“Call it A/B testing — it’s a nice way to try things on an experimental basis and to measure the results, but not suffer huge consequences if it’s not successful,” said Pace’s Clinical Professor Bruce Bachenheimer in a recent interview about, of all things, breadsticks!
Investor Starboard Value managed to turn around Olive Garden’s fortunes by focusing on small details like the restaurant chain’s breadsticks. Here’s why that approach is a lot more strategic than it sounds:
When the activist investment firm Starboard Value took control of Olive Garden in 2014, many of its plans to salvage the then-foundering restaurant chain’s fortunes were considered somewhat ridiculous.
Among its solutions for Olive Garden, which at the time was hemorrhaging a reported$75 million a year on what Starboard considered nonessential items, was eliminating the company’s bottomless breadstick policy. While the breadsticks were widely beloved by customers, Starboard reasoned the free bread filled up patrons, who would then skimp on money-making appetizers.
As The Wall Street Journal reported Tuesday, the breadstick strategy has really paid off. The company’s stock is up 47 percent since Starboard’s changes–which also included spinning off the chain’s real estate–and year-over-year sales at existing Olive Garden locations have increased for six straight quarters.
While Olive Garden is a giant chain, its lessons could be instructive to small business owners. Namely, you should indeed sweat the small stuff, because even minor details akin to a free bread policy can make a big difference to your bottom line.
“When you talk about a company or an industry with very thin margins, tiny changes can have an enormous impact,” says Bruce Bachenheimer, a clinical professor of management at Pace University.
The history of business is filled with second chances stemming from minor changes. Many years ago, the company that produces Angostura bitters doubled its sales by widening the size of its bottle opening, which caused consumers to pour more into their drinks, Bachenheimer says. Similarly, some gyms have gotten a revenue boost in recent years simply by adding kettlebells, which tend to appeal to a wider spectrum of gym-goers than traditional dumbbells.
A word of caution, though: Tweaks can work both ways. A few years ago, for example, Procter & Gamble and other detergent manufacturers saw sales shrink following the introduction of detergent pods, which dispense measured doses of washing detergent. The reason? Consumers tend to use more detergent when left to assess their soap needs for themselves.
All of which is to say, you should be testing changes to your products and services on a regular basis to improve how your customers perceive you, or to improve efficiencies, such as in the Olive Garden example. Just make sure, as business consultant and author Jim Collins articulates in his book How the Mighty Fall and Why Some Companies Never Give In, that you don’t make changes that could permanently damage your prospects.
Collins cites the idea from Bill Gore, founder of the company that makes Gore-Tex, that you should make changes “above the waterline.” Here’s what Gore has to say, as summed up by the author:
Think of being on a ship, and imagine that any decision gone bad will blow a hole in the side of the ship. If you blow a hole above the waterline (where the ship won’t take on water and possibly sink), you can patch the hole, learn from the experience, and sail on. But if you blow a hole below the waterline, you can find yourself facing gushers of water pouring in, pulling you toward the ocean floor. And if it’s a big enough hole, you might go down really fast, just like some of the financial firm catastrophes of 2008. To be clear, great enterprises do make big bets, but they avoid big bets that could blow holes below the waterline.
Test changes to products and price points with a limited set of customers, for example, and for a limited amount of time to see how it goes, experts say.