Tuesday, November 20, 2012

Strategic Planning Analogy #477: Waiting for Avocados

There’s a story about the early days of the Chipotle Mexican Grill restaurants.  They had a winning formula which looked poised for rapid growth.  McDonald’s invested in the company in the 1990’s, because they could see the huge growth potential as well.

But there was this little green mush getting in the way, called guacamole.  As the story was told, guacamole was only a minor item on the menu, but a significant roadblock to rapid growth.  The key ingredient in guacamole is avocado.  Avocados are not a particularly widely grown crop.  The acreage devoted to avocado trees in the US at the time was very small.  If Chipotle Mexican Grill was going to hit their growth targets, there would have to be a lot more avocado orchards than currently existed.

But there were three problems.  First, you cannot just plant an avocado pit into the ground and get a tree full of avocados.  Avocado trees grown from seed tend to be barren of fruit.  To get the tree to grow avocados, you need to graft branches of fruit-bearing trees onto the seedling.  That takes a lot of time and effort.

Second, even after the tree is sprouted and grafted, it can take from 5 to 12 years before the tree starts to bear fruit.  So even if Chipotle got an immediate increase in avocado orchards, it would be many, many years before it would impact their ability to make guacamole.

Third, farmers needed to be convinced that demand for avocados would skyrocket before they would make such a commitment to increasing the crop.  Why should they believe that this small restaurant chain of a few dozen outlets (primarily in Colorado) would have enough growth to absorb all of the extra avocado output?  If Chipotle doesn’t follow through on its growth plans, they’d be stuck with crops they couldn’t sell at a profit.  And for the first 5 to 12 years, the farmers wouldn’t have anything to sell from those trees to anybody.

Eventually the folks at Chipotle convinced farmers to increase the output of avocados.  And now, about a dozen years later, Chipotle is selling a lot of guacamole in their more than 1,300 restaurants.  Chipotle claims that on an average day they go through 97,000 pounds of avocados (or about 44,000 kg).  That’s over 17,000 tons of avocados in a year.

Even little things can become big things if you grow large enough.

Some issues can be resolved quickly.  Others take more time.  Avocados are an issue which takes years to adjust.  If you want a lot of avocados in 10 years, you have to start planning for them right now.  Even though avocados were a minor part of the entire menu, they became a major concern when plotting restaurant growth.

A similar situation can happen in many other businesses.  Small items can make a mess out of carefully crafted long-range plans because they cannot be adjusted fast enough to accommodate the plan.  This is particularly true if one ignores the slow changing issue until the last minute.

Therefore, when planning the big picture, you also need to look at the small picture.  You need to find those little “avocados” that can destroy the big picture if you did not start adjusting them soon enough.

The principle here is that a large strategy can only move as fast as its slowest component.  Therefore, if you want to move quickly, you need to find where the slowest components are and find ways to speed them up. 

Not Just Avocados
This applies to a lot more than just avocados.  The US version of the Mars candy bar was originally designed with hazel nuts.  However, Mars was not proactive in getting a grip on the small, slow-adjusting hazelnut market.  As a result, the supply and pricing of hazelnuts was erratic.   It was destroying the elaborate growth plans for the US version of the Mars Bar.  As a result, after introducing the candy bar to the market, Mars changed the formula from hazelnuts to almonds.  The almond market was larger, more stable and could more quickly adjust to the growth requirements of the Mars Bar.   

Of course, using almonds made the Mars Bar less distinctive in the market place and probably made the strategy less successful than originally planned.  But at least it kept the brand alive (at least until 2002).

Another story was less successful.  Back in the 1970s General Mills came out with a cereal called Buc Wheats.  It was sort of like corm flakes except made from buckwheat.  Like avocados and hazelnuts, the buckwheat supply was small and slow adjusting.  General Mills never fully got control in the supply of this ingredient.  As a result, even though the cereal was in high demand, they ceased production.  All because they didn’t do like Chipotle and put early effort behind shoring up the weak link in the strategy.

Not Just Food
This principle also applies to non-food issues.  Many industries, like mining and pharmaceuticals have very long lead times before an investment becomes productive.  I worked with a mining company who understood the long lead times and had already done the hard, slow work to find and secure a replacement site for a mine.  That way, they were prepared for when the current mine was no longer viable and could continue operations uninterrupted.  Had they waited until the first mine was nearly depleted before looking for a replacement, there is a good chance they would have spent years without any mining output (like waiting for avocado trees to reach fruit-bearing years). 

Lately, there has been a large movement in both the mining and pharmaceutical industries to shift strategies more towards acquisitions.  But that’s what you have to do when your efforts to build a pipeline of new products fails and you still want to grow.  You have to buy someone else’s pipeline.  And when you have to buy the pipeline, a big chunk of the profits from that growth are given to the person you bought the pipeline from.

A great example of a company who really understands this principle is Amazon.com.  In the early days of e-commerce there were a lot of companies that wanted to become a huge player in this space.  Nearly all of them quickly disappeared.  Amazon.com is one of the few left standing from those days and it is standing strong.

Why?  Amazon understood that to become a massively successful e-commerce firm for the long haul, it would need a lot of capabilities that are time consuming or expensive to develop.  There were a number of “avocados” they had to deal with, like search capabilities, recommendation engines, one-step check-outs, big-data algorithms, efficient distribution centers, and so on.  Amazon worked very hard in the beginning to master these skills, knowing they would pay long-term dividends. 

With an avocado tree, you don’t get any fruit for many years, but once you reach fruit-bearing years, you get a big crop every year.  Similarly, Amazon did not produce any meaningful profits for a long time because they were putting all the money into growing their avocado trees.  Now those trees are bearing fruit year after year after year.  Not only is Amazon benefitting from those plantings, but they are becoming an outsourcer of choice for other ecommerce firms who did not prepare in advance to plant their own avocado tree infrastructure.

And Amazon hasn’t stopped.  Recent profits were depressed because of the massive spending Amazon was doing to expand internationally.  But Amazon knows that a half-hearted effort will fail.  It needs to really invest big into slow returning infrastructure.  Otherwise it won’t have enough avocados (infrastructure) to handle the growth plan.

And Amazon did not wait until the demise of analog media to work on its replacement.  It made the early investment in Kindle so that it was ready and strong with a replacement when the current stream of profits dry up.

Lessons Learned
So what can we learn from all of this?

  1. Make sure you understand what is needed to make your growth plan succeed (from yourself and from your supply chain).
  2. Put special effort around those issues which require more time and attention in order to not derail your growth plan.
  3. Don’t wait until a need arises before trying to resolve it.  Anticipate what you need and prepare in advance to be sure it is already established when needed.
  4. Be willing to invest in slow-returning areas if they help build long-term enduing strength.   

Most strategies involve growth.  And growth both requires and causes change to the status quo. If you do not anticipate and prepare for the type of change needed to make your growth strategy a success, your strategy will most likely fail.  Since that preparation can take a lot of time and effort, start working on it early in the process.  Otherwise, you may not be prepared in time.  Then, your well-crafted strategy will become a worthless piece of paper.

I guess what I’m asking for is “Patient Greed”—an understanding that you might become a lot wealthier in the long run if you are patient enough to invest early in the right slow-returning activities.  Unfortunately, greed and patience rarely seem to go together.  Greedy people rarely want to wait for the avocados to grow.  But if you are able to put these two qualities together, you will gain a competitive advantage.


  1. Gerald Nanninga,
    Wow! This is a mind-opener post. I have a small thing to add, if you agree. This post provides a great example of Liebig's Barrel. You can fill the barrel only to the height of its shortest wood chip. No matter how much you elongate the already long chips still the capacity will be the same unless you increase the length of the shortest one. This post provides an ample proof for this thinking.

  2. ali anani;

    Thank you for your addition. Liebig's Barrel is another example of this principle. Just because a wood chip is small does not mean it is insignificant. The smallest chip is most important in determining how much the barrel can be filled.