Rapid Response: Danny Meyer on the wrenching decision to do layoffs

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Hey everyone, it's Bob. Today we're re-releasing a special episode of Rapid Response focused on layoffs. This was the very first episode of Rapid Response recorded in March of 2020 with Shake Shack founder and restaurateur Danny Meyer. Danny's been on Rapid Response four more times since then, and he appeared previously with Reed Hoffman on the classic Masters of Scale. But Danny's insights in this interview dealing with laying off most of his team Are particularly instructive in today's economic environment.

How do you balance a people first culture and mission with the financial imperative to reduce costs? How do you communicate the choices you've made? And how do you protect your people as much as possible from the disruption you're creating? Danny's raw emotion and candor are match by astute strategic assessments and advice. He since rebuilt his team back to pre-pandemic levels. We've made some small trims to the original interview. You can find the full uncut version in your show feed along with all of Danny's other appearances. Here we go.

You made a really difficult decision. I just wanted to start by asking you to talk about it. You know, you you I've always put your employees first.

Right. You always said employees first. Customer second. Community third, investors down the road, right? This sort of virtuous cycle. And These layoffs are obviously hard in the context of that philosophy.

So I'm Just curious about how you made the decision. Why you made it, when you made it. Yeah, well uh the first decision that was incredibly hard was closing a a small handful of restaurants the very first week that we

We're really learning a lot about this in New York City. Because of either hearing that one of our employees was expressing flu like symptoms, which all turned out to be negative, but it took a day and a half to get any kind of testing and results. And so During that day and a half we closed restaurants and threw away food.

And that was the same thing, which was putting our our people first and putting our guests second. It was a Distasteful but easy decision in retrospect. And then Towards the end of that week as we started learning more and more about the need to Prevent

People from gathering, which is counterintuitively the very business we're in, which is providing opportunities for people to gather with people. We opted to Close all of our restaurants, and this was about three or four days before

The city mandated That restaurants discontinue full service operations. Then We said Uh oh. Our revenues have just gone poof.

And now we're faced with this Just terrible decision which is How do you both put your people first and put your people out of business? How do you do that? And how do you How do you reconcile those two things? It just kind of forced us to stand back and say

Because if your people come to work It could be dangerous. B, there is no work. And C the only way that there will be work for them when they come back. is to have a company that is

Alive and kicking. And then finally If people are laid off, there is something called unemployment insurance. There is something that we have, which is a very, very good health plan.

We found As we did a run rate that we could Afford to pay our share of people's health premiums through april eleventh. And then We said, All right, what else can we do? So we

quickly created a five O one C three. And We've been raising Some pretty good funds. So far.

By virtue of selling gift cards. to Anybody who wants to buy them. And we told our guests we will contribute. A hundred percent of all revenues to gift cards to our employee relief fund.

So I'm fortunate. to be able to say that I've never personally experienced a round of chemotherapy, but I know a lot of people who have. And what they've all said is

That it's a very similar kind of awful choice which is that In order to be alive, you have to almost kill yourself. I know that that sounds really, really Extreme, but

This is in a weird way a business version of chemotherapy. Did you Sliff. thinking about this at home and come in one day and get your team around you and say like This is what I think we need to do.

Or was this something where You weren't sure what to do and how did the team Come up with this This solution, this approach. I think the framework

of enlightened hospitality, which is as you said, is the prioritization of our stakeholders and really believing In this virtuous cycle. has always been the framework that's helped me to get my head around and my heart around how to solve problems.

And I think that When we talk about this virtuous cycle of putting our people first and our customers second. Community third, suppliers fourth, and investors fifth. It is truly a cycle. If you break it anywhere, you've broken the whole thing. 'Cause at the end of the day

The only way I know to really take Great care of your employees is to make sure that over time They are growing both professionally and financially. And so if you don't have happy investors All bets are off, but it's really about the inputs coming first.

And I would say especially when times are tough. Any kind of economic crises or It could be what do you do during a hurricane? It could be what do you do During a terrorist attack as we had in Two thousand and one.

that it's especially important to use that framework. So The framework helps But I don't go into Any meeting knowing the answers.

I often go into a meeting with a strong point of view, but I really have worked hard to surround myself with really smart people and by breaking that group into the right teams and making sure that everybody was curious enough to get external information. And bring

Some combination of what they've learned and what their heart is telling them to a meeting. I think we make our best decisions. We often make mistakes, we often make coarse corrections. Every single day of this crisis We've Honor the work we did yesterday and

found all the ways we could have done it better knowing what we know today and This is especially a time, I think, for leaders to Take it in. Bi decisive. Be open.

Shift, be nimble. But never lose sight of your core values because The thing I know for sure, the only thing I know. Yeah. Assuming that this thing

is over one day. And I could not possibly believe more strongly that it will be over. I do not believe that This is the thing that's gonna end the world. I think we're gonna get back to something someday. Okay, we don't know when

We unfortunately don't know how many lives it'll take in the meantime. But If you believe that it's gonna be over. Then the thing I think is crucially important is to say When you look back at how you behaved and who you were and who your organization was

You wanna look back and say We were true to our selves. And we didn't Do things that are heart Regress.

And so that And I've had to make course corrections even there because Sometimes my heart speaks up and my mind With today's information quashes what my heart felt. Can you give me an example of something that you started one way and went the other way?'Cause I think a lot of leaders are trying to

manage this balance between Patient. Because things are moving so fast and decisiveness, as you talk about, right? Like those both ends. Well, here's an example. When you're doing

Massive layoffs and you've never done'em before. I mean We've laid off people in the thirty five years I've been in business. Of course we have, but My guess is that I don't think we've ever laid off more than

three or four people at one time. This was two thousand people. You wanna Approach that. in a one size fits all manner because you go, how can you begin to make exceptions

For anything. So you communicate as well as you can and This is also bizarre because we are all forced to be Far away from each other. So

Your heart says I wouldn't play off anybody without looking him in the eye. on a one on one conversation, but you got two thousand people who cannot be together. In the same room. How do you do that and how do you manage to show

Authentic. Compassion for people. Via Zoom. I mean, thank goodness we have some way where we can See one another. But

I can't have dialogues with everybody. You can't have two thousand people having a dialogue and Even their bosses. Can't have A hundred dialogues with people, or whatever it may be.

So an example We did all of our run rates and the day that we did these layoffs we told everybody we are going to Hey through the following work week. And

Believe it or not, that costs a lot of money times that many people. And then furthermore, we said And we're going to Give everybody A PTO day and

If and when you come back to the company, which we certainly hope you will. All of your benefits will be in place as they were all of your personal time off. Bank will be exactly where it was. And as I said earlier. We made a

Another run rate decision. And we said Let's absolutely Hey our share of people's health care premiums through April eleventh.

Now That's a lot of money to do that. And it felt like a good one size fits all. And the very next day I received A very, very heartfelt Email. From someone on our team.

Who loves our company. That her due date for her baby Which was supposed to be the happiest day of her life. Coincided with what would be the end of Her ability to pay her health care premiums and furthermore.

One of the reasons she had joined our company Was that relative to most other businesses in our industry, restaurants, especially independent restaurants The family leave policy that we have

was something that was attractive. And the happiest day and happiest month of her life was now all of a sudden something that she Deeply feared. And so that gave me pause and I said, You know what?

I may regret Having An exception to what we're doing. But I will never regret doing the right thing for that person.

And so let's find a way to do it. And that's when we said All right, well that's what We should be using our employee relief fund for. It it just forces you to go, yeah, it's a mistake probably to start making exceptions.

On a group. policy But that doesn't mean you can't come up with another solution. For the benefit of a human being. And so that's what I'm gonna do.

Spawn the idea of the employee relief fund or you already had it and you realize oh this is the thing I could use it for. We had come up with this idea probably two or three years ago. 'Cause every year we'll learn that Maybe they had a house fire.

Maybe there was a massive flood in their basement. Maybe someone in their family got sick. And so in a case by case basis. We would then get their restaurant community together and

Do it GoFundMe or something like that. And so for the past two or three years we've said to ourselves We should really have A not for profit employee fund where We concede it, I concede with my own funding.

And then we can also Invite all employees if they want to to contribute A buck a week, let's say. That adds up with a lot of employees. And start to see that growth. So we had really been

Dragging our feet on that. For the last two or three years. But We already had thought about it enough. To have the framework in place.

And so Really the minute we started talking about this number of layoffs, we said this is the time. Let's fast track this thing. And I said, I'm gonna give all of my compensation To that fund.

And that's when we started selling gift cards to our Regular guests. And Giving up. A hundred percent

Of those revenues to the fund. And now As I speak, we're in the process of Doing All that we can to get really, really nimble so that

People know How to apply to get the aid they need. In a way that is simple and fast. And yet It's not easy because

With two thousand people, everybody needs something. And We want to make sure to do it in the fairest quickest possible way. There's a board that we put together. Which is a legal requirement.

And on that board are lots and lots of employees. I'm not on that board, for example. I want People to be making good decisions for people.

You know, I think there're some folks who when the news first came out about all the layoffs That Some of the surprise was well you can square hospitality group, it's so successful. And

And you needed to react to What do you think the implications are for the hospitality industry overall? I mean, I know two thousand people is a lot, but it's a small number relative to the number of people working in hospitality. Yeah, I think I think most people don't really understand the magnitude of our industry.

And they don't understand the way we do business. And so Maybe I can just share a couple of those things. I think Unlike the let's say the airline industry where Anybody who's listening

To this right now. can name all the major carriers in the United States. And you go, that's a big industry. Look how many people they move every day. What if I were to tell you that The restaurant industry.

It's much harder to get your Arms around because there's six hundred and sixty thousand restaurants. Not five major carriers, but And what if I were to tell you that we employ more people in the airline industry? And we feed more people every day.

And the airline industry flies every single day. And we buy more products. and help more people pay rent. Now If you want to unwind what I just told you.

It blows my mind. how inefficient our industry is because in order to produce the revenues we produce It takes so many more human beings. then say the tech industry. The tech industry can make a dollar with a tiny fraction of the number of people hired

Then it takes to run a restaurant. A restaurant is basically a manufacturing company. with a sales room attached to it. Manufacturing plant is the kitchen. And the Sales room is the dining room.

And furthermore We're in the real estate business and we're renting spaces. Mostly in locations you would never put a manufacturing plant. In fact our real estate costs and our labor costs make us a very, very inefficient Business.

And yet really one of the nation's most important employers. And that's why even a company like ours. And even The big chains.

Which you would say, Well, that's a public company. They should have all the money in the world. Guess what? the economics of our business are such that If you have no revenues. You just can't keep the lights on. It takes those revenues to eke out.

What on a good day for most restaurants There's a ten percent margin. That's a good day. So now imagine restaurants that are on a five percent margin or three percent margin

Once this crisis hit. Revenues went poof. But you still have fixed costs. So even if you lay off a hundred percent of your team, what about your other obligations? The landlord didn't stop charging rent. The utility companies have not stopped Charging for utilities.

The bank has not Stop charging us for loans. But it's literally a day to day penny. Decision. the companies are making

Do you have any clarity or insight about what the implications of all this are for Shake Shack? I mean This is a business that you helped to found, obviously, and it's got all of the same kinds of Financial. Dynamics that you describe.

For Union Square Hospitality. I think restaurants are restaurants. Shake Shack. has an exceptional leadership team and is making the exact same kind of decisions that every other restaurant makes. Except that I would say

But as a business that grew out of Union Square Hospitality Group before it became a separate public company. The value system is exactly the same and and Shake Shack is making decisions with the exact same Stakeholder model and

Shake Shack has a strong balance sheet, and I trust that with some really tough decisions. Along the way. Shake Shack will prevail in You gotta stay both realistic and optimistic at the same time.

Reality at this moment in time is not fun to contend with. But If you believe that you will be in business on the other end, then every decision you make starts to take on a slightly different framework. In other words

How does this decision today? Increase our odds not only of surviving. But of being in an even better position when this comes out. Some of the hardest things over the over the past four years have been

recruiting great talent. Because Unemployment has been so amazingly low. It's been hard to recruit great talent. I'm actually

Looking forward to the day. If we get to the other side. And I'm being as humble as I can because You and I could be having a whole different talk someday, which I would like not to have. About how this didn't work.

But if we're fortunate enough to get to the other side, I'd like to be in a position to hire even more people. And really think positively about What did we learn in our industry that could make us an even more effective and efficient business model than we are right now? When you've built substantial wealth through your business, it's often tied up in a single equity position. The upside is real, but so is the risk, and knowing when to act isn't always obvious.

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Humans will never be more intelligent than AI. There's gonna be two types of companies. Those are great at AI and those that went out of business because they weren't. How do we build a future? That is human centered. I'm Rana El Calyubi. And on my podcast, Pioneers of AI, we answer that question and so many more.

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I hope to see you there. Before the break, we heard Danny Meyer talk about the difficult decision to lay off most of his team. Now he shares lessons that he learned from his father about what to do and what not to do in tough moments. He also talks about the hopeful positive side of crisis. And why as he puts it, this is a moment for leadership.

When you were on Masters of Scale Earlier one of the conversation topics was about your dad and uh experience you had of him going through bankruptcies. And I'm curious whether in this climate

That occurs to you whether The idea of bankruptcy, not necessarily for Union Square Hospitality Group, because obviously you're trying to avoid anything like that. But Whether there's stigma around that that would be different, whether there are laws around that that would be different. I don't know if you've thought about

reflected on that experience at all. I haven't thought for a second about laws. Or stigma, but I what I have thought about is my dad, and I've thought about How I Really worked.

hard over many, many years to try to learn from the good stuff he did and learn from some of the mistakes he made. The good stuff has served me really, really well. I think he cared deeply about serving people in his business. He was a great entrepreneur. He came up with Interesting ideas that other people hadn't thought of.

And I think that his businesses were all connected to hospitality and travel. And so I learned a lot from him there, but I also learned A couple things not to do. Mostly that had to do with

scaling with the wrong team. I will say that I have thought about The implications. You know, when I talk about the enormous number of businesses in our industry that will probably not be in business. As I said earlier. I don't have the hubris to say that it couldn't be us. It could be us.

I really don't believe that. But I'd say if anything I'm going into triple quadruple overtime. Trying to learn the lessons

About what not to do that my dad did. 'Cause I don't want to go down that path. I saw what that felt like as his son, and I saw what it felt like as his family, and I saw what it felt like For the people who work for him.

This gets back to the first thing we said. The Trying to reconcile laying people off for the purpose of making sure their job is there. It's a weird equation, but It's the bitter medicine that we're taking right now and I will

Certainly do everything I can to make sure we're there on the other side of this and that we thrive. Yeah, I mean it is painful. And I know. In some ways counterintuitive about it, but If you wanna be around tomorrow, I I I mean a lot of executives I think are

faced with this challenge, how do I balance My burn rate with my Human obligations. I'd like to just say a couple of very, very hopeful and positive things, and that's What this has

provoked in a lot of people Is love, this whole thing. I've had And I'm sure you have and your listeners have as well. So many people Who are reaching out, and maybe it's a quick text, or maybe it's an email, or maybe it's a phone call. Only wish I had time to be more thought in all of my responses, but

The number of people who say, I'm just thinking about you It feels really, really good that this is reminding us of that even though this is a time when we are being told not to come together, we are finding ways to join together. A lot of people, believe it or not, have an abundance of jobs to offer right now. And so we're able to post on our company intranet where those jobs are.

It's amazing that there are some businesses right now that are actually doing quite well. And they need help, and so I just love the opportunity to match their need. With the needs that some of our

Laid off employees may have right now. Listen, I the thing that I hear over and over mostly is that people wanna know what they can do to help. They don't always know what they can do. But they want to be available. What I would love to do.

Yeah. To say This country was smart enough. To beat the disease. Or the virus.

And this country was smart enough. To beat the economic mess that it it costs. And so In order to beat the virus, I think we all know that we have to change Our behavior.

in ways that we never thought we would. Mostly having to do with People being with people. In order to get the economy jump started. I would take Any day a sacrifice that said

My behavior changed about being with people, but My willingness to forgo profits for However long this takes. Is exactly what I should be contributing.

So the economic recovery. The only thing is I just don't think it'll help our economic recovery if I go out of business. And I'm speaking now for every business. So If we come out on the other side saying Okay, that was a crappy year for profits, but here we are.

And we've got a workforce. And we've got a business. That would be a great outcome. It is clear how Wrenching this

Decision. And this time is for you. Have you heard back from specific employees about how they feel about this? Do they get The sort of difficult trade off that you're trying to work through? I think so.

I've had a small handful of people who Actually ridden me and say Which kinda blew my mind. I'm actually concerned about you, Danny, and it's like no. This is what I'm here to do, and this is a moment for leadership for sure.

I miss our team. That's my over Welming and prevailing. Feeling. Most of us who

felt a calling to this business did so because We like being with people and we like Doing things that make people feel better. And so I can't wait to be able to

There will be a day and I cannot wait for it where the email goes out saying we need you. Come back. Please. Cannot wait for that. Well, I can't wait for it either.

Danny and I I can't wait to be back eating at your restaurant. So Thank you. Masters of Scale Rapid Response is a wait what original. The show is recorded remotely using sanitized audio gear. It's hosted by me, Bob Safian.

Masters of Scales Editor at Large, and Masters of Scale host Reed Hoffman. Our executive producers are June Cohen and Darren Triff. Our supervising producer is Jay Punjabi. Our producer is Jordan McLeod. Scripts by Christina Gonzalez.

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