In-N-Out's People Strategy Breaks The Universe

I was reading this morning that store managers at In-N-Out make more money than a starting Software Engineer, on average roughly $160,000 usd, triple the industry average for this job.

Keep in mind average profit margin in the restaurant industry is about 3%, while for technology it may be something more like 60%. The economics of retail and food businesses make it impossible to pay employees high wages profitably. I recall at PetSmart if we gave a 5 cent per hour raise to all associates we would blow through a million dollar budget very very quickly. A few shots of that and we would have both received nothing in return and gone out of business.

Choosing a few key positions to pay extraordinary rewards is a counterintuitive winning model for organizations that operate under conditions requiring lots of low skilled labor - generally speaking a mostly minimum wage workforce.

The problem with a low skilled low wage workforce is that absent a mitigating people strategy you end up with a lot of people who take the job as a temporary means to an end, not as a career, and so they couldn't care less about you, your customers or your business, which is not surprising roughly the same way they are treated by management. The business is a revolving door and it feels that way when you walk inside.

So the solution is to create lucrative key roles and pay extraordinary rewards to them. These roles operate as attractive features for people who take your company and their work seriously. When you do this you have the pick of the lot for key roles AND if they turn out to be bad picks you have a lot of people waiting to take their place. Finally, people who join your team know that if they work hard the company cares and they could make a career at this place if they want to. These are important ideas to put in people's minds.

This strategy is contingent upon measured expansion. The economics of the business must be there for continuous expansion or you run low on key positions and the model eventually collapses.

"Jayaraman said In-N-Out wasn’t performing charity — a loyal workforce means increased productivity, less employee turnover, and in the long run larger profits. Our research shows that companies that take the high road make a profit not in spite of paying their workers better but because they pay their workers better,” she said.

The statements above are true-ish, but contingent upon growth and on careful strategy of where you place your dollars : key roles.

My advertising pitch. These are fun simple mathematical exercises for People Analysts... you should have one or two of those.