Below are some excerpts from our conversation with  Jeff Buckwalter, CEO of The Holy Donut, a Portland, Maine based retail and wholesale donut company whose hand-cut, hand-glazed potato donuts have developed a crazed following both locally and beyond.  With demand far exceeding supply for his donuts and persistent inquiries for expansion and even franchising, Jeff talks about his efforts to build the infrastructure necessary to support a growing company, the value of trust and accountability in developing his workforce, and the importance of conflict in a healthy organization.

You can listen to the full episode by clicking the audio image below, on our website, or on iTunes (more podcast players coming soon!).  Know someone who would be great on the Big Time Small Business podcast?  E-mail in at podcast@chenmarkcapital.com.

Good luck, break an ankle!

Opening that store was just diving in every day–12, 16-hour days–just making donuts and selling donuts.  [Breaking my ankle and being] laid me up like that, I couldn’t make donuts and I couldn’t serve donuts, so I really dove into the financials of the company, which I hadn’t done yet to that point.  It was a shoebox business. There was no P&L.  There was no General Ledger.  It was a checkbook company.  We weren’t profitable.  We were just treading water.  We [had to] set up the accounting systems and all the general ledger codes to really understand where we were bleeding.  I think a lot of small companies bleed to death and don’t even ever know where they were injured. That’s the situation that we saw ourselves in.

Had I just toiled away for another few months, we could have easily gone bankrupt.  We were bleeding cash from every orifice.  Our overage could zap our profitability pretty quickly.  That winter was all about putting financial systems in place, tightening things [up], getting a handbook in place, [and] really creating and developing a culture of accountability.  I’m not certain I would have been forced to take a step back and look at the guts of the business had that not happened.  In retrospect, I think we’re pretty fortunate.

The ‘C’ word

“Corporate” is the awful ‘C’ word in small business.  It all depends on how you frame that. You can say we want to be more organized.  We want to have less chaos. We want to have more predictability. We want more job security. That’s awesome.

All those things come when you have a little bit of that corporate-ness, but how much is enough?  I think that’s the interesting balance that we’ll probably always be trying to find the right mix of.  We don’t want it to be so much, so corporate-y that we lose the soul of our business as we try to scale this thing, but also, you’re fooling yourself if you feel like you can really grow and scale a business without some of that corporate-ness.

Just say “No”

We say no a lot. We have lots of people knocking on our doors for franchises and for new locations. That’s interesting and that’s cool, but where I think we’ve done a really good job is really staying disciplined and not outpacing our human resources and infrastructure.  We understand–I think pretty well–where we’re at in the grand scheme of things.  Leigh and I both envision having more locations in the future, but the how is something that we’re really focused on.  There are always going to be trade-offs as you scale a company.  [We’re] really trying to make good, sound decisions on what trade-offs are fair ones to make and which ones we can never, ever step on as we start to grow.

Are you ready?

I think if you wait until you’re ready–it’s like having kids–you’ll never have them.  But when are you ready enough?  For me, it’s looking at the growth of our managers, the growth of our profitability, [and] the growth of our predictability in terms of our processes.  I have to see progress, growth, and consistency in those areas.  We’ve been super lucky to have the capital for future growth, but none of that matters if I don’t have the human infrastructure to manage those things.  Opening up a new store, great, that might cost X amount of money to go do that.  But if I don’t have a good leader in place, then that place will not be profitable, and it won’t achieve its potential.

I think a good coach and a good CEO is always pushing, but how far is too far?  Everybody needs to live just north of their comfort zone. I can certainly admit that I’ve been guilty of pushing people maybe a little bit too far beyond it, but we’re terribly invested in making sure that this company fulfills its potential.  It’s really not about donuts.  The donuts are the conduit.  We have a lot that we can bring to the communities that we do business in.  We have a lot of opportunities that we can [provide] for our budding managers and staff.

Profits can be foreboding

The last couple of years, we’ve seen tremendous growth and profitability as we’ve made refinements and made better business decisions, but I think we’ve achieved a little bit of a false EBITDA [a measure of profitability].  That number is great, but is that a sustainable number relative to other people in our industry?

I fell in the trap of maybe trying to do too much with too little in terms of human resources and I wasn’t making enough investment in training my management staff.  All of that was relatively glaring and I had to swallow hard and be like, “Look, that’s a mistake.  If you’re really going to scale this thing, you better start investing some of that capital that you’re saving right now into managers, leaders and extra layers.”  From an accounting and HR standpoint, we’ve made some great strides there.  It’s just opening my eyes a little bit in terms of what it really means to run a company this size and to grow it to the size that Leigh and I both believe it can achieve.

Let it go

[My] job is to start things and hand them off.  That requires a lot of trust, to be very honest.  I think that’s something that I struggle with, and probably everybody does, but at the end of the day, you’re going to be limited in terms of how much you can grow an organization.  My job is really to get things done through others.  No one’s perfect. You can either cap yourself in terms of what you’re going to do in your business, or you can extend trust.  When you extend trust, you’re going to get disappointed sometimes. That’s just the way of it.  But if you’re not willing to let things go, I don’t believe you can really grow an organization. 

Conflict is necessary

You can get heated and [arguments] can get elevated, but that just means you’re passionate.  There’s nothing inherently wrong with that as long as things don’t get to a personal, attacking level and as long as we all agree it’s for the greater good.  You have to allow people to be passionate and to disagree.  I think that’s how you get to the heart of matters.  I think too frequently people don’t speak their mind, and it’s just too easy, too smooth sailing.  Whenever that goes on for too long in our business, somebody’s not speaking their mind.  How do you ignite a little bit of that conflict?

And that’s really what I’ve tried to foster a recognition of in the work we do.  Fortunately, we do a lot of work in the public sector, state and federal levels, and a lot of what we do directly impacts people’s lives, hopefully for the better.