What 1 CEO Learned From Buffett, Schultz, and Others

David Novak is the former CEO of Yum! Brands. He's also the author of the new book How Leaders Learn: Master the Habits of the World's Most Successful People.

Motley Fool host Ricky Mulvey recently caught up with Novak to discuss:

• Using power to empower others.
• Lessons from market-beating executives.
• Why prioritizing people over results is a winning strategy.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on June 1, 2024.

David Novak: The other thing I did is I went out and I spent Monday through Friday talking to the people on the front lines. I'd have these round tables every morning and asking people what's working and what's not working. I would learn what the problems are. Then what I would do is go to the people who knew how to solve those problems and say, hey, let's do it.

Mary Long: I'm Mary Long, and that's David Novak, the co-founder and former CEO of Yum! Brands, which spun off from PepsiCo in the late '90s and operates restaurant brands you know and probably love. KFC, Pizza Hut, Taco Bell, and The Habit Burger Grill. David's also a podcast host and author of the new book How Leaders Learn. My colleague, Ricky Mulvey, caught up with him for a conversation about what he's learned from legendary investors and leaders like Warren Buffett, Howard Schultz, and others.

Ricky Mulvey: You talked to a lot of leaders for our investing audience who have beaten the market and delivered outstanding results for their investors over a long period of time, both in your book and your podcast you recently had on Bill Mudd of Churchill Downs. It's one of those very popular in Kentucky, but for people who are outside or maybe not as familiar with horse racing, might not think about it as much. One of the things that he does is, I think you asked him about, what have you learned about social media? His quick response was, I bring in experts who know about it, and I hire them and listen to them. That's a big theme throughout your book, which is listening to experts, people you can learn from for specific challenges, not just groups of highly paid consultants to come in and teach you about your business.

David Novak: The other thing that is interesting about Bill is he talked about how he attended the Masters, how he attended Super Bowls, all these different sporting events because when the Churchill Downs has the Kentucky Derby, they have 150,000 people show up that day. One thing that I really learned from that podcast with him was how he thinks about the customer experience from the minute someone goes into that Churchill Downs parking lot to the time when they leave, and they have diagnosed that whole chain of events that happens to you as a fan, and they try to make sure all those touch points are really special so that the fan walks out with a great experience. I don't think a lot of leaders really think through the customer experience like Churchill Downs has done. By the way, their market cap has just gone nuts in the last 12 years.

Ricky Mulvey: Thinking about the customer experience often incurs short-term costs. With Bill, you talked about the Kentucky Derby where I think it's 150,000, and he said, the goal on the spreadsheet would be sell more tickets at a higher price. He I would say made a difficult decision to actually lower the capacity of the number of people they allow in to have a better customer experience for everyone attending the Kentucky Derby.

David Novak: Yeah, I think they had, like, $185,000 and it was just too crowded. It made it tougher everybody. But sometimes you have to drop back to go forward, and he's done a great job really navigating that.

Ricky Mulvey: You've brought in leaders when you were the CEO of Yum! to solve very specific challenges. One I'm curious about if you have a story here is Howard Schultz from Starbucks. Do you remember maybe a particular challenge he helped you solve or a piece of advice that he gave you?

David Novak: Well, I think the one thing that Howard really reinforced to our team was just the importance of quality and not letting your standards slip and the belief in the general manager at a Starbucks. We had him come talk to our organization and he talked about how he brought all the general managers, I think it was into New Orleans, so they could really get back to the basics of making good coffee and getting the standards back into the brand. That cost them a lot of money. But it was one of the things that he felt he had to do to shock the system to get people focused on doing the right thing. We used Howard's example to really drive home the fact that quality really matters. The second thing is just that we always felt like our restaurant general manager was the number one leader in our company because if you have a great restaurant general manager, they're going to build the team that's going to make the customers happy. That his view there reinforced our belief. Sometimes when you're trying to push ahead as a leader, you can go to other leaders to learn from, and they may not tell you something different than what you're doing, but they can reinforce what you're doing, which gives what you're doing a lot more credibility. I think Howard is a guy that also is very always pushing the envelope on the customer experience and technology and the things that they were doing in technology we learned from as well.

Ricky Mulvey: What do you do about quality control when you have thousands of restaurants and you're one person in a leadership role?

David Novak: I think the only way when you have a big retail operation that you can get great execution is you have to put process and discipline around what really matters. If having full tacos, for example with enough meat in every taco is important to you, you measure the hell out of it. Because 40% of what you sell is tacos. You better make damn sure they're good. If speed of service is good, you better measure your delivery times. You rack and stack everybody. People know where they stand, and that's the key thing. But you put process and discipline around what really matters, and then you train people around what really matters. That's the only way you can do it. You just can't say, hey, make a good taco. You better train people on how to do it, and then you better measure what you expect and you'll see improvement.

Ricky Mulvey: I would say, you learn about someone as a leader in a time of crisis. As we're talking about tacos, when you co-founded Yum!, there was a very difficult relationship between the franchisees who were very much at odds with the company and threatening to break away, and that was a relationship you had to repair. What did you learn about leadership then and how did you do that?

David Novak: Well, I think when you go into an acrimonious situation, and you're the leader, I think the first thing you have to do is really listen to what people are concerned about. When you have a distrusting situation, you have to be the person that extends trust first. I always felt like nobody's going to trust me unless I trust them. I'm going to trust you until you prove otherwise. I think that philosophy helped us work through a lot of crises we had. I think the issue that you're talking about with our Taco Bell franchisees was we had a food safety issue, which really took a lot of our franchisees in the tough financial territory. I basically told them, I understand exactly where you're at here. I know that you feel like you could lose your business or a great deal of your net worth. But I'm going to stand by you, and we're going to work our way through this. The only thing I expect is that you trust that I'm going to be doing that and that we work on this together, and we don't have any rogue behavior. You're not out there talking about how stupid we are. We worked it through, and our franchisees today are very successful. I remember after we went through that whole experience, they had a meeting out in California and they recognized me and my team for standing by them, and our relationship, because we went through that, I think is one of the best in the industry.

Ricky Mulvey: One of the things you write in the book related to this is, "People, not knowledge or results should be the priority". What's that look like for a leader of a publicly traded company, especially when they have analysts who very much want to know the exact sales that are coming next quarter and the exact margins on these relatively short-term basis?

David Novak: Well, I think that we all want the results that you're talking about, but I think what you have to realize is how you get them. The formula for success and I'd say almost every business is you got to put your people capability first, then you satisfy customers, then you make money. To many times people say, hey, I want to make a lot of money, but they don't realize how you really get there. If you don't have the people capability and the talent to get it done, it's never going to happen. The best investors I know, realize how important it is to have strong culture. The long-term investors, they're never going to invest in any company that doesn't have a strong culture or a CEO that doesn't really make that the highest priority. Because they know that's ultimately how you get the best people and you end up with the best results.

Ricky Mulvey: To put yourself out there is very important. It's one thing you've done throughout your career. You made a very interesting jump as a chief marketing officer of a major food company to a chief operating officer of a food company, which you normally don't hear about those types of transitions. What was that like? I know you gave your boss at the time, a six-month trial period. Take me off it, and there's no hard feelings. But what did you learn in those six months when you were the COO of PepsiCo?

David Novak: I learned when you don't really know something, find the people that do. Tell them you need them. When I went into that, I'll tell you a story of why I felt like it was important that I become a chief operating officer. As a chief marketing officer, I used to meet with Wayne Calloway, the Chairman of PepsiCo. There would always be this, I'd go in with my ideas and my thoughts and tell them what was going on in marketing. Then finally he asked me one day he said, David, what do you want to do in your career? I said, well, I want to be a president of a PepsiCo division, and that was either Frieda Pepsi, Taco Bell, KFC or Pizza. I didn't care which one, but I wanted to be a president. He said, David, you're a really good marketing guy. I said, well, I want to be a president. He goes, David, you're a really good marketing guy. I said, Wayne, I want to be a president. He says, you're a really good marketing guy. I'll make you president of marketing for PepsiCo because we need marketing talent. Well, when I walked out of there, I had the self awareness that if I didn't gain operating experience, I would never be a president of PepsiCo. When the Pepsi chief operating job opened up, I went to my boss and begged for the opportunity to do it. I told them, like you said, I said, you can fire me in six months or put me back into marketing or whatever, but give me a chance. Then I get this job. I'm scared to death. I'd know nothing about operations. I'd been the marketing guy to go into the operating plant and I'd be thinking about my creative ideas, but I really wasn't paying attention to what was going on. But I realized the only way I was going to survive was to get the people who knew a lot about operations and use my power to do what was needed to be done. I got the top operating guys in the company to come in, we talked and they told me all the issues that were within our operations.

I understood what the problems were. Then I got the people who knew what the issues were. I said, what do we need to do to solve these issues? I want you to develop the processes that's going to help us make sure that our bothering plants are run better. They went to work on it, and they did it, and then I yielded my power, to execute it and to get it done. But I couldn't have done it myself because I didn't know enough about operations, but I got people engaged. Then the other thing I did is I went out and I spent Monday through Friday, talking to the people on the front lines. I'd have these round tables every morning and asking people what's working and what's not working. I would learn what the problems are. Then what I would do is go to the people who knew how to solve those problems and say, hey, let's do it. I actually did a pretty good job as the chief operating officer of Pepsi, and it was a reason why I ultimately got promoted by Wayne Calloway and became the president of KFC. But I think two things are really important here. Number one, is I had the self awareness that I was going to have to gain this skill or demonstrate that I could actually make money, understand operations and work with the front line. I wasn't just an array ferry marketing guy. I understood that was self-awareness that I gained. Then the second thing I learned is that you don't have to know everything if you're smart enough to seek out the people that do. Then really listen, understand what it is, and then use your power to galvanize the organization or your team to change what needs to be changed.

Ricky Mulvey: A thread in that is using power to empower others. That's what you do when you're in a space that you're unfamiliar with or maybe if you're trying to make a career change, convince those above you that the first thing you're going to do is really listen to the people who know their stuff and make decisions based off that. One leader who you learned from who I'm sure our investing audience would like to hear about your interactions with is Warren Buffett. That's someone you specifically learned about communication from. What were the lessons that helped you be a better CEO from your time with Warren Buffett?

David Novak: Well, when I became a CEO, I was a good operating guy, but I really did not have necessarily a great background at all in terms of dealing with the investment community. I wanted to learn the best way to do that. I used some of my contacts, and I got an opportunity to go meet with Warren. I said, Warren, what advice would you give me? He said, well, the first thing, he says, you've got to be really honest about your business. Tell everybody you're really in a tough business. It's a retail business. It's really intense competition, and that is challenging, but you're going to be more right than you're going to be wrong, and you've got great brands, and you're going to win. That was one thing he said. Then he said to me, this was really a huge learning for me. He said, David, do you ever talk about what could go wrong in your business? I said, well, not really, because I love our brands, and I go in there I'm pretty enthusiastic about the opportunities the company has. I'm pretty bullish about our opportunities. He said, well, I would highly recommend that you tell people what could potentially go wrong in your business. Tell them the two or three things that they should be aware of if they invest in your stock that could actually, take the stock down. I started doing that. I'd go in and make my presentations that I'd say, I love these brands. I'm passionate about them, but there's three things you need to know about investing in our business and that could potentially go wrong. Most of the time, investors would argue with me and say it's not going to happen. But I found that by bringing those things up, it gave me a lot more credibility with the investment community. I learned the power of what I would call a sober selling. You just got to be sober about your business. You can't act like, oh, man, everything's great, da-da-da-da-da. That sober selling, I think gave me a lot of credibility over time.

Ricky Mulvey: You got a pretty good kudos from Warren Buffett at one point, which is that you made Bertie proud. I think this is a model, whether it's you're doing anything creative or for business, but it's to communicate to just one person. What did it mean to you to get that sentence and hang it up in your office for those who don't know?

David Novak: Well, I asked him about his annual letter. I said, how do you write your annual letter? He says, I think about my sister, Bertie. She's a very smart person. I write this to my sister, and I tell her, this is what businesses I'm in. Here's why I'm in the business, and I lay it out in really simple terms so that she can understand it because she's not a financial person. I really took that to heart and I started to write my annual report letters, and I really tried to think about that same thing, like, I'm writing it to my mother. I sent him my annual report letter and he sent me a note back. He says, Bertie would be proud. You're right. I'm looking at it in my office right here. I'm looking straight across at the letter from Warren Buffett where he sent me that note. But I think the point that he makes is that, a lot of times we over-complicate things. If you're really going to communicate well to your investors or the investment community or your customers or whatever, you need to simplify. Make it simple. I always like to say you need to make your communications duckies and goats. It's like when you read children's books to your kids. They make a point, but it's really simple and everybody gets it. How do you really simplify your communications?

Ricky Mulvey: Well, it's a rhetorical strategy. If something is going wrong, you present as much information as you possibly can for someone to sort through and come to their own conclusions. But in simplicity, you have fewer places to hide.

David Novak: Absolutely.

Ricky Mulvey: You did a tour when you were CEO and you took your partners counsel to visit dynastic companies at the time, it was General Electric, Walmart, Home Depot, Southwest Airlines and Target. It's amazing. Almost all of those have held up. General Electric has since been spun off. Are there any you would add to that today if you were doing a similar tour of companies that are just strong dynasties for leaders to learn from?

David Novak: Yeah. If I was starting a company today and I wanted to go out and figure out what it takes to drive dynasty like performance, and what we did back then, Ricky, is we went to those companies because they had consistent performance year after year. That's what investors value. They don't want you to be up one year and down the next year and up, what people want is just consistent results. That's why we visited those companies at that point in time because they were the companies that had that consistent results, and we created what we called our Yum! dynasty drivers and build our company around what we learned from those companies. But today you'd have to go to Amazon. What a company that is. I think you'd have to go to Apple. You'd have to go to Microsoft. I would want to go to NVIDIA. I would want to go to Netflix. Those are five right off the top that you just got to admire what they've done in the last decade. It's been as impressive as hell. Obviously, Google. How could you not go to Google, if I could get in. These are unbelievable dynastic companies that have great market positions and have figured out a way to keep things moving and keep things moving forward. Same way with Meta. I know I'm dealing with the magnificent seven or more, but how can you argue with what they've done? If you could get in and learn from any one of those CEOs or any one of those management teams, you'd be crazy if you didn't take that opportunity.

Ricky Mulvey: All of those are heavy tech companies. Whereas before it were retailers.

David Novak: Well, that's what's happened. Things change. The Walmarts, the Targets, they got attacked by Amazon. They got totally disrupted, it took them a while, but now they've got that digital business that they need, and they got a chance now. But if they wouldn't adjust it, if they'd have been like Sears and Kmart, good luck, goodnight Irene. They had to bite the bullet to be competitive and now they've got the hard assets and they've got the digital and they've got a chance to win.

Ricky Mulvey: I want to talk about recognition culture for a little bit because if you're not only important for emerging leaders, but also for investors, one thing you might want to look for is if the CEO is recognizing the people around them, you did it with floppy chickens, signing them and then handing them out to folks with a crisp $100 bill, so they remembered that they were doing something well, and it wasn't something that was always given out. I think someone you also feature who investors might want to hear this story is Tony Xu over at DoorDash, and he does this a little bit differently, which is making those in corporate go out and do food deliveries, so they know what it's like on the front lines.

David Novak: Absolutely. He started out the business by making deliveries himself, and he never lost that. His parents were in the restaurant business and he saw the importance of really understanding every aspect of the business. He still does deliveries, and he still has his team go out and experience the business from the front-line perspective. That is such a powerful way to not only learn what's going on, and understand how you can improve your operating processes to drive more reliable results, but it's also great recognition that you're giving the front line in terms of how much you value what they do because you expect everybody on your management team to understand what it takes to really deliver the DoorDash expectation, which I think is great. One thing about recognition that I think people really need to understand, a lot of leaders say, well, I'm not really that good at recognizing people, or it's not going to work in my category because let's say I'm an engineer, I'm into technology. People aren't into recognition. First of all, that's a bunch BS, but what I always say is, if you've got a engineering company, what behaviors are going to drive your results? For example, the person might say, well, we got to be on time. We got to be innovative with our customers. We got to be on budget. Those are three things. I said, well, why don't you start recognizing the hell out of people, every time you see people who are on time, on budget and innovative? Guess what's going to happen. You're going to see more innovation, more people being on time. You'll see those behaviors being executed. I call it recognize on purpose. Whatever your cultural behaviors are, they should be the behaviors that are going to drive results, and then you recognize those behaviors every time you see them, and then you'll get people executing those behaviors on a much more frequent basis.

Ricky Mulvey: David Novak, I appreciate the time you've spent with us listeners on Motley Fool Money. Thank you so much for your time, insight and the conversation.

David Novak: Thank you, Ricky. I appreciate it.

Mary Long: As always, people in the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, don't buy or sell stocks based solely on what you hear. I'm Mary Long. Thanks for listening. We'll see you tomorrow.