September 12, 2024 • 32min
From Crystal Pepsi to Cool Ranch Doritos: Lessons from David Novak
Masters of Scale
Key Takeaways
- Learn from failure: David Novak shares how the Crystal Pepsi flop taught him the importance of really listening to feedback and not rushing products to market without proper testing.
- Recognize truth-tellers: Publicly recognize and celebrate team members who challenge you and help the organization get to better ideas or solutions.
- Use pattern thinking for innovation: Look for patterns and connections across different industries or categories to spark new product ideas, as Novak did in creating Cool Ranch Doritos.
- Balance incremental and breakthrough innovation: Create a culture that seeks both incremental improvements and big swings, with processes to test big ideas before full rollout.
- Focus on culture: Make creating a powerful culture where everyone counts the top priority as a leader to drive innovation and results.
- Be selective about speaking out: Business leaders should focus on running their business and only speak out publicly on major societal issues or when their industry is attacked.
- Look beyond financials: While financial metrics are critical, also hold yourself accountable for creating something great and making the world better.
- Navigate technology changes thoughtfully: Balance the drive for profit optimization through AI/robotics with valuing people and jobs.
- Give time time: When dealing with personal loss and grief, recognize that healing takes time and allow yourself to go through the process.
Introduction
David Novak, co-founder and former CEO of Yum! Brands, joins host Jeff Berman to share lessons from scaling one of the world's largest restaurant companies. Novak grew Yum! Brands from a $4 billion market cap to $32 billion during his tenure. He discusses how his focus on listening, team recognition, and taking big swings helped grow a fast food empire. Novak also reveals lessons from the infamous Crystal Pepsi campaign, how he came up with Cool Ranch Doritos, and what fuels his mission to develop the next generation of leaders.
Topics Discussed
Learning from the Crystal Pepsi Failure (06:09)
Novak recounts the story of Crystal Pepsi, a clear cola he launched while at PepsiCo in the early 1990s. The idea seemed brilliant initially, even garnering national news coverage. However, it ultimately flopped due to rushed execution and not listening to feedback about the taste.
- Key lesson: The importance of really listening to feedback and not rushing products to market without proper testing
- "We rushed it into the marketplace, and in a few markets, we had problems with the product quality. It was sort of cloudy and hazy." - David Novak
- Saturday Night Live even parodied it as "Crystal Gravy", highlighting the embarrassing failure
Recognizing Truth-Tellers in the Organization (10:56)
Novak emphasizes the importance of creating a culture where people feel comfortable speaking truth to power. He shares an anecdote about his CFO pushing him to participate in an employee recognition event when he was focused on an investor presentation.
- Publicly recognize those who challenge you: Novak would share stories of team members who "saved him from himself" to encourage candid feedback
- Built recognition of truth-tellers into the company culture and processes
- "You got to really recognize the truth tellers that are in your company." - David Novak
Pattern Thinking and the Creation of Cool Ranch Doritos (13:55)
Novak shares how the idea for Cool Ranch Doritos came from observing trends in the salad dressing aisle, not the snack aisle. This exemplifies his approach of "pattern thinking" for innovation.
- Look for connections across categories: The popularity of ranch dressing inspired the flavor for Doritos
- Quickly prototyped and launched the product, which became a massive success
- "When you can look at two seemingly different things and then say, hey, how could it possibly unite in whatever I'm working on? I think that's when you can really come up with big ideas." - David Novak
Balancing Incremental and Breakthrough Innovation (16:16)
Novak discusses how to create a culture that encourages big swings while also driving consistent incremental improvements.
- Seek both incremental and breakthrough innovation: Most growth comes from incremental improvements, but also allow for big swing attempts
- Have processes to test big ideas before full rollout to mitigate risks
- Create an environment where people feel free to go for "home runs" occasionally
Learning from Winning and Creating a Strong Culture (18:13)
Novak shares how he approached scaling Yum! Brands from a $4 billion to $32 billion market cap company.
- Study successful companies: Visited and learned from consistently high-performing companies like Walmart, Southwest Airlines, Home Depot
- Focus on culture: Made creating a powerful culture where everyone counts the top priority as CEO
- "If I can create that right work environment, people will innovate and people will go further." - David Novak
When Business Leaders Should Speak Out Publicly (21:04)
Novak gives his perspective on when business leaders should weigh in on political and social issues.
- Focus on running the business: Leaders should primarily concentrate on their core business responsibilities
- Speak out selectively: Only address major societal issues (e.g. George Floyd situation) or when your industry is attacked
- Avoid pressuring employees on political matters
- "I never talked about being a Republican or a Democrat or vote for this person or that person because I didn't really think that that was called for." - David Novak
Evaluating Business Leader Success Beyond Financials (22:56)
Novak discusses how business leaders should measure their success beyond traditional financial metrics.
- Financial results are critical: CEOs are paid to grow share price and deliver financial results
- Create something great: Hold yourself accountable for building a company that makes a real impact
- Improve the world: Boards should hold CEOs accountable for making the world a better place
- "No one wakes up every day wanting to be a part of something mediocre. They want to be a part of something great." - David Novak
Balancing AI/Robotics Optimization with Valuing People (24:33)
Novak addresses the challenge of leveraging AI and robotics for profit optimization while still valuing human employees.
- Can't ignore competitive realities: Businesses must stay competitive on cost structure and customer satisfaction
- Balance technology and people: Understand opportunities while still valuing employees
- Ensure the business flourishes long-term to be able to help people
- "You can't have a blind eye to what's going around you just because of your altruistic beliefs." - David Novak
Dealing with Personal Loss and Grief (25:54)
Novak opens up about coping with the recent loss of his wife and what he's learning through the grieving process.
- Grief comes in waves: Emotions can hit unexpectedly even when you think you're doing fine
- Give time time: Recognize that healing is a process that takes time
- Lean on support systems while also maintaining independence
- "I think what I learned about the whole process is you have to give time time. Sometimes there's no substitute for time, and you just got to give time time." - David Novak
Book Recommendation for Business Leaders (29:10)
Novak recommends the book "Walk the Talk" as an impactful read for entrepreneurs and business leaders.
- Parable about a new company president learning the importance of actions over intentions
- Quick read with powerful lessons on leadership
- "Leaders will judge themselves by their intentions, but your people only judge you by your actions." - David Novak
Improving Leadership in the United States (30:21)
When asked what company he'd like to improve as a "hotshot for a day", Novak chooses the United States of America, expressing his desire to see better leadership emerge.
- Developing better leaders at all levels: Novak's current mission is to make the world better by developing leaders from elementary school through aspiring professionals
- Hope for inspiring national leadership: Desire to see a president emerge that most people recognize as a true leader, even if they don't agree on everything
- "I just wish our country had somebody where you just said, I get it. And I think it's possible." - David Novak
Conclusion
David Novak's journey from marketing executive to CEO of a global restaurant empire offers valuable lessons for leaders at all levels. His emphasis on learning from both successes and failures, recognizing truth-tellers, fostering innovation through pattern thinking, and creating a strong culture where everyone counts provides a blueprint for scaling businesses while maintaining core values. Novak's candid reflections on personal loss and his optimism for developing better leaders across society demonstrate the human side of leadership that often gets overlooked. As businesses navigate technological disruptions and societal pressures, Novak's balanced approach of driving results while making a positive impact offers a compelling model for modern leadership.
