision. It's a bunch of different ways to say, "Do you like your job? Do you enjoy the company, and is it doing well and thriving?" And on top of it, if it's doing that, is it an opportunity for you to build your unique purpose and contribution in the world as a leader?



Michael:
              That's a powerful thing, and it's something we don't always talk about. And that's what we built this podcast for, is to talk about those things, encourage you, give you tips, and then just let you in on some conversation. Today, we're going to to let you in on a little bit of conversation, and here's what I want you to imagine. I want you to imagine that you're hanging out in the car with us. We're driving down the road. We're on a road trip. So, things are just conversations coming and conversations going. And there's a bit of a lull in the conversation.


Kathryn:
               I'm driving because he's talking.



Michael:
              Kathryn often drives because I'm often talking.


Kathryn:
               Because he has a lot of words and I need something to do while he speaks a lot.



Michael:
              And here's the thought that I want to talk about, because this is the type of questions... It's a pondering, we'd call it. Here's the question. It's out of nowhere, hopefully. Is today's world a world where an In-N-Out Burger could still exist? Could somebody start something as simple and as clean and as lean as an In-N-Out Burger now?


Kathryn:
               Okay. And have it survive, right?



Michael:
              And have it survive. Now, for those people who don't know what In-N-Out Burger is-


Kathryn:
               Yeah. So, In-N-Out Burger-



Michael:
              ... God help your soul.


Kathryn:
               Yeah. We're so sorry for you. We're sorry for your loss. So, In-N-Out Burger west coast started in Southern California and was-



Michael:
              It was in the '50s.


Kathryn:
               Yeah. And literally was in-



Michael:
              Maybe earlier.


Kathryn:
               ... Southern California forever. I mean, when we were down there. When we moved north, it was like, "No more In-N-Out. So sad." And then eventually it moved north. And so it's a little bit more spread now.



Michael:
              It's a burger joint, for those of you don't know. It for years was literally just a drive in where you drove in, you drove out. That's the in and out. They didn't have any dining rooms. They didn't have any tables. The menu is very simple. You have burgers, cheeseburgers. You can get a single. You can get a double.


Kathryn:
               You can get a double-double.



Michael:
              What's a double-double?


Kathryn:
               That's double cheese, double burger.



Michael:
              Right. And they have a bit of a secret menu now that people get used to. But the reality is their menu is very simple. They don't have-


Kathryn:
               Yeah. Sodas and milkshakes and burgers.



Michael:
              And fries.


Kathryn:
               That's it. And fries.



Michael:
              And they don't have onion rings?


Kathryn:
               No onion rings.



Michael:
              They don't have chicken sandwiches?


Kathryn:
               No.



Michael:
              They haven't expanded into, "Hey, we could get more customers if we did this or did that." They have one type of bun they use, or they'll do a lettuce wrap in today's market. But they only do the lettuce wrap because they had the lettuce and all they're doing is leaving the bun off.


Kathryn:
               Yeah. It wasn't exactly having to change their model.



Michael:
              And there are little things you can get periodically, but for the most part-


Kathryn:
               You can grill the onions. That's a special thing, right?



Michael:
              But other than that, it's very, very simple. And I found myself, we were doing an interview with another consultant and we were just talking about the business of what it's like to help small and medium-sized business leaders through their challenges. And this thought occurred to me. Is it even possible? Because we talk about so often in the business world, what does it look like to be niche? And the more you niche, the better. There's the book, Blue Oceans, that is really a very high-level, educated, deep discussion about the issue of being in a competitive market, red oceans, versus finding a niche in a niche in a niche where there's nobody's there, so it's a blue ocean.


Kathryn:
               Well, and within that niche, part of the conversation and the thing that you're asking, I think, is, "Okay, within that, if you're in a niche, how much do you adapt to various customers needs?" Which means creating custom approaches, right? So, you have a product or you have a service and then suddenly somebody comes in and they want it done just slightly differently. Do you do that? Or are you In-N-Out, right? Because even the larger, staying with the fast food analogy, even though the larger McDonald's, Burger king, Wendy's, all those folks, they're constantly adding things or changing things. There's the McRib. They have seasons. They're adjusting their menu. They've expanded their menu over the years.



Michael:
              They're playing a little bit with it.


Kathryn:
               They're playing. They're testing.



Michael:
              But even McDonald's, I mean, how much of their menu has changed since we were 10?


Kathryn:
               Well, there's a part of it that's been consistent always, right? It's just like, you got the Big Mac, you got the cheeseburger, you got the Junior. No, that was Burger King. Sorry. I worked there.



Michael:
              The Junior Whopper over there, with the-


Kathryn:
               The Whopper or the Whopper Junior.



Michael:
              And you had the Fishwich.


Kathryn:
               Or, well, the Filet-O-Fish at McDonald's.



Michael:
              The Filet-O-Fish.


Kathryn:
               Right.



Michael:
              Which you still can get a Filet-O-Fish.


Kathryn:
               Absolutely.



Michael:
              You can still get a Big Mac. You can still get a hamburger or a cheeseburger. You could still get the fries. You still can't get onion rings at McDonald's. And then occasionally they throw these things on. One of the things that's been an interesting pattern for McDonald's is that the McRibs isn't on the menu all the time.


Kathryn:
               No. And then they make a big deal out of it. They bring it back and then they take it away again.



Michael:
              Yeah, it's gone. But-


Kathryn:
               It's a scarcity model.



Michael:
              Well, and it probably allows them to test a single thing, I don't know this for sure, but test a single thing to see if it's going to work. And then if it does, potentially bring it back at some point. But-


Kathryn:
               The point being, their model allows for some of that. Whereas the In-N-Out is like, "This is our menu. Take it or leave it. If you don't like it, don't come."



Michael:
              Well, and I'd say McDonald's, if you looked at McDonald's, my guesstimate is that less than 5% of their menu, less than 10% of their-


Kathryn:
               Changes.



Michael:
              ... menu max, changes. 90% of their business is the same as it's always been. How many different flavors of shakes can you get at McDonald's?


Kathryn:
               Three.



Michael:
              How many different flavors of-


Kathryn:
               The best one's strawberry.



Michael:
              How many different flavors can you get and In-N-Out?


Kathryn:
               Three.



Michael:
              Three.


Kathryn:
               And the best is strawberry.



Michael:
              And the best is strawberry. The other thing that's very interesting to me is In-N-Out Burgers has, and McDonald's both, have always been Coca-Cola brand companies. Neither one of them are Pepsi houses. That's an interesting-


Kathryn:
               Burger King's a Pepsi house.



Michael:
              Yes. Burger King is a Pepsi house. So, you have these things that are consistent. Very interesting. And then in the middle of the conversation, here's the other thing. You had... McDonald's didn't start until the, I think it was the '50s? No. It might've been the '40s or '50s when Ray Kroc came in. I want to say it was post-war, where Ray Kroc found a McDonald's in Southern California and then started building it from there. Somebody listening to us may correct us. That's great. I welcome that.


Kathryn:
               Yeah, please do.



Michael:
              Because I'm not looking that up right now. It's just coming off the top of my mind. But that whole story of Ray Kroc finding these guys, I think this is the McDonald brothers, and buying that whole thing from them eventually in a nasty way, from what I understand, but the idea of going, "I'm going to franchise and we're going to duplicate something that's very simple and consistent and regular." In today's world, this is why I'm asking this. I'm like, "We talk about this. There are books written about niching and staying very narrow and consistent and finding your thing. Is it still possible in today's world? Has it gotten too complex?"


Kathryn:
               Are you asking because part of it is people-



Michael:
              I'm wondering if it's bad advice.


Kathryn:
               Well, so people wanting choice, right? So, we live in a world where there's choice everywhere. Sometimes there's too much choice and it absolutely paralyzes us. But the idea that there are no options on things, would that be something that would potentially cripple your business versus something that would actually be helpful? Because it's not complex. It's simple. It's easy to replicate.



Michael:
              Yeah. Is there enough customer base to do this stuff? Could you find enough people? Because they're like, "Well, I want onion rings so I go somewhere else. I want blueberry shakes so I'm going to go somewhere else." Because the argument for having a niche and staying simple and straightforward and aligning to that and not getting crazy, it feels like a counterintuitive piece of advice. But there's tons of books about it and there's tons of people and we all talk about it. And yet we've sort of done that with Half a Bubble Out. Although it's harder for us to describe our niche to people who are very tangible because our niche is this really a small and medium-sized companies that have a certain value structure. They have a certain perspective about what business is, and they have a certain set of values.



Michael:
              We're not talking about whether you should walk down the right side of the street or the left side of the street. But they value relationships. They value people. They want to see if they can build something better. They love business. And then they're also really going, "I want to be relational and I'm not willing to build a business that's not relational." Those are key aspects of people who go. "And then I want to serve people. I actually want to serve people. So, how do I grow a company and do all those things?" That's our sweet spot. That's our niche. And really, it's amazing how often, maybe, people say they serve that, but they really don't. And then we have a hay business where I think about our hay business on a regular basis.



Michael:
              And then for those of you who are new, Kathryn and I have spent 19 years in our marketing and consulting firm and leadership development firm. And we love that and that's grown and we've got a great staff and everything else. But several years ago we started a completely different company in the e-commerce and retail space for serving people with pet rabbits, chinchillas, and guinea pigs. Talk about a niche. I mean-


Kathryn:
               Bunnies, chinnies, and piggies.



Michael:
              I mean, in the pet industry, if you talk about niches in the pet industry, you've got all these different sectors. And dogs and cats make up a huge, I mean, the vast majority of the target markets.


Kathryn:
               Yeah. We sell on chewy.com and I'm always a little bitter when I see their commercials and their postcards. Because I'm like, "When are you going to put a bunny rabbit on there, huh? Huh?"



Michael:
              Well, yeah, but then you think the next category down, when you look at all the segmentations of the pet market, it's small pets. And in small pets are everything that's probably under five or 10 pounds. So, literally we're talking all the varieties of birds. We're talking all the varieties of reptiles. We're talking-


Kathryn:
               Hamsters and mices and-



Michael:
              And all that stuff, right?


Kathryn:
               Yeah.



Michael:
              And hamsters and mice and rats, they're more of an annoyance than they are a pet, but some people have them as pets.


Kathryn:
               You know what? There might be someone listening who's like, "Hey, hey, hey. Don't pick on my pet rat."



Michael:
              Yeah, but they're not common.


Kathryn:
               They're not common.



Michael:
              My point is that they're very, very, very small. Hamsters have gone through seasons where they're really popular, but then you have these rabbits, chinchillas and guinea pigs. And actually rabbits are a bigger part of the market than chinchillas and guinea pigs. But they're so small that that small pet market is less than 5% of all people who own pets own these small pets. And then a subset of that, a small subset of that, are people who own rabbits. Because way more people own hamsters or some kind of rodent or birds than they do... Reptiles are probably smaller than rabbits. But when you're talking about pets, okay, what are we doing, now if you own a reptile, you need mice. But for a different reason.


Kathryn:
               Oh, shh. Don't be. Mm-mm (negative). No.



Michael:
              Okay. Okay.


Kathryn:
               This is not that podcast.



Michael:
              We digress. I digress.


Kathryn:
               You digress.



Michael:
              Going back to, I mean, the reason I'm going down this rabbit trail is because it illustrates niching. This is what we did. And we literally sell hay and pellets and bedding for rabbits. That's all we sell and that's all we've sold. And we have continually grown the company. At a minimum I think our lowest growth year ever was 35%. Most of the time we're above 75% a year growth.


Kathryn:
               Sure. But even within that niche, we still are like, "Do we need to add this particular product that bunny owners want? Do we need to sell cages? Do we need to do this and that?" And the reality is, and this is just true in businesses, every time you add a product, A. you add complexity and B. launching a product is costly.



Michael:
              Right. But then the general consensus, I don't know if it's the normal logic or the normal common logic and there's a term for it, I don't know what it is, that is if you really want to grow your company, grow SKU. Don't try and grow your market share, or you're going to grow your market share by SKUs. But you have to either way., there's a common mentality that says, "If you're going to grow your company, you have to add SKUs. Because at some point you're never going to grow that product line beyond whatever it is." Purina is still, in my mind, a dog food company with other food. Yes, they sell cat food. But I would say Purina is primarily, I mean, they're... And now I'd be curious to know this for sure.


Kathryn:
               All I can hear is, "Chow, chow, chow." I just remember those commercials.



Michael:
              And now the dog food industry has just splintered.


Kathryn:
               Has gone bonkers.



Michael:
              There's so many-


Kathryn:
               Golly.



Michael:
              ... little micro brands. It's just like the beer industry-


Kathryn:
               Yeah, it's gone bonkers.



Michael:
              ... right? It's all these little groups and all these little companies. And I think there's a niche for people who want healthy food to feed to their small pet. They're a small dog. They're a lap dog who is going to be, oh, gluten-free and need GMO because they're dogs. It's better for them.


Kathryn:
               Well, yeah. I mean, they're going to restaurants with me now. We have to feed them organically. I mean, come on. It's very important.



Michael:
              Oh yeah, yeah. And you get all this. I mean, come on. You get this place. It's just insane. Except there are companies going into these little niches that are doing it. Back to the original question. When you look at this, when you look at the world today, are we so fractionalized in our markets that saying, "You need to niche and niche down tight, and there really are enough people there, and you really could grow a company in today's world that rivals a McDonald's or an In-N-Out Burger with such a simple menu..." Maybe that's the question that's even easier to tangible is, could a company just make a burger, fries, three shakes, and some sodas, and actually survive in this world and thrive? I mean, really grow. In-N-Out was for so long in Southern California. And then in the '80s, it started to move, late '80s, early '90s, started to move up California a little bit. And then at some point they moved to Las Vegas to defend their national-


Kathryn:
               Their copy or their trademark.



Michael:
              Their trademark. Right.


Kathryn:
               Their copyright.



Michael:
              Because they had to get it. They had to be in business in two states, right? So, they opened in Vegas and now they're in multiple places around the country. Five Guys Burgers-


Kathryn:
               I was just thinking about Five Guys. Because I don't know Five Guys menu.



Michael:
              Yeah. It's-


Kathryn:
               So I'm like, "Is Five Guys an example of that?" But I don't know.



Michael:
              Five Guys is a really simple menu, too. And they grew from the east coast west, right? But again, Five Guys didn't start 10 years ago. In-N-Out didn't start 10 years ago. McDonald's and Burger King didn't start 10 years ago. Is there an example? And I'm finding myself thinking, "Is this good advice in today's world?" Or can, when somebody says... Because the pushback against niching is always, "There's not enough customers." I'd rather go after a market of 10 million people or 20 million people or whatever, then to go after a group of people that, I mean, they want more. And my gut... What does your gut say?


Kathryn:
               Well, my gut says that emotionally, we always want the market to be... I mean, how many times has somebody come in and we've said, "Well, who's your market?" And they're like, "Anyone who will pay money," right?



Michael:
              Right, right, right.


Kathryn:
               So, I mean the argument, which I think still holds weight for logic, is that you have to be able to find an audience that you can afford to pitch to, to advertise to, to market to, right?



Michael:
              Yeah, yeah.


Kathryn:
               So, if there's 20 million people in the market, even if there is, I still have to find out how to narrow that if I'm going to launch a company and make a dent, right? So, I think from a marketing perspective, I think you have to narrow or you can't afford to grow, right? So, there's that. And then the other thing is that there's so many choices in the world. So, I don't know, in fast food, if you could start a company today that would rival an In-N-Out or a McDonald's or a Five Guys or whatever. I have no idea.


Kathryn:
               From a business perspective, I think it's still good advice that you have to think small if you're starting something. Because even if the potential is big, you can't get to that potential unless you nail something small, right? There's a growth. It's like dropping a stone in water and watching the ripples go out, right? If you throw the stone and it hits dry land, you're not going to get any effect. So, I mean, my gut says, and you didn't even warn me about this conversation so I haven't even had chance to think-



Michael:
              Actually, intentionally I didn't tell you.


Kathryn:
               But my gut says that it's still good advice to focus and to think smaller as you're starting. And then as you can afford to, you can expand the market, right? Or expand the product line or whatever, depending if your service or product-based, as you can afford to. And as you can manage the complexity that adding product or service brings, then you can do that. So, that's still my gut response to it.



Michael:
              That's very interesting.


Kathryn:
               I always wonder, by the way, if you're listening, I always wonder when Michael launches these thought experiments, I'm always like, "Is this actually a conversation and a thought experiment, or have you already come to a conclusion and you're just seeing if I'll arrive at the same place?"



Michael:
              Why is it that so many people think that about me?


Kathryn:
               Well, because you think really quickly, so often when you have thought of something, right? You have already ran it out to its implication and you have at least an initial settle point and then you want to have a conversation. So, that's why. It's not a bad thing.



Michael:
              I know, but I mean, you and I have been together a couple of days.


Kathryn:
               A minute or two.



Michael:
              A minute or two. You know that a lot of times, yes, I've thought a bit. But if I've come to a conclusion, I no longer have curiosity. I don't know if that's ever been said out loud. If I've come to a conclusion where I believe something is to be, this is the way it is. I have settled on an opinion. My curiosity, that's the moment when my curiosity comes to the end of the trail. I've gone down that trail, that bunny rabbit trail, that rabbit trail, and all of a sudden it's like, "Well, no, it came to an end. It reached its destination. There was nowhere else to go." So, my next curiosity may be, "Did I come to the right conclusion?"


Kathryn:
               Right. Because there's the sense of, "Let me test this conclusion."



Michael:
              Yeah. Because now I'm testing it. But that's-


Kathryn:
               That's different.



Michael:
              If I'm still testing it, then I ran a thought experiment out. I'm not confident that the thought experiment went in the right direction-


Kathryn:
               Or reached the right conclusion.



Michael:
              ... missed something or reached the right conclusions. Because quite frankly, because so often, I mean, this is one of my beefs with people talking about market research and going into market research and choosing a business. I've literally had conversations with people who say, "There is no way you could know if a market is going to be a better market than another market, or a group of people are going to be a better customer for this service than another." And I'm like, "I totally disagree, because you can do enough market research to at least give you some probabilities over other ideas." Like, "This idea, everybody thinks sucks and nobody's interested in it. This idea, there are people who are like, 'Oh yeah, you're solving...' They have a clear problem and you could solve that problem. Versus these people over here, they have no problem. You're trying to give them a product that doesn't meet a need."



Michael:
              So, I think you can. I think this kind of thing is worthy of the conversation and you just go, "Where do we land?" I think at the end of this conversation where I still am is, I'm with you. I still believe that niching is a really good idea in today's world, whether you are starting a company or whether you're trying to figure out how to grow your company. Because sometimes a seven figure company, the way to go from one million to two million in low sevens or from wherever you are, seven figures to eight figures and maybe nine figures, is really to figure out how to niche at some level and go, "This is the market we share. This is the market we target. This is our specialty," and then go from there.


Kathryn:
               Well, and then really being able to, within that, articulate... Because no matter what niche is these days, it's likely that you're not going to be in it completely alone, right? Because if you are-



Michael:
              Well, you don't want to be in it completely alone.


Kathryn:
               ... you don't want to be, right? So, part of it then is how do I also, within that niche, differentiate how it is that what I do or how I do it is at least somewhat unique? What's my significant difference? What's the thing that I am offering that makes me stand out from other people who are offering something similar?



Michael:
              Yes. So, I think where I'm landing right now in the midst of this is, yes, it's still a good idea to niche. You can niche well or you can niche poorly. It's not just niche or don't niche. There's a skill set to it. There's a process to doing it well. And a timeline. You still can't expect to grow faster than the market will allow. There's a realistic place. Your company starts to come apart if you go too fast and the size isn't there and you don't have the momentum and everything else. It just rips apart. So, you've got to be patient enough. I think that's what happened with In-N-Out, McDonald's. They become these large companies. And In-N-Out, I think reached a point where there was so much pressure on them to grow outside of Southern California, that there was market share of people who actually really did want them. So, they expanded into a outcry of demand that was created by people going In-N-Out of Southern California and-


Kathryn:
               Going, "Why can't I get this?"



Michael:
              ... then, "Why can't I get this at home?"


Kathryn:
               "I can't stand it." Yeah. "I can't have my last In-N-Out be at the grapevine anymore."



Michael:
              Yeah. And the argument-


Kathryn:
               "I need it."



Michael:
              And one of the arguments to being careful was yes, but once those people have you in their backyard, they will be bored and they will not come back. And every In-N-Out that I've ever seen outside of Southern California, including our town for over the last 10 or 15 years, on a regular basis we can drive down the freeway on almost any evening around dinner time and see a line of cars that are out of the parking lot and down the street waiting to get their food.


Kathryn:
               Yeah. Well, so, which is interesting because part of it would be our diet, but we stopped going as often when it came here.



Michael:
              And quite frankly, that didn't slow their business down.


Kathryn:
               It did not. We did not slow their business down. But we were what you would be afraid of, right?



Michael:
              Right.


Kathryn:
               Like, "Now I can get it, so there's nothing driving my need anymore. There's no urgency."



Michael:
              And we want to be healthier. So, there's people like that. There are reasons like that in every market, right?


Kathryn:
               Yeah.



Michael:
              "Oh, I can get that." Or, "Oh, there's a trend moving away," like healthy eating, and, "Our wastelands are expanding and we didn't like it."


Kathryn:
               Speak for yourself.



Michael:
              So, I think that's where I'm going to land right now on this discussion is, I think I'm comfortable with, yeah, at the moment it's still important. And can an In-N-Out or a McDonald's start in a market like we have in the United States today and thrive and grow? Yeah. I think it's still possible. I think it's still possible because we started Rabbit Hole Hay in 2012 and we're doing that and we're growing. We can't grow 10X every year. We have never been able to grow 2X every year. Well, except in a couple of the early years when you make two bucks it's-


Kathryn:
               It's easier to make four.



Michael:
              Yeah. So, I think that's a reality. I think it's a good thing. And I think that's helpful for me. If anything else, hopefully speaking to you, the folks that are listening today, why pay attention to this? This is what happens in our world, in our office, in the car, with friends, some nights over a whiskey, we ask these questions. These are the people we hang out with, where these questions just come up. And we're just like, "I want to know. I'm curious. And I'm trying to solve an answer that isn't critical at the moment, but is relevant to our world."


Kathryn:
               You're mot trying to solve an answer. You're trying to solve a question.



Michael:
              Well, that too. Yes. That is very true.


Kathryn:
               And I'm there just to correct your English. That's my job.



Michael:
              So, hopefully this conversation has been of somewhat interest to you. If you have any thoughts or any input on this, we would love to hear it on our show notes page at halfabubbleout.com. Go to the podcast and find this on whatever we end up titling this podcast.


Kathryn:
               Yeah, and you may have some samples. I'm thinking like, "Is Mod Pizza?" They have a interesting simplistic form, and I-



Michael:
              They're pretty niche.


Kathryn:
               Anyway-



Michael:
              There might be more of those.


Kathryn:
               There might be things that we're not thinking of right now.



Michael:
              Yeah. I'd love to hear examples and everything else. So, we hope this has been entertaining. We hope this has been thought-provoking for you as you listened to the ponderings that we have and how we do it and talk through it. And we'll have more of these ponderings on the podcast. So, for us today, I'm Michael Redman.


Kathryn:
               I'm Kathryn Redman.



Michael:
              This is the HaBO Village podcast. Thanks for listening. Have a great week. Let us know your thoughts. Talk to you later.


Kathryn:
               Bye.