Chipotle Grill's Secret Ingredient: Obsession

"Stop it Mom, you're obsessed!" That's what my kids said to me all summer. Every time I opened the newspaper, I'd spot another shining example of willful blindness, the subject of my new book. So yes, I was obsessed.

But I think obsession's a virtue, not a vice. When I worked for the BBC, we were taught that if you could make any improvement to a show before it went out, you had to: You owed it to the public that paid for the program. And frankly, it was a joy to work for a company that understood perfectionism as a competitive advantage. The best technologists I've worked with are always obsessed â€"- late into the night â€"- over new software, computer languages and gadgets. I've sat at meetings at Eileen Fisher and marveled at just how long it's possible to obsess over a shade of green or the feel of a new fabric. All these organizations are obsessed, and they are successful because of it.

Ever since I interviewed Chipotle Grill CEO Steve Ells a few years ago for Reader's Digest, I've been obsessed by his business. Any chance I get, I try one of his restaurants. I want to test -- and taste -- how far his obsession runs. Two years ago, he was a man who worried about exactly how the oregano in the burrito was chopped. "They were washing it and not drying it â€"- so when they chopped it, it was clumpy," he told me. "This is wrong! We need it to be dry and fluffy when you chop it. So we put together a drying procedure." Could the customer tell the difference, I asked. "Probably not. But if you do a hundred things like this, they can tell the difference," he said. "In 10 years we will be selling better food because of hundreds of improvements like that."

"Yes!" he laughed. "It's finally good enough! It took four years but we did it. Now it's perfect.The crews in the restaurants love them. You have no idea how dramatically better it is: it give us faster service; hotter, better-tasting tortillas that look better and last longer; and it uses less energy!"

As Ells described these incremental improvements, he did so with an energy and a passion that caught my attention. Here was a CEO and entrepreneur who didn't just have a good idea -- he was prepared to back it with years and years of obsessive attention to detail. While much of what the company did was novel, underpinning it all was a relentless desire to perfect process. Many entrepreneurs claim to dislike process, but the really successful ones know that it is process that flips the switch between daydream and reality.

With 88 percent growth in the first three quarters of 2010, Chipotle Grill has been a huge success, and weathered the recession well, for many reasons. But one of them is because, since he served his first burrito, Ells has never once stopped obsessing about what goes into his food, how it's made, how it's served and the experience his customers find in his restaurants. He obsesses in detail -- and for years -- about his food, his people and his leadership to a degree that most CEOs could find daunting.

Many entrepreneurs are obsessive â€"- and all the successful ones are.

So what are you obsessing about today?

• 2008 conversation with Steve Ells
• 2010 conversation with Steve Ells

So I went to work in a restaurant called Stars in San Francisco, for a guy named Jeremiah Tower who had been the first chef at Chez Panisse. A lot of the philosophy of seasonal, artisanal, super high-quality ingredients started there. Jeremiah's credited with new American cuisine: call things what they are, don't give them fancy French names, that kind of thing -- all based on seasonality and local food.

So I was there for a few years and really learned how to cook and taste critically. And I started to have ideas about starting my own restaurant. I didn't know much about the economics of restaurants -- only that a lot of them went out of business quickly, or if they didn't, that margins would be thin at best.
I wanted to find a way to fund my restaurant -- to have a cash cow so that I wouldn't have to worry about economics too much. I was in a taqueria in the Mission District of San Francisco -- these places were great. It was Mexican food like I'd never seen before: everything put into these giant tortillas and wrapped up -- rice and beans and meat and cheese and sour cream -- all very authentic. And it just sort of came to me: I could use this format and reinvent this traditional Mexican food and lighten it up. Make it sexier and more relevant: Ciliantro-lime rice instead of heavy red rice. Whole beans instead of refried beans. And emphasize it with seasoning, fresh herbs and citrus -- lemon and lime on almost everything. I'd have an emphasis on bold flavors that have nuance and depth, not just spicy but the nuance that can be achieved from traditional seasonings. Layerings of flavor: cumin and cilantro and cloves and bay and fresh oregano and lemon and lime.

So I moved to Denver, Colorado, and started the first Chipotle on July 13, 1993. It took me about a year to open the first one. I borrowed $85,000 from my dad, and the idea was that this was going to be my cash cow to support my "real" restaurant.

Well, it did really well right from start: it looked, smelled and tasted different than traditional fast food. And it didn't take long before there was a line out the door. Food critics started writing about it! I remember the Rocky Mountain News food critic loved us, He never wrote about fast food, and he didn't hand out praise easily. It was just unheard of for fast food to be written about like that. So then I thought, "Maybe I should just open one more before I do the 'real' restaurant."

We opened the second restaurant in early 1995, and it did even better than the first one: We had lines out the door. And then I thought, "Wow! Maybe I want just one more." Every time I opened one, I thought, "I'm not following my true calling." But I kept doing it. I couldn't help it!

The organization got bigger and we got more attention. For the first one, my father had loaned me the money and done an equity investment. The second was funded by cash flow. The third was funded by an SBA loan. I had never taken business class in my life -- this was all great learning. This was my crash course MBA.

As I started to open multiple restaurants, I told my dad, "I need more money." He put in $1.5 million as another equity investment and it started to be a big business for me. The next time I said, "Let's do it again and open some more," he said, "Why not try to raise some money?" He explained the process to me -- how to get a board of directors and a business plan. So I raised about $1.8 million. But raising money took me away from the business, and I didn't want to do that again. I really wanted a partner who could continue to invest year after year and help grow it and after talking to so many different kinds of money, I ended up sending the business plan to McDonald's, on the advice of Al Baldocchi, who was on the board. He knew someone there in business development. I said, "That is the craziest idea I've ever heard. McDonald's is so different culturally." But in a few weeks, we had someone from McDonald's out here looking at our restaurants. Then they came back with more and more people, and a year later, they made a minority investment.

We opened more and more restaurants. We could tap into their resources. But those resources -- they were great for McDonald's, but they weren't always necessarily applicable to us. Chipotle uses different kinds of food, we have different kinds of employees, we aim for a different kind of experience and culture altogether. So we ended up going our separate ways and sort of had an IPO and then split off. They put in about $360 million over a seven-year period, and they took $1.5 billion out. So they funded the growth, we used some of their resources, and everyone did well from it.

We did [benefit from] some of their resources -- like their distribution system, which we still use. It isn't owned by McDonald's, but it was a fantastic resource for us. It was a good relationship -- we learned from each other -- and now we've been on our own for about three years or so, and mostly we do things on our own.

Where did your love of cooking come from?
II enjoyed being in the kitchen cooking when I was very little. I learned to scramble eggs when I was very young, and I just liked being in the kitchen. I started cooking with my Mom and then for friends. I remember watching all the cooking shows instead of cartoons: Julia Child, Galloping Gourmet. And I love to eat!

What was your dad's business background?
Dad didn't have any background in restaurants. He worked in pharmaceuticals his whole life, first for Eli Lilly and then Syntex, where he was a senior executive. He retired, and after a few months he started a pharmaceutical active-ingredient plant in Taiwan. He became an entrepreneur after seeing me.

We were always close, but we didn't understand each other. He was a by-the-book kinda guy. He was a good student, he always did what teachers wanted. I always did things my own way and was quite rebellious and not a good student. I was the daydreamer; I was always trying to do things my own way or a different way. I could start Chipotle and break all the rules because that was my nature, and so my father finally appreciated those qualities. Before, I don't think he realized the importance of those qualities.

How much were you aware that you were breaking the rules?
I knew right away, even before the first restaurant opened. I would talk to friends in the restaurant business. They said, "Mexican food is cheap, and you're charging around $5 for burrito. What about Taco Bell, where they're selling for 79 cents?" And I'd say, "This is completely different. It's real food, the highest quality food. Taco Bell isn't real food!"

And then they'd say, "You can't have an open kitchen, you can't let people see raw beef, raw chicken, people fussing with food." But I wanted them to see the whole environment! I wanted it to be like a dinner party, where everyone wants to be in the kitchen, watching what's going on.

They said, "You have to tone it down. Not everyone likes cilantro and spicy food. And you're ONLY offering tacos and burritos. You'll have to offer more choices, and milder stuff."

And then they said, "You have to have a menu where people can order a single thing. People want to be able to order by number and not have to make a whole lot of decisions." And I said "NO, you have to go through the process."

And then they said, "You can't have it look like this, raw plywood and barn metal -- who wants to sit on plywood like that?" And I said, "I like them! It says something about what we do: basic materials, you can see the integrity of the parts. It's just like the food: they're basic ingredients, and it's how we put it together that's so important. There is a sympathetic relationship between the place and the food."

And then they said, "People don't want to line up in a single line and be herded."

But you know what? They wanted it ALL -- but they'd never been asking.

All along the way, I made decisions. I thought, "I want to use pork that comes from pigs that are raised from pasture." After I learned that most pigs are raised in confinement, I didn't want our success to be based on that kind of exploitation -- I just don't want it. If you think about dining, it's about more than just putting calories into your body. It's about nourishing -- not just nourishing through calories and all the things the body needs, but nourishing the soul. When you sit with family and friends and think about where your food comes from and where you know the farmers, you get close to the food. Why can't we start offering that? Most people in America don't have this accessible to them. So we want to be able to bring everyone the kind of foods that normally are only available in the finest grocery shops.

But then people said, "No one will pay for it, people want cheaper food. But people didn't understand where their food came from. If they understand what goes into mass-produced commodity food -- the degradation of the environment, the loss of independent family farmers, the loss of rural communities -- they wouldn't want that to be part of their 79-cent food. We have a chance to change the way people think about fast food. That is an important mission. The majority of American people eat fast food because it's convenient. But just because it's fast and convenient doesn't mean it has to be exploitative or made from cheap ingredients. It can be great quality food.

You seem to have been very much in tune with changing tastes in food. Was this just luck -- or zeitgeist? How do you think that happened?
When I started the first Chipotle, I wasn't thinking about any of this. I was sourcing like everyone else -- not thinking about the provenance of raw ingredients. All that is the result of being curious, always trying to be better, challenging the system, challenging myself and others to be better and ultimately being able to take advantage of opportunities. Opportunities are everywhere, but being able to avail yourself of them -- that's the hard part.

Was I lucky? Yes, because I was able to take advantage of the opportunities I've had. But I also prepared myself. By going to cooking school and understanding classical cooking technique, I prepared myself to make really good burritos. Usually if someone wants to make a good burrito, they don't necessarily learn classical French food.

Are you a perfectionist?
Yes. It's hard as the organization gets bigger to figure out how to focus on the right things.

Can you give me an example?
The first step of the process when you order at one of our restaurants is you start with a big tortilla or a bowl. If you start with the tortilla, you put it in a press (which is two hot plates, like a waffle iron but flat on both sides). It sounds simple. But none of them has worked well - we've looked at all the manufacturers and they all have shortcomings. A few years ago, I talked to an engineer friend of mine and we got together and I asked them to think about a tortilla press for me. They make super high-tech industrial equipment (for things like lifting jet engines off planes), and they were intrigued. What was wrong with the presses you have? Everything. It doesn't heat well, not evenly, there's no perfect seal. It has to be able to gimble to accommodate the width of the tortilla, and the ones out there won't do that. So now, the one they designed -- it heats it so evenly and precisely that all of the moisture heats at same time and it soufflés up. And steam comes out. It's absolutely brilliant, but it's still not finished after two years! They're perfectionist and so am I. Every day that goes by, we are buying old-style presses, and it just kills me.

We open two new restaurants every week, and every restaurant needs three presses, and so every day we are buying a press that doesn't work. And it just tears me up that we have to buy these things that don't work. The quality of food off the new presses is so much better: better texture , better heat, better pliability, the tortillas wrap better. I become obsessed by these details. We have 700 restaurants, and they all need better presses.

So if you're buying the inferior presses, when will you get to the point where you're happy enough with the ones your friends are designing that you can start ordering those instead? Or won't they ever be good enough?
Oh, I can finally make the call. I have the ability to make decisions quickly and be confident, but I also have the perfectionist side. We are nearly there.

You know, there are lots of contradictions that you have to be able to live with. Like: we make fast food, but it's great food. We use techniques that are used in the finest restaurants, but we serve it quickly. Having your cake and eating it is important. You can have disparate things working together at the same time. Just because our food is fast and convenient, doesn't mean it isn't extraordinary.

What makes it extraordinary?
When you take a bite, you're tasting everything at the same time, but when you season food, you season each individual ingredient. That's what gives it a real depth of flavor.

Take the beans. Our customers don't see this, but you start by sautéing them with smoky bacon. You render the bacon, then you add chopped onions, some chipotle chilis, and some chopped oregano and garlic. As soon as you get that waft of cooked garlic, then you stop the cooking process and add the beans and the water immediately. You have to pay attention to each step. We toast the cumin seeds. You put them in the skillet and shake them around, and they start to smoke. Then they have to go into the mortar and pestle to stop them cooking too much. We still do that for every batch of beans, even though it's done in a giant kitchen now. With our food, it's still done just like a chef cooking in his restaurant, the same old-fashioned techniques.

You say that you are "revolutionizing the way America grows, gathers, serves and eats food." Why -- what's wrong with it as is?

I think the first thing I saw that was wrong was industrial pig production. You look at anything: how different it is from the way we grew food 50 years ago. Now you have restaurants chains that are trying to change this.

We don't want to be preachy; if I started going on a campaign, people would tune out. But I can make sure we are buying the best ingredients, make sure we are cooking it the best ways. Even if people are going to eat fast, I want to do it as well as possible and pay attention to the details. I don't want it to be a model based on exploitation. So I want people to pay a fair price for food.

Do you think you can ever wean Americans off of fast food?
I hope Americans will be weaned off of food that isn't raised sustainably. That is a worthy goal, and an achievable goal. I don't think it's about abandoning fast food. The way we live today, convenient food is a necessity. Not everyone has time to go to the farmers market and spend hours preparing it. If you can, that's great. When I have free time to shop for wonderful ingredients and prepare them, that is pure luxury. But between meetings maybe I have 15 minutes and I want something to nibble, and I want them to be good nibbles. If they are, I'm not ashamed of fast food.

How often do you eat in one of your restaurants?
I've eaten in a Chipotle Grill almost every day for the last 15 years. I've eaten a lot of burritos!

What would you like to cook tonight?
I would want to walk through a farmers market and see what looks great, so it would depend on what I saw. I have never really cooked Mexican food at home -- it isn't something I ever did. I like making a lot of pastas; I'm very influenced by Italian food lately.

Did anyone ever give you grief over the name?
Oh yeah, that was the other thing I did wrong! "Nobody'll understand it, nobody'll be able to pronounce it."

When it comes to innovation, are you a quantum leaper or an incrementalist?
Absolutely the incrementalist. That's the nature of our business. I've visited the commissary where we make our beans. I was looking at how they chopped the oregano. They were washing it and not drying it, so when they chopped it, it was clumpy. This is wrong! We need it to be dry and fluffy when you chop it. So we put together a drying procedure. Could the customer tell the difference? Probably not. But if you do 100 things like this, they can tell the difference. In 10 years we will be selling better food because of hundreds of improvements like that.

Ever since I had the revelation about buying sustainable food, all of our pork is raised in pasture or barns with no hormones or antibiotics, and they're all on vegetarian feed. All of our chicken meets the same protocols, and 60 percent of our beef. The beef is more of a challenge because of supply issues. We've started buying local veggies sourced closer to our restaurants. And I think 25 percent of our produce is organic, and that will keep increasing. 30 percent of our beans are organic, and we will keep adding to that. So we are really on this quest to look at every ingredient and making sure it is as good as it can be. I don't think we will ever be finished. There is always opportunity -- not one of these changes is going to change everything at once.

What -- so far -- has been the high point of running the company?
We have the potential to impact food culture for the better in this country. I wanted to have an exclusive restaurant, one of those high-end restaurants where I would make great food for a few people. Now I get to be part of an organization that can impact food culture and give EVERYONE access to sustainable real food that doesn't exploit: that is the high point.

Many entrepreneurs when asked that question would say their IPO.
From a customer perspective, the IPO didn't matter at all. It doesn't make better food or a better restaurant experience. I had fun going on the roadshow, but I don't want to do it again! It was new and I learned a lot, but that's not what excites me.

What was your lowest ebb when running this business?
[Laughs.] The IPO! No, I don't know. There are challenges every day. Every day you feel there are too many details, there's no way we'll get to all of it, I don't know how we're going to do this! Every day is like that.

I don't think of the business as highs and lows, we're just keeping it on course -- which is not to say we're not changing. We are always improving. There is always more to do.

What is the single smartest thing you've done while running the company?
There wasn't one best decision. We've made bad decisions: hiring and keeping the wrong people, making bad real-estate decisions, going into a market the wrong way. But we learn from our mistakes and aren't afraid to make them. Luckily we haven't made any critical mistakes.

You strike me as a person who doesn't suffer from a lot of self-doubt.
Self-doubt? I think generally the idea of Chipotle is the right idea -- that we can feed people sustainable food. There are people who would argue and give you all kinds of reason why chemicals and inputs and hormones and trying to cheat the system would be a better way to feed the world. I don't have doubts about that.

What do you know now that you wish you'd known when you started?
In a way, I'm glad that I didn't know a lot back then. Ignorance is bliss. I know what a hard business it is and the failure rate -- I don't think I would be as good now at starting it again. I think it helps to be bold and unafraid!

What is the greatest strength you bring to the business?
I wish I knew! I think I should know. I wish I knew the best way to spend my time. I talk a lot about food, but I should be able to answer this question. I think I do spend time on the right things. I think about what the business will look like in 10 years. And I really think about what we should be doing in 10 years.

And what does the business look like in 10 years' time?
In 10 years: As a public company we have to be careful. The company has proved that people are willing to pay a fair price for food. I think we'll see a growing emphasis on local, fresh, cleanly brought up food. All these labels -- organic, properly reared -- many of them are really unclear. But the point is that these are more sustainable models than the commodity alternatives, the mass-produced factory models based on shortcuts, which often results in exploitation and therefore aren't sustainable. I'm less concerned about what it's called but more focused on the idea of sustainability and looking back to old-fashioned ways.

Can you feed the whole world that way?
I think there's a big question to be asked about whether we are using our current land properly to feed people. Food is more expensive today than it was a few months ago. Recent trends are that people trade down. That goes across all consumer spending. I think people will keep coming to us, because it's great quality food.

So do you think you'll ever open that fancy restaurant?
[Laughs.] Yes -- that's what I do now. Every week we open more Chipotle Grills!

• Read our 2010 follow-up conversation
• Return to "Chipotle Grill's Secret Ingredient: Obsession"

Last time, we talked about trying to achieve perfection with oregano.
Well, I'm happy with both those things now, and now we're obsessing about something else. For 17 years we've had the same menu but have tried to improve all aspects of what goes into each item: how we prepare them, cook them, serve them. It is the relentless pursuit of perfection that contributes to better and better food.

One of the most significant improvements is in the raw ingredients, the use of more sustainably raised ingredients. I have so much respect for Alice Waters, who has brought the importance of local seasonal artisanal food to a national scale. It started a revolution. At Chipotle, we want to make those kinds of foods available so everyone can eat better.

How has Chipotle weathered the recession? The stock is looking pretty healthy.
When most restaurants companies noticed a drop, we experienced strong same-store sales growth. We lagged a quarter or two behind at most. Then we started to pull out of a reduction in transactions before most other companies. We were definitely affected, but I don't think we were affected as severely or for as long, and I attribute this to the strong bond with our customers. They really love the food and the service we provide, and this was evidenced by us not being as negatively affected as others.

This comes back to commitment to excellence. People notice the details. Not just in the food and the atmosphere but also in the kinds of employees we attract. We are not a typical fast-food business, because of the people we hire and the kinds of opportunities we give them. We really look for people who want to build their careers with us. We are looking for extraordinary performers at all levels -â€" those who can become future leaders of the country -- and we make a smooth path for them.

In some sectors of the fast-food industry, turnover runs at 200 percent. But that isn't at all your approach to staff. What is it that you do so differently?
We empower them and give them opportunities and have a very special culture and structure for developing empowerment and leadership.

Five years ago I hired Monty Moran as president and COO. We went to school together, then he became a trial lawyer in LA and then ultimately moved to Denver. When he moved back, he started doing our legal work. I spent more and more time talking to him about the business. He has always been a leader, a special kind of leader. So I convinced him to come on board. At first he said, "I know nothing about the restaurant business." And at the time, my COO was a seasoned restaurant executive. Monty said, "I don't know what most of these people need." But I said, "Great! What you bring is an extraordinary leadership quality that I have never seen before." To unleash CMG's potential, we needed a leadership style that is as special as the food and the atmosphere. So today he is our co-CEO.

Over last five years we've developed our Restaurateur Program. We interview our best-performing managers; we interview the crew. We're always looking for managers who hire crew members who have talents you can't teach, things like work ethic and honesty that you either have or don't have. We want people who are curious and who are capable of infectious enthusiasm. You can't teach this, but you can teach them how to run a Chipotle Grill. So we're always looking for people like that and for people who hire people like that.

We changed the structure of our organization. In most fast-food businesses, crew members can't become managers. But we created a path where crew members can learn leadership skills along the way. The first step for a crew member to become a kitchen manager because, although it involves very hard work, it's something that can be grasped. We teach them how to organize their station, cook delicious food to high standards, prepare the right amounts of food, order and keep inventory and teach other crew members.

When they've mastered that, they can take on the role of service manager, where they do similar things but in the front of the house, having direct contact with customers and talking to them about food integrity. Then the can become assistant manager. In most restaurants, an assistant manager is someone who just wasn't good enough to make manager. But we want them to quickly become managers, and we'll let them manage one of our new restaurants.

Now here's the thing: Any time a manager takes on a crew member who graduates, he gets a $10,000 bonus. So that's a huge incentive to hire the right people who have the right attitude, the right drive, the right commitment. It pretty much keeps mediocre people away. If you're a mediocre or average performer, this can be a very uncomfortable place to stay.

Usually what happens next in typical fast-food companies is you have area managers. But that's too big a jump for many restaurant managers. So often, the area managers either haven't had any real front-line experience, or if they have, they might not be ready for such a huge leap. But in our system, restaurateurs can mentor another restaurant. If that is successful, then they can take on another one. And another one. They become apprentice team leaders, and you can see their progression. We try to give people the structure where they can succeed if they want to.

We have 25,000 employees today. Probably the best leader is in the ranks somewhere. The smartest person probably isn't in management. We also have another bonus for increasing sales above projection. We are acting as if these folks own the business.

It's about making everyone think like an owner?
Exactly.

What do you mean when you talk about leadership? So many people talk about it as a "secret sauce" without putting any concrete definition around it.
I think leadership is more about the structure than specific qualities. You can take any of the positions in our organization and find leadership. The kitchen manager is expected to be an expert in his area, but if he's a good leader, he also has to be able to mentor, coach, train and help others achieve the same skill levels -- or to surpass him! It's really about empowerment. And it runs through every level of our organization. I think leadership is about making sure that's there and that it works.

This all sounds very different from most fast food companies.
The problem with most fast food isn't the fast, it's the food! Our mission is to change the way the world thinks about and eats fast food. Just because it's fast doesn't mean it has to be a typical fast-food experience. We spend hours prepping and slow-braising and painstakingly chopping onions and oregano and cilantro. We set ourselves up so we can serve the most discriminating tastes.

You've just â€"- finally -â€" opened up in Europe, with a Chipotle Grill on Charing Cross Road in London.
It is the first, and it's doing very very well. The person who runs it is one of our lead restaurateurs. When he was setting up the restaurant, people coming for interviews had all done their research and read about food with integrity and our opportunities and our culture of empowerment. They had seen our success and our growth rate, and they knew we weren't here to just do one store. They wanted to be part of this organization and have a career. These are amazing folks, creating quite an excellent experience. I know we have our future leaders.

• Read our original 2008 conversation
• Return to "Chipotle Grill's Secret Ingredient: Obsession"

Margaret Heffernan

Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.

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