Zingerman's Community of Businesses

Business schools have long taught that a successful small business should “go to scale” by multiplying themselves through franchising or branching. This then enables entrepreneurs to sell the company to a global player and cash out as multi-millionaires. Hundreds of other major restaurant chains have followed this path, from low-end pizzerias like Uno’s, to high-end steakhouses like Morton’s, to delis like Schlotzsky’s.

Paul and Ari, however, rejected this from the outset. They have long believed that quality comes from a business being one-of-a-kind. Says Paul, “We knew we wanted to have just one store and that we were not going to grow by replicating ourselves. For us, by definition, if there was more than one store, it wasn’t unique anymore. This wasn’t a political belief or ideology; it was a lifestyle we wanted to live.” That lifestyle meant hanging around the store, getting to know the employees and customers, and continually fine-tuning their goods and services for the Ann Arbor community.

As Paul told the New York Times, “We’ve had dozens and dozens of opportunities to franchise, sell the name, take the check, and walk away.” Some suggest that staying local means repudiating growth. To the contrary, Zingerman’s has grown spectacularly but in one place. Paul clarifies: “We grow deep.” This is increasingly the philosophy of smart local entrepreneurs, as documented by Inc Magazine editor Bo Burlington in his 2006 book, Small Giants, which profiled Zingerman’s and 13 similar community-based businesses.

Each of the eight Zingerman’s companies is a separate legal entity, locally owned and controlled. The older companies are C-Corporations; the newer ones are LLCs. Each is owned by one to three shareholders, or “partners” as they call one another, one of which is Paul and Ari’s jointly-owned company, Dancing Sandwich Enterprises.

A ninth ZCoB entity, largely invisible from the public, is Zingerman’s Service Network, Inc., a C-Corporation that provides all the enterprises services related to financial leadership and management, payroll and benefits, human resources, information technology, marketing, and graphics. This is the one business in which partners play an especially engaged role.

All the companies are independent of one another, but all 15 partners subscribe to a common set of guiding principles and make all major governance decisions across the companies by consensus. The partners meet every two weeks to report on their operations, to troubleshoot, and to plan for the future. “In the eyes of public,” clarifies Paul, “we’re one business because they don’t know how we’re set up. We strive to have the same quality levels, service levels, and pricing.”

This    structure    requires    enormous    amounts    of communication. As Paul explains, “The other businesses don’t control you, but you want their support. We will discuss things way in advance and allow others to give input. It’s your decision to make, but at least make a decision that everyone can live with. This is why we meet every other week, as all decisions are by consensus.”

Growing deep has enabled Zingerman’s to achieve important improvements in quality. Businesses like the bakery and the creamery improve the quality of foodstuffs going into the delicatessen and the Roadhouse. Building local loyalty around the Zingerman’s brand motivates satisfied customers at one business to try the others. And the sheer diversity of businesses hedges risk, balancing the challenges in one business with the success of the others.

Growing deep also has meant giving employees a greater stake in the decision making. In addition to providing employees with health care, food discounts, and generous vacations (as much as six weeks after 20 years), the partners involve employees in setting the goals for each enterprise every year, and share part of the profits whenever the goals are exceeded. Vision 2020 also sets out an organizational imperative for diversifying the staff and partners group, and this in turn has led Zingerman’s to develop closer partnerships with local high schools, community colleges, and universities.

For the future, Paul and Ari have begun exploring ways to allow all employees to share in the financial success of Dancing Sandwich Enterprises, the holding company currently owned by the two co- founders.