Drew Panayiotou, President and Managing Partner of Red Wagon at Chick-fil-A, spoke at 352 Inc.’s Enterprise Entrepreneurship Series (EES) event in April, 2018. In this talk, Drew shares how the organization continues the entrepreneurial spirit of Truett Cathy by identifying and creating new retail experiences that inspire families and communities outside the current Chick-fil-A operations.
In this video, you can expect to learn from Drew more about how those concepts are constructed, in addition to the latest exciting new retail experience being launched.
Geoff: My Name is Geoff Wilson. I am the founder of a company called 352. 352 is the company that created the Enterprise Entrepreneurship Series. The event series that you all are at today. We’ve been doing this now for a little bit over two years. The venue, you guys are at today is part of a monthly event series we’ve been doing to really promote corporate innovation in Atlanta; bringing together corporate innovators and those who support corporate innovation in our community together, to have a discussion with those who lead corporate innovation efforts in our community and we’ve got one of those discussions that’s going to take place today. This is going to be a wonderful session. I’m really glad that you guys chose to come. So my company 352, we’re one of those who supports corporate innovation in Atlanta. We’re a company based in Tech Square that works with a lot of fortune 1000 companies in Atlanta, to help take them out of innovation theory, and put them into innovation do mode through co-creation through methodologies such as designs sprints, rapid prototyping in customer studies.
And we’re excited to be putting this event on today, in conjunction with some wonderful partners. First of all the Metro Atlanta Chamber, who donated this wonderful space to us to be able to host this event today. I don’t know how many of you have had the opportunity to be up here before, but I’ve been up to couple meetings here and I was really excited about coming back and getting to use this space and taking in the absolutely amazing views of Atlanta. I wanted to give a special thank you to you today, a round of applause to the Metro Atlanta Chamber for hosting us.
And also helping us put on today’s event is the Highwire group, and you’re going to meet Alex Gonzalez who is the CEO of the Highwire Group, here in just a moment. But first I wanted to start by introducing our speaker. We have a fabulous speaker today, Drew Panayiotou, is from Chick-fil-A. He came to Chick-fil-A to lead the company’s new ventures an incubator group, about a little over a year ago, after three years as President and CEO of BBDO Atlanta. Prior that, he was the SVP of US marketing for Best Buy, really great position, in that role he lead all of US marketing functions for Best Buy and retail stores as well as bestbuy.com, which is the 12th largest e-commerce site in the US. He radically restructured the entire marketing organization making large shifts to digital media and leading one of the most sophisticated CRM and loyalty programs. He’s also developed a wealth of knowledge and insights from more than 20 years experience in a variety of marketing roles, with brands such as Johnson & Johnson, Kodak, Hershey’s, Dr Pepper, and Coca-Cola including leading the startup of the venturing merging brands group at Coca-Cola. And prior to joining that, prior to joining Best Buy, this is, this exciting post when I read this. He was the global marketing lead for Walt Disney Parks and Resorts, and personally having three kids under the age of seven, I appreciate the great marketing that they do. Much of which you probably set in motion there. He is a graduate of Boston College and also got an MBA from Duke University. So first of all welcome Drew thank you for being with us today.
Drew: Thank you.
Geoff: And Drew is going to be interviewed today by Alex Gonzalez. Alex Gonzalez many of you probably know, he’s a Corporate Innovation Strategy Brand and Culture Advisor, Speaker and Author. He has over 20 years experience in several fortune 500 and 1000 companies where he held a variety of Senior Executive Roles including Leading Global Strategy and Innovation functions, and running major divisions as an P&L leader. He’s currently the CEO of Highwire Group, a company focused on abling innovators in their companies to embrace transformative thinking and innovative fearlessly. He is also the producer and host of the new Disrupter Studio series. He’s actively involved with helping to grow the Atlanta innovation eco-system. He’s a board member here at the Metro Atlanta Chamber. And he works with a program called Innovation Connect, which links our region’s most senior innovation executives with a growing entrepreneurial ecosystems. So welcome Alex.
Alex: Thank you.
Geoff: Alex and Drew.
Alex: Thank you. Thanks Geoff and thanks again for letting us work with you on this wonderful, EES here today and Jennifer thanks for hosting us as well. And Drew nice to see you.
Drew: Nice to see you also.
Alex: So first of all, this is one of my favorite things to do here, in terms of, you know, part of my job is to work with companies growing innovation, and talk to great innovators. And here in Atlanta there’re so many incredible innovators. So many great innovation stories that are untold and I’m very excited today about today, cause you know we’re talking about your time at Red Wagon. I’m thinking we’re going to leave, I think you know certain perception today and you’re probably already amazed, and you’re going to be blown by the time we’re done and understand a bit more about Red Wagon.
But first of all let’s talk a little bit about you, and you talk about this incredible background. You have all these wonderful brands from BestBuy to Walt Disney, Johnson & Johnson. It seems like you were there to transform it at the time. So what’s kind of been your common thread or theme when you’re going into some of these big brands in advancing your career?
Drew: Yeah, no I would have to say change. I love it, I’m addicted to it. And it’s been interesting, cause I don’t know what it is, but I’ve always been attracted to jumping into dynamic environments. I think that’s the key thing. Everyone’s got the thing that motivates them. For me, it’s like jumping into big pots that are changing quickly. And it’s been the good bad and the ugly. I tell people you know, you know look at my resume I was the head of digital innovation for Kodak. I don’t know if that’s like a wonderful, crowning moment. But I learned a lot and took it to other places. But it’s been great to have that experience where things clearly did not work. It gave me a visibility into why companies struggle with innovation. And then I was at BestBuy and that’s been a great story. It’s one of the few companies that had really held its own and made progress with Amazon. I got a text yesterday when they announced their big partnership with Visa. So there’s been highs like that. And so it’s been interesting to see the forces that drive success versus those that don’t drive success.
Alex: And BestBuy was a company that, well you know probably at the same time that whole segment of retail was really under attack and certain cities were going under and so forth. We’ve seen some transformation time in the industry as well too. So you were at Coke, and so definitely tell us a little bit about that. Like if I really want to get into an element or segment that many people don’t know about, which is venturing brands, so that sort of experience there.
Drew: Yeah so at Coke I was the global VP of Sprite and Fanta, and literally got attacked one day by a man named Derek Van Rensburg. And he was basically asked by Muhtar to create a new business venture that would go after driving new beverage brands. And so as an employee I think there were two or three in that group. And it’s been a great success story. It’s I think over ten years old now and we built kind of the first, I’d say real successful incubating/innovation groups at the company. And I still, go back to it frequently I bring Dan Cathy my current boss over to look at the team and what they’ve done. And they’ve been able to create a lot of growth with brands like Honest Tea, Fairlife which is a big known brand, coconut water brand, just a whole slew of new beverages for Coca-Cola.
Alex: And how do you work with the kind of culture at some point? It seems like it’s something very different from the core. It’s kind of getting into what you’re really doing at Chick-fil-A. How do you kind of address that?
Drew: I’d say the biggest thing is embracing reality. And sometimes when people can embrace the reality of a situation, you can really innovate. So at Coke there are many examples of teams like this, that did not succeed. Innovation struggled, everyone remembers stories of Fruitopia and brands like this. And I think embracing the fact that Coke didn’t do the building of new brands well, it set up the model that it has now. Which is, partnering with entrepreneurs, not going to buy companies and then kind of plug them into the ecosystem. But partnering with entrepreneurs, leveraging the passion of entrepreneurs and investing in those companies, and then bringing them some benefits that you have from being a scaled organization. And then going on a ride, and letting them control their companies, letting them innovate. Because you have to have some humility to recognize that there’s something wonderful about entrepreneurs, and how they are passionate, how they grow businesses and brands. And that model has worked really well for Coke. But it required, I think the organization had a sense of humility and humbleness that you know, not everyone on North Avenue has the answer. Not everyone is a genius. And when you embrace that then you can move on. And I think that emotional state is an important one for companies if they’re going to grow and innovate. You have to get over that. “Hey, we’ve been doing it a certain way, we’re the smartest people in the room, and so if we’re going to innovate it’s going to happen from the inside out”. That’s typically not how big disruptive ideas get launched into the world.
Alex: It sounds like people are also misleading that segment has to have some corporate courage to help the company be patient as well too.
Drew: Yeah, yeah. I think it’s again just a…you have to carefully weave. Because the way that innovate requires emotional engagement, and how do you bring people along, and how do you maneuver around certain minefields in a large company is an art.
Alex: Absolutely. So let’s say hey and by the way you obviously spent some time at BBDO and you got a lot of other brands there. At some point, you got a call from Dan and, the Dan Cathy at Chick-fil-A. So we definitely want to dig into what is Red Wagon, cause again I would bet you that about 90 percent, that I’ll probably get wrong. What was the pitch to you to become Chick-Fil-A with this new thing?
Drew: Yeah, you know it was funny I had a chance to know Dan for a bit. He was a very non-traditional thinker. And when he first approached me about this, I’m like I’m the last person you need. You sell a lot of fried chicken and people love it. You open up a Chick-Fil-A anywhere and there’re lines out the door. You certainly don’t need Drew Panayiotou at Chick-Fil-A. And Dan had told me that he and the executive committee at Chick-Fil-A had read a book written by a man by the name of Vijay Govindarajan. He’s a Harvard-Dartmouth Professor, he wrote this book called the Three-Box Solution. And it’s a really good book. It’s one of the few books, there’s so many innovation books, but this is one of the few books I’d say is a must read.
Because it talks about the fact that there are different types of innovation. Innovation is a big, big word and there is box one which is in your core. And there are plenty of corporate innovation teams and they should continue to do what they do. Which is have a big gate process and manage risks and innovate in a very linear way, that’s all important stuff. Then there is you know box two, and that’s how you kind of get a little bit apart from you’re core business. Then there is box three, which is how do you create the future? How do you literally create growth that lasts for decades? And that is the kind of growth that really successful companies, like Amazon have done. Amazon is now a five-year-old company. They have magnificently found a way to build and create new businesses as Apple has done. And that is really, you know, I think what that book meant to Dan and the executive team at Chick-fil-A because they look at things generationally. They have you know, now a third generation, a fourth generation of Cathy family members, so they want to continue to grow and honor the entrepreneurial spirit of Truett Cathy and so after, (long story short) after the executive committee read this book, spoke to Vijay, they decided to establish a budget and create a box three effort. It wasn’t called Red Wagon. We named it after I took the job with Dan. But I think it was the fact that the executive committee invested the time. They committed a real budget to it. And Dan passionately convinced me that it meant a lot to him. And unless you have a mandate from a CEO, it’s almost impossible to do this kind of work. It has to be something that is a big part of the CEO’s agenda. You have to report it to the CEO. I report writing to Dan. And we have a real budget.
So I came onboard and we named it Red Wagon because Truett Cathy’s very first business was not selling chicken. He was selling Coke out of a wooden wagon. And that was his first business, and I learned later that when the weather got cooler, he pulled out magazines and he was selling magazines. He was the consummate entrepreneur. So Red Wagon really is about honoring his spirit, his very first business, and creating new companies.
Alex: And you know its interesting cause you talked before about innovation lineage seems like that’s important to the Cathy family, to Dan Cathy. And you know if you think about it and, what are some other examples of some companies that kind of starting to go down this particularly from the innovation lineage perspective.
Drew: It’s the companies that tend to have very strong I’d say person or private ownership group. You know it’s the Elon Musks, the Teslas, the Jeff Bezos, it’s the companies that have someone who’s not afraid to be daring. Dan is a very daring CEO. It’s having a profile of that kind of leader who’s not afraid to kind of step out of the box. Not afraid to have conversations with analysts around what they’re doing. So much of what kills innovation is the CFO discussion. The CFO discussion is a challenging one because most CFOs use, the first question is R.O.I. It’s very tough to innovate when you’re forced to come up with ideas that meet investment hurdle that’s based on big core business. That usually kills a lot of, a bunch of ideas, because a business that’s been scaled for a long time has a pretty good ROI. So if you’re using that metric, you might as well pack up the innovation team so you don’t have to do anything. So it’s getting out of that mindset that you have to have this high hurdle. Because if you’re doing true destructive innovation, you don’t know, you have no idea. You’re conducting experiments and…
Alex: You can let yourself be confused for a while.
Drew: Yeah you’re going to be confused for a while. And anyone can make a spreadsheet. But you know its real innovation here, you’re taking a lot of risks and making a lot of guesses, and responding to weak signals. So I think that’s something that Dan took away from this Three-Box Solution book, is that real disruptive innovation, you’re responding to weak signals. So by default, it’s not clear. So if the signal is weak, the P&L is not going to be clear. So that’s the first problem you have to attack, is get out of the mindset of traditional financial metrics.
Drew: And I would actually say that companies that innovate really well, have tremendously strong and creative financial leaders.
Drew: And that’s something that doesn’t get well publicized. You know usually the person who is building the stuff does. But behind a lot of that innovation, are people that are creative on the financial side.
Alex: And it seems like too, from the leadership perspective, talking about Dan Cathy being completely behind this, and really invested in this. But he’s still quite an operator.
Alex: So he’s really able to shift his brain when he needs to, to adapt to what he’s doing with his business. So it’s fantastic. So let’s talk about Red Wagon then. So it’s Red Wagon at Chick-fil-A, and you know obviously, so why don’t you tell us what it is, and how does it fit in the Chick-fil-A ecosystem relative to passion, and pinewood, kind of world that Dan is growing there.
Drew: Yeah it’s interesting. So PineWood is totally outside of Chick-fil-A. It’s a Dan Cathy plan initiative. I’m a different species, so I had a group, legal entity established in the Chick-fil-A enterprise. And our job is basically to create new companies. So we send inside of Chick-fil-A, you know we usee the same accounting systems, same HR systems. We have differences in how we incentivize people. But then we have total freedom to operate. So Red Wagon is this group, it’s an LLC actually within Chick-fil-A, and we have a budget that the company’s given to us. We use that budget to basically (you know) conduct experiments. And to go and look at the marketplace, and look for opportunities for next-generation retail. Dan believes that Chick-fil-A is in the experienced business, it goes far beyond a chicken sandwich. It falls in the retail realm. We have real estate, we have people, you’re selling something, people come to you, you take orders and Dan believes that understanding and knowing the store’s retail is important for his core business. And so our focus is creating new retail businesses. Experiential retail businesses, And if we’re successful, some of that capability could be brought back into the core. But we are about going out to the future and creating a new retail experience that doesn’t exist today.
Alex: And to be clear, so if it involves food and restaurant. You’re not touching it?
Drew: Not touching it.
Alex: Not touching it. So how do you know about…Well, first of all, let’s go back, it’s about retail experiences. What’s kind of that basis for experience? Because I think it is important for people to know. How Dan thinks about what really Chick-fil-A is. You’d say it’s an experienced company right?
Drew: Yeah, it is an experienced company. I always say this, and someone wise at Chick-fil-A is, somebody who spent a lot of time marketing. This person says marketing is the tax for a bad product or service. When I heard that at first, I went ha, wow. But I think it’s a lot of wisdom in it. Because if you have a great experience, and you have a great product. There is no reason you should ever discount it. And I’ve been part of organizations that had big promotional machines. Where they’re constantly putting out coupons and deals. You don’t need to do that if you actually get the innovation thing right. And Dan believes that people who come to Chick-fil-A, not just for great food but because it’s a great experience. It’s fast when you want it to be fast. The food is hot when it’s supposed to be hot. It’s clean. There’s a hospitality part of the experience, that’s very important. And so that’s why you don’t see a lot of you know deals going around at Chick-fil-A. I think that’s a great business principle. And I now look at couponing really differently. Because I do view it as a tax now. Because you should be taking some of that money and really investing it back into the core. I think that’s a great challenge for a CO, it’s like how much are you promoting. And if you’re promoting that much, what does that say about your product.
Alex: So then going after an experienced company. You’re going after next-generation retail. So I know this is almost an impossible question to answer but do define next generation retail. What is that or what is it not?
Drew: I think next generation retail is…I call it something that’s, I invented this I don’t think it’s in any press or book. But retail is a service, where people are literally paying more because of the service that you’re providing. That could mean I’m buying this widget. And I buy this widget at full price because the amazing experience and service that you’re giving to me, in buying that widget. Or could this be the fact that I’m doing something for you, and I’m providing a service and you’re willing to pay for it. So it is experiential in that you are paying for something that you can’t feel or touch necessarily. That’s either premium model product, or you’re paying for the service itself.
Alex: Right. And so what it probably is, if someone were to tell you well you know mobile order is next generation retail. You’re rationale is a little bit different than that.
Drew: Yeah, that will be, it has to be higher. I think critically coming from a Best Buy there are always terms that we started carrying around like omnichannel, how many times have you heard of that. You know, let’s have a website, talk to the stores. Let’s you know provide the ability for you to kind of, order online than in-store. These are all you know, good little steps. But next-generation retail is an experience where you fundamentally walk out, and you’re like wow I experienced something that I may not be able to describe. But something that drew a reaction from me, because it was amazing. For example, one thing that we’re working on is, when you step into a retail box, the environment should respond based on who you are. That’s next-generation retail. When what happens around you changes. Whether it’s the walls, the screens or the people that are coming up to you. They know who you are. They want to do something that is customized and personal for you, and that’s really different than having a mobile phone in your pocket and ordering online.
Alex: So it sounds as though some of what you and your teams are doing is almost challenging every assumption out there. First of all let me ask, so why not something beyond next-generation retail? Why not, let’s say to Chick-fil-A, let’s take on Google. Let’s kind of go beyond there. Let’s kind of anchor view of that.
Drew: Yeah, I think the wisdom in that. Part of that too came from Dan. Thinking about, there are systems in place at Chick-fil-A that are around retail. The real estate group, they have an understanding of retail finances. So there are some things you can take from the core. So why wouldn’t we start with the ability to leverage those things? And then long-term, the fact that Chick-fil-A could potentially benefit from one of the companies we create, makes retail, make a lot of sense.
Alex: So what I want you to do is have you kind of going in this whole area of how do you go after, kind of this next, next, but talk about interactions, give some practical interactions between Chick-fil-A. It’s a large organization, it’s doing extremely well, but you’re not immune from all the typical things you get in corporate. So what is it like telling the Red Wagon story internally? How do you work? Why do you want your own innovation center? How does that part go?
Drew: You know, it’s challenging. But almost the same experience that I had at Coca-Cola. So no company is unique. And every big company has an ecosystem. Every big company has an ecosystem. And the thing about ecosystems is they’re driven by humans. And humans have certain core things, one of them is self-preservation. We all want to preserve ourselves. We want to preserve something in our universe. And so when you create a far out group just like we did at Coke. Just like Red Wagon, the first thing is like ecosystem is like what is this thing, we don’t officially want it. It’s so different. We can’t explain it. We don’t understand it. It challenges our own reason to be. So that’s the response. And that response is consistent at any big company. Unlike Coke where we knew the business was starting to get a little soft. People weren’t drinking soft drinks like they used to. At Chick-fil-A, it’s even more pronounced. Because the company is widely successful, and change is really difficult in companies that are super successful. Because the case for change doesn’t exist. It doesn’t exist. And so you’re putting out a fire that no one sees. And that makes it incredibly tough, which is why it’s so important to me that Dan is so passionate about it. Because you could spend months and months trying to get those people internally to see the world differently. You may get a lot of Minnesota nice, when I was at Best Buy in Minneapolis, there was a term where people smiled. They almost look at you like “oh you poor little thing, nice to see you today”. You can get a lot of that. So you have to have a little bit of a thick skin. Because you shouldn’t be expecting people to understand it. You shouldn’t be expecting people internally to get it. That’s because it’s human nature for them not to.
Alex: And what it is, it isn’t just one can only imagine just, it’s not just internal. You talk about Dan who has such a passion for this. He’s publically gone out and talked about how Chick-fil-A will not become irrelevant under his watch, even if it’s 20 years from now it’s a big part of Red Wagon in particular. So it’s such a unique outline, I think having Dan with Chick-fil-A is doing quite well.
Drew: It is so unique. I think…
Alex: Also gets you a lot of attention too. Which could be good or bad
Drew: Yeah, that’s why sometimes I stay in hiding. It’s really unique because people like Dan who look at, what happens when you’re not around. And it is that mentality of constantly not being afraid to chart new ground because you know the world is going to change. Change is the concept. And there is not one business including the selling of chicken that will defy gravity. So one thing I believe in is Physics. Principles of Physics are true. And businesses don’t continue to grow forever. That never happens. I don’t know one business that’s grown forever and that in double-digit growth and has never stopped or slowed down. And that will happen to Chick-fil-A. It will happen to every company unless you’re really vigilant about breaking things and creating some tension. That’s why I’m a huge fan of Amazon. I mean they consistently go out and, they’re highly decentralized. And they go out and create new businesses, create new things. Look at their capabilities differently. I don’t think anyone would admit that it’s not like some brand roadmap. I don’t think Jeff Bezos has a roadmap that has 40 plays all mapped out. But he moves forward and then he pivots based on what he’s seeing. And I think the pivoting part is probably the most important thing for big companies. This tendon pivot, tendon change, tendon staying nimble, and that means the executive team needs to act more and willing.
Alex: It’s interesting you know to think about your team. You know your job is to be nimble in this multi multi million dollar organization and so it’s kind of interesting so Red Wagon is looking at the next generation of innovation, looking at next-generation retail, we don’t know exactly how it looks like, but we’re going to go pursue it. The confusion tolerance, your team has to be a great and good one. You got to be able to be to deal with uncertainties. So what sort of talent, you know, how does your team look like? Who do you bring onboard.
Drew: Interesting, so I have someone who works for me at Disney. A part of my group, the Disney crew magic band it’s this wonderful little device. Scott Davis has joined me…
Alex: That is the largest single investment that Disney ever made.
Drew: Yes, yeah and kudos to Bob Viger, I remember when we came back and had this idea and we, I still see the scratching of the pencil that had the basis for this NGE project. But there’s a person Bob Viger, who is one of those leaders. And isn’t afraid to take a bet. So Scott Davis has come. He’s terrific, he’s highly innovative; looks at experiences differently. We’ve taken some people from the core business that are younger in their careers, and have a desire to be entrepreneurial. That’s one thing is that companies do have really good strong people that can innovate. They just need to, sometimes a different palette. We have two people that come over from Chick-fil-A. One person helped launch the mobile app for Chick-fil-A One. And then we have two people that are based in Seattle. They both are at the development center. One person is Josh Boursman he was one of the tech leads at Amazon Go. It’s a store that exists in Seattle that you could just walk in and walk out of. He’s amazing. He put in sensors and a lot of technology around retail. Then we have someone called Sam Stubblefield who lead the group at NBBJ, which is a large architectural firm. He understands how to create new environments. Then we have some other people like, from outside the organization. And so it really is a hybrid mix. And the one thing that, so we have a different team, it’s not full of a whole bunch of people from Chick-fil-A. There are some of those people, then there are some people from the outside. And then one of the things that we have that I think keeps us honest is, and this is a good thing. Is the fact that Dan believes and said that one of the things that’s important to creating businesses is the ability to raise capital. So these ideas, these companies will be funded with external capital. And Dan said this one day, that just kind of hit me. He’s never had to go raise money. The company is self-funded. But his dad did. His dad Truett, had to go raise money to get Chick-fil-A going. So it’s important muscle to be able to raise money to be a real entrepreneur. So as we start birthing companies, we’re going to birth one on about two months, it is going to be funded with capital from the outside. And I get excited about that. I think that’s a really important and different thing for this type of activity. At Coke, all the investments that we made in B2B were funded by Coke corporate. It wasn’t from outside capital.
Alex: So you can partly, you can say well, you can say if I don’t we go outside which also makes it easier. But almost that external funding those questions you have to answer almost force you to innovate a little harder, if you want to do it that way.
Drew: Yeah, yeah. I think the venture community is a great community. I think venture capital has shown the propensity to drive higher levels of innovation of big corporations. They see opportunities I think better on some cases. And so I think it’s a good thing that we need to go out to that market and raise capital because it pushes and challenges the ideas that we’re building and the concepts we’re building.
Alex: So see you’re kind of building that ecosystem, it’s now a good time to start getting into how you work and aspect of corporate to corporate collaboration. So part of Red Wagon, I know that you do engage with early-stage entrepreneurs and startups. A big part is also partnering with corporations. So why don’t you tell a little about that concept, a little but, well try to make it come life a little bit. But talk about this whole corporate to corporate collaboration.
Drew: Yeah, It’s something actually Dan believes a lot in. And I describe that great innovation happens with the ecosystem. Part of that ecosystem is an ecosystem that is entrepreneurs and VCs. But the…another, underleveraged component of that ecosystem or other corporations or corporate partners that you could have. And a company like Chick-fil-A, just like at Coke, is you get exposed to so many other corporations and what’s going on. And that is a unique thing. And I’m not sure companies leverage that. Dan certainly does. He constantly connects and has a lot of people like come into the Chick-fil-A ecosystem, and we get to benefit from the fact that we can reach out to any large corporation and they’re going to respond. We talked about the Chick-fil-A business card, like if I call someone in a totally different industry, and say I’m calling from Red Wagon. And we’re, part of the Chick-fil-A, they answer the phone. And that allows us to start having conversations about things that most people usually can’t. And so one of the concepts that we’re working on, that will be the basis of a new company. It’s a collaboration with a big company and a totally different industry, out in the west coast. And we have a joint development agreement with them, and we’ve been able to get so far so fast because of that relationship. So I think the model we’re building is really new and different, because it says how do you leverage the ecosystem that’s around a big company. And leveraging better, and not just do the sharing business card and maybe we’ll do lunch together thing. But you’re literally saying how can I go after big problem, use the ecosystem of people around a big company, start working on something. And also how do you take the eco-system of VCs and entrepreneurs, and push them together. We think if we can do that, then you can make big disruptive companies, that are a billion dollar plus in size. We’re not going after small little things. We’re going after big things because we can put those eco, if you out those ecosystems together, you better be doing something good.
Alex: And any big company it’s so easy to just get caught into what you do truly well. And it’s really forcing you, not just forcing you but leveraging a knowledge base in a best rate industry to apply to a problem that’s maybe foreign to both of you and to solve it. And so what made you get into, I guess to that, what’s different from this typical partnership. Do you partner with a company just to, for distribution? This is really about a creative partnership as much as everything else.
Drew: I think it’s, actually I saw a little bit of it at Best Buy. We had, when the company was going through challenges, we sold a lot of Samsung products. A big part of Samsung sales were based on Best Buy, big chunk of Microsoft sales. And so we were starting to have problems. We pulled in that ecosystem and said how do we think about our business model. And Think about working with you all differently. That’s news, the first time I kind of saw that wow it’s not about partnerships. It’s about bringing big companies together and saying how do I innovate and work on the business model. And I think that’s what we’re trying to do here. Which is how do we look at a new space, and look at a new business model, and a new approach to going after an opportunity with other big companies. And that is different than the typical if you guys were big companies I’m sure you’ve all done this. You’ve done the “best practice sharing”. The best practice sharing, it’s like we’re getting together, we’re having a meeting, we’re going to exchange business cards, we’re going to have lunch. And then we’re gonna talk about stuff and exchange some presentations and that’s it. And that doesn’t really, while that’s nice to do and the lunches are nice, that doesn’t really drive you know a big innovation. And so I think you have to put big companies together on a problem and have them put some skin in the game, and let them go try to solve a big problem. And I think we’re seeing that too with what Amazon’s doing in healthcare. They’re putting together a coalition of the rolling there, big companies to go after the challenges in healthcare. And that’s the term I use more often now, I call it coalition of willing. Which is can you pull together, a coalition of willing to go after a problem that you care about. And if you can do that, then you can drive a big business.
Alex: How do you get two large organizations to create together, one of them just partnering together in an easy sense, create together make something totally new and navigate two corporate cultures. And the politics come with it because that’s just part of it. How do you maneuver all of that?
Drew: It’s not easy. I think it has to have visibility at the CO level. You have to have dedicated budgets. And you ultimately have to be held accountable to creating a business. The thing that I think is so different in our case, is we’re not doing a project. Ultimately the collaboration works if a new business is created. That’s a different standard. And I think if more companies took that approach, I can only imagine the levels of corporate, of innovation you get amongst companies. If the filter was you’re not just working on a project, but you’re creating a company. And if you create that company then you’ll use some of the similar incentives that entrepreneurs have. Which is their stock in the company for employees, and there is a legal entity and it’s out there doing business independently. If companies did that more often ,I bet there would be a ton of growth. But what happens is big companies put teams on in working on a project. And that’s not how you get after big businesses that could get a couple 100 million sales or evn a billion sales.
Alex: And your metric shift too. And it’s really one of the venture capital you’re looking for versus traditional corporate metrics. So why we, and by the way in a few minutes here we’ll definitely give everybody a chance to ask plenty of questions, so start getting them ready. So let’s make this come to life. I know you’re excited, you have something coming up in a few months. So maybe why don’t you start framing that a little bit.
Drew: So we had a blank canvas through and through, we looked at a bunch of ideas. There were a lot of bad ideas. We had lots of them.
Alex: So there are bad, to say a lot of bad ideas out there?
Drew: Yeah it’s a lot of bad ideas out there. And it’s funny you’re wife will always tell you which of your ideas are bad. But there was one that just popped in front of us. One, because when you’re at Chick-fil-A one of the core things about Chick-fil-A is the strong customer base of families. A lot of families go to Chick-fil-A. And coming from Best Buy, I was watching all the retail apocalypse story happening left and right last year. One of the industries that we thought was intriguing was the toy business. And so at that same time, I’m a 50 year old guy who’s got a three year old kid. This is my first child, so it’s this is not like marriage number three, it’s marriage number one. But I took my child to a place and I was horrified. And I came back to my office, I was thinking wow there is this family customer Chick-fil-A, and there is a lot of great data that we have on families. Chick-fil-A actually is the number one kid’s meal in the US. So I got some data from the core business. Toy selling and retailing was strained at Toys “R” Us. And I just had this awful experience as a parent. And I said why are there not better places to go? Kids deserve better, shouldn’t there be a great experience for a kid? And maybe it involves selling a toy and maybe it doesn’t. But can we revolutionize the whole playing industry? And we go in and change this industry, cause this industry’s got a couple of, I’d say players that don’t have the best success. And so we put together a concept and we started hitting the road and brought Dan along on some of those meetings. So we went and met with Viacom met with Disney, met with Nickelodeon, Patel the toy companies. Talked to folks at the Universal Comcast, and they all had interest in this idea. And that was our first proof point to say there’s something here. Why is this whole industry all of a sudden care about play, kids play. Media companies care because it’s going to be increasingly difficult to get their brands in front of kids. And then toy companies care about it because there’s fewer and fewer toy stores. Low and behold last month Toys “R” Us, said that they’re gone bankrupt. So we thought gosh what an opportunity for a new concept around play. And that’s what we started building over a year ago.
Alex: Wow. So it happened when this idea was pitched. You went to Dan internally. This is the first true product proof point.
Drew: So to Dan’s credit, I think he told me not to go work on that. I think he was like “go work on something else”. But that is an important thing because it’s the remark of a great leader who says I may not see this idea. I think there are maybe bigger ideas to go after. But he empowers the team to go after them. And that’s what we did. And we started to kind of build it and get more validation, and we had a successful trial run in a warehouse on Chick-fil-A’s campus, about a month ago. And we had a lot of great reviews from parents who brought their kids in. And it’s a totally different thing. It’s a place where you know, you can let your kid play, and we have play sitters. People that are trained to play with kids. Which is a great job. I wish I had one of those when I was younger. And we have a place where a parent can be somewhere productive and hangout, get a little bit of a break. And so, with a cool beverage center. So I call it you know the combination of the world’s greatest toy store and the world’s greatest coffee beverage shop smashed together.
Alex: Yeah, so with experience and such that seems like you’re guiding design element at the end of the day, right?. Experience with family with kids and so forth. And so that, you say with challenges. So my guess is you’re challenging traditional methods of retailing. So I do want to go back with that, it seems what’s important with this is the fact that Dan challenged you, and your team. You would have to innovate a little harder. For a lack of better terms, fo you agree?
Drew: Yeah I would agree. I think the one thing when I was at Coke we studied successful entrepreneurs and we did this big study. One thing that they all had in common was persistence and unbalanced optimism in their idea. So you have to be willing to keep going for it. To be passionate around it. And we saw that, and we saw that when the company bought Vitamin Water. And that team, they were so driven and believed in what they were doing. We sat with Seth and Barry. The amount of passion that these people had around the product and why it could be so great. That’s the stuff that can exist in a big company. You need to have the right leadership group that’s okay with letting people go after their ideas. Because that’s the beginning of what makes a great entrepreneur.
Alex: It seems like you went through this concept and then apply. You’re going to have to have a team that’s maybe different from the typical whatever. Like the team of the companies involved in Chick-fil-A.
Drew: Yeah we’re totally different. I mean we have Dan who uses the term whacko but we have a lot a people with tattoos and they don’t look like your typical Chick-fil-A employee. Their weird and different and that’s okay. I think embracing diversity and the fact that people don’t have to look feel and talk the same is a wonderful thing. I think that’s actually what’s going to make us successful. What an awful world it would be if everyone looked the same. We have enough people who like to wear khaki pants.
Alex: Plain khaki pants.
Drew: Yes, exactly.
Alex: I’m want to open it up for questions for Drew and see who has a question? There we go
Male: You mentioned building experiments behind these ideas. Can you describe some of the experiments behind it?
Drew: Yeah experiments are literally in our case writing code and having a, seeing if we could have a device in our case, a toy change an environment. And hacking a system together that doesn’t exist today. So in our case we hacked something called unity. Which is a platform to see if we could make that happen. And that’s really different. That’s something the IT department most companies will not do, hack software the way we did. But in front of a consumer. That’s what you have to do. It’s like you have to sometimes hack things in a way that IT departments want to hack, if you want to create next-generation retail experiences. The whole IT thing, we did not make a lot of progress at Best Buy, until we totally revamped our architecture. Cause there was years and years where no change happened. Because it didn’t meet the IT processes and filters. And so an experiment is, go take something that is not a scaled proof system, that could actually break really fast then put in front of the consumer. Be okay with it.
Alex: How do you make sure that you’re not playing it too safe? You know cause people start, I was about to say people revert to mean or the average and your job is to make sure you’re outside of that distribution average, so to say.
Drew: I think that’s why it’s good that we’re kind of, that’s why I was careful and say Red Wagon and not Chick-fil-A. Is that we’re outside of the core, so we can go break things. Cause if you can’t break something you’re not going to innovate. And the only way to break something is put a different logo on it. And put it out in the world, and hold it to a different standard. That’s how you can make a lot of progress. Because it’s now seen as too crazy, for any good company to take their brand or business and wildly experiment with it. The amount of damage you do in equity is insane. You wouldn’t do that. That’s why I think the model of the future is like go create new company, go put a brand on it. Go open up a store, the store is a disaster that’s okay, you’re not hurting your base business. And I think that’s where I’m hoping CO’s start adopting that model because I’ve lived in the model, at Kodak, at other places where the innovation doesn’t happen because the lawyers get involved and it’s like oh my gosh, what’s happen if this. We’re a big company, we’re going to get sued. And so you have to legally wall off those experiments. You need to push them out of the ecosystem so you can go and be daring.
Alex: Well and also they contain your investments. Took long enough. So while it’s a big step it’s also a bit of controlling the investment.
Male: Hey Drew you mentioned that you get a lot of bad ideas. How do you judge upfront the ideas, and how do you know a good idea from a bad idea?
Alex: If you like it they’re good. Right?
Drew: It’s funny there’s no magic formula. But I think for us, like in this concept, going and talking to the biggest companies in the space. And I remember flying back from one of the meetings on west coast. I was with Scott and we were like, can you believe that four of four companies want us back? That was just a good filter, cause we were like they should know about this industry. We’re not toy people. We’re not kids play people. And the fact that all of them wanted another meeting. That’s a great inexpensive way to validate the idea. And to be honest that was new to me. I was used to like, okay let’s put a screener online. Let’s go run it by consumers. Let’s try to get some feedback. And so I learned like wow this is a different way to kind of try to vet an idea.
Female: Hi, with the emphasis of individuals looking at healthy living and healthy lifestyles, where do you see Chick-fil-A in the future in terms of developing products and services around that area?
Drew: I’m probably not the best person to ask for Chick-fil-A. I know stuff I’ve heard from Dan. I mean the company continues to create healthier better lower calorie options. Like I imagine that’s going to continue. I think as with any industry, it’s harder to predict where people will go. I was at Coca Cola, there would be a lot of people who continue to bring soft drinks for a long time. But I think if you’re in the food and beverage business, you’re just going to constantly think about how do I take calories out, lower fat grams and take out preservatives, and do all that stuff, because one it’s the right thing to do. I think food science has come a long way to enable that so.
Alex: It seems that more of a Red Wagon perspective, if you wanted to play, looking at health, retail health.
Drew: We still have beverages that are in our play concept. So we’re looking at it.
Alex: Yeah but even if you look at it. There so many angles that you could potentially take reinventing health centers or whatever it is.
Drew: Yeah it’s actually a really good thing. We had a big discussion on partner, with this whole reaction selling Coke out of box. And I’m very honest, people who know me, know I typically, I’m very forthright upfront. And we had a debate for six hours. About whether it would be to a mother, fitting coke in the box. And these are not easy questions. They are not easy answers. My wife, by the way, works at Coca-Cola. We got married at the, we got engaged to the world at Coke and I dressed up as the Polar Bear. So the brand it means a lot to me. But it’s a tough question, cause I’ve been part of that world. I think the product is good product, but I’m also a dad. And when you’re watching your kids concept, you have to think about that. And I was surprised at the reactions that we got with our partner. But they’re based in Los Angeles, and their not based in Atlanta Georgia. I think they have, I guess, in LA a much more passionate core of mothers that view beverages differently. To me, it was really eye-opening. Because I think sometimes it’s easy when you sit particularly in Atlanta, and you go down Buffington Road, where Chick-fil-A is based, during the week and you sometimes don’t see different audiences. Your question is an interesting one cause I was just, that has been one of my surprises as well. That kind of activism around health and moms in our meeting.
Alex: Which is the power of incorporating collaboration or community effort, insights and perspectives and so forth.
Female: We’ll two more questions.
Alex: Okay, yeah.
Male: Hey Drew I wanted to see if you would need to share some the financial aspects? You mentioned private equity and looking towards sandill and other places for that kind of easy rounds. But there was a lot of stuff before that. So you looked at pilots you looked at proof of concept, was it all funded internally? And like Comcast, for example, has about one percent of their gross revenue that’s focused on innovation. I was wondering if tou have a number like that and what you’re doing.
Drew: I think one percent is far too little to be honest with you. I think given the rate of change that is happening on every industry. The digitization of most businesses. It’s not that hard to go after big companies anymore. Look at what Elon Musk has done with Tesla, look what Amazon has done. Any big company that’s sitting there and saying I’m putting one percent of my budget innovation, that’s patting themselves in the back, I’m not saying that they are. That’s probably too low. It needs to be like five percent, six percent. Why should… It needs to be a lot more giving the rate of change we’re seeing. SO that hopefully answers one question. I do think, I’ve been falling madly in love with the different ways to fund an idea. We take things to prove a concept generally within the funds. And then once we have, within our corporate funding. And once we have an idea past that then we say okay let’s get the externally marketing funded. And there’s a combination of people like Dan, people that are just individuals that want to put money in companies. Angel investors, that we’re working with, I’m talking to. So that, that with the ecosystem, I find to be really interesting. Cause they are, they’re driven to kind of take risks, cause they want a good return. There’s a lot of it surprisingly. It is amazing the amount of capital that I see out there, to go after good ideas, and to back really good teams. And so I’m encouraged by it. I’m encouraged by it too because again if we wait for corporations to take their budgets up on innovation, we’re not going to get some great places. That’s why I’m excited by the amount of capital that’s coming in. There’s a large amount of capital from China. That’s coming in, which has been interesting. It think there’s a high-degree to going after some spaces from Asian companies that has surprised me.
Male: What process do you use to choose the actual P&Ls that you work with?
Drew: One question I ask when I meet entrepreneurs is, why do you care about this specific problem? I don’t care about the technical expertise of someone, or their resume or x y and z. What I learned at Coke, I think the reason why our best were really good, who we invest with, is because they passionately cared about a problem. But we met with Seth at Honest Tea, he passionately cared about health, and things being organic. He lived and breathed it. We spent time with him. We saw how these people lived. That’s what drives success. So I think you have to care about the industry and you have to care about the product a lot. And if you don’t care, you’re probably not going to be successful. Because you have to work you know in weird mysterious ways, to make a new idea come to life. And the only thing that’s going to keep you going is the passion that you have for that particular problem.
Alex: Well Drew, hopefully at the end of the discussion people will lean about you. I think there’re some great lessons coming out. Those of you that know me or follow me, I talk constantly about innovators DNA, corporate innovation and how to really drive change in your company. Drew gave so many incredible insights, form Drew I hope you learn to be a better innovator. We definitely learned about the lineage for the Cathy family and Chick-fil-A and innovation. But this importantly, hopefully you’ll get excited about what Red Wagon is about and looking forward over the next few months you’ll hear about it. So before we turn over to Geoff, thanks thank you Drew.
Drew: Thank you.
Geoff: That was fantastic. Thank you as well Alex for hosting, did a great job asking the questions. So one more round of applause for both Alex and Drew.
Geoff: And Drew when is the first pilot store going to be open?
Drew: We’re shooting for November this year.
Geoff: It’s going to be in Atlanta. I know where my kids will be in November of this year. Aright thank you all for coming today. Our next event, our next Enterprise Entrepreneurship Series event is going to be Thursday, May 17th. So just a little bit over a month from today and we have the head of innovation for a company called Wisdom Tree who’s going to be speaking. You may not have heard about Wisdom Tree, but Wisdom Tree is one of the largest asset management companies in the world. They have over 50 billion in assets underneath their management, also one of the largest providers of ETFs in the world. And what’s really interesting about Brad’s story is Brad was the founder of the startup.