I recently interviewed former Sonic CEO Clifford Hudson on my podcast, Thirty Minute Mentors. Here is a transcript of our interview:
Adam: Our guest today was the leader of the largest drive-in fast food chain in America. Clifford Hudson was the CEO of Sonic, which grew from $800 million to $4.5 billion in annual revenue and to more than 3,600 locations while Cliff was CEO. Cliff is the author of Master of None, How a Jack of All Trades Can Still Reach the Top, and is the co-author of the new book, Bricks and Clicks: How We Drove Sonic into the Digital Age. Cliff, thank you for joining us.
Clifford: Thank you for the opportunity.
Adam: You’re an Oklahoma City native. You moved to Oklahoma City when you were in grade school, and you were active in student government in high school and in college at the University of Oklahoma before going to Georgetown Law School and kicking off your career as a lawyer. Can you take listeners back to your early days? What early experiences and lessons shaped your worldview and the trajectory of your success?
Clifford: Some early formative things that affected me heavily. One, just in terms of taking care of business and taking care of my family. When I was 11 years old, my dad’s business partner had been embezzling from him. As I was finishing fifth grade, we lost our dream home. Ultimately, that was why we left Texas and moved to Oklahoma City. Instead of working for himself, he had a new job. As a salesman for two or three years before he got into business for himself again. So highly formative. And when I was in my thirties, our company went public, and I had kind of a liquidity event with that. The first thing I did was pay off the house and never put any more debt on it again. Now, aside from that, I got into junior high and had been in choir all my life, church choirs mostly. But in junior high, we of course had the Boys Glee Club. And in my eighth-grade year, I was president of the Boys Glee Club. A couple of times when the teacher was gone, they brought in a substitute who knew nothing about music. I would have to lead the boys in warm-up exercises and lead them through practice of our music that we had. So when you do that at 13 or 14 years old, and the boys in fact respond to you, and they’re singing four-part harmonies and so on, it actually changes your self-concept as to who you are, your own potential, how other people might look at you, and so on. For me, that continued into high school. Both in terms of the personally formative, but also from a social standpoint. I went to a high school where my freshman year was the first year of court-ordered desegregation. And it was a very, very tense year. And I can’t overemphasize that characteristic. But I got involved in student activities, student government, and so on, and things that would help communication among students and reduce tension. In my junior year, I was president of the Human Relations Club, which was so focused on peace amongst the students. And my senior year, I was president of the student government, which effectively was president of the student body, the student body-wide election. So by the time I finished high school, both my different perspectives about different kids from different walks of life, very different experiences. I’d had quite an education there, but I’d also had a lot of personal development about how to get people with different voices to sing harmonies, you might say. And this was highly formative for me for the rest of my life.
Adam: Leadership is leadership, whether you’re leading an eighth-grade glee club, whether you’re leading in student government, whether you’re leading a private company, a public company, in the boardroom, on the basketball court, on the battlefield. The core principles of effective leadership are universal. And I would love to know if you could share with listeners in your experience, what are the keys to effective leadership, and what can anyone do to become a better leader?
Clifford: Well, depending upon the circumstance, I mean, as you point out, there are common characteristics regardless, but there are some characteristics in terms of communication with people, in terms of consistency in communication, in terms of caring about the people that you’re leading. And part of what I’m referring to there in terms of being an effective leader, but the communication piece, it’s not just the ability to communicate effectively, but integrity about what you’re communicating to them in the event that there are inconsistencies. Of what you communicate in private versus what you say in public,c employees or others in the community are going to see through that. And particularly if you’re asking people to sacrifice something among themselves. For your leadership and franchise organization, what are they doing with putting their money up? They’re mortgaging the future, they’re mortgaging the homes and kids’ futures, and so on. So they need to be able to believe you. So it’s not just the competency about what you propose, it is the consistency and the implicit in that consistency, the integrity, the truthfulness, and so on. And then the third element I mentioned was caring about people.e I don’t mean by that for a minute that you try to be nice to people. If you are, that’s fine, that’s good. But what I mean more by that, being an effective leader of people, is that people trust that your actions are intended to help them achieve their success. And my belief is that when subordinates or people that you hope are following you, when they believe that the actions you’re taking are intended to drive their success, the likelihood of them following you goes straight up. And if they believe the opposite, then the reverse is going to happen. So I think these are common characteristics that the communication exhibits competency, communication piece with consistency, integrity, and then showing the care of folks that their success is important to you. And when they believe that, then you can achieve all kinds of things together.
Adam: competency, consistency, communicating with honesty, with integrity, leading by example. You broke it down perfectly. That one question that you should ask yourself is, are my actions helping the people who I’m leading achieve success? If the answer is yes, and if the people you lead understand that the answer is yes, you’re going to be a successful leader.
Clifford: This is a critical characteristic, the people, whatever the leadership position is, that they have a fundamental belief that the actions you’re taking are intended to be for their benefit as well. And it doesn’t mean it has to be for their benefit alone. In all these circumstances, you’re talking about dealing with groups of people, leading groups of people. So it is generally in their best interest. It may be specifically for them for some reason that you’ve lined out for them, but generally it’s going to be for the organization, whether it’s business, military, athletics, whatever. But I do think that’s a critical piece. When people stop believing it, it undermines the cohesion of the organization. Bad news.
Adam: You graduated from Georgetown Law School. You started your career as a lawyer. You wound up going in-house at Sonic before becoming the CEO of Sonic. What were the keys to rising in your career, and what can anyone do to rise in their career?
Clifford: Well, good question. For me, it was when I joined the company that I was still pretty young. One of the big jobs for a lawyer is to, in one way or another, manage risk for the organization. And you try to reduce risk in a variety of ways. For your client or your employer. Someone does that for 20 and 25 years, it really dictates their head construct at that point. I’d only been practicing law for four years when I joined Sonic. They had a new CEO who was 36. I was 29. He looked like an old guy to me. And so I took the job. On the one hand, a lot of transactions and, yes, trying to put things together in a way that limited the risk for the company. But my boss wanted to buy the company. So in one way or another, I kind of started working on that fairly soon after joining the company. So the effect of this was that because we were successful, we, the management team, were successful in a leveraged management-led, leveraged buyout. None of us had any money. And so the only way we were going to buy anything was going to be by using the company’s assets, leveraging the company to buy it. So I had to learn a lot about the company, how to make money, how not to make money, and how we could go about reducing the debt. We bought the company, so on and so forth, and we bought it two years after I joined the company. We recapitalized it, restructured the ownership two years later. We took it public two years later still. And each step along the way required me to be able to sell it to bankers, sell it to investors. I worked extremely closely with the CEO on each of those transactions. I actually pretty much led the transactional aspects of each of those transactions at a pretty young age, 31, 33, 35. And by the time we went public, though I had no finance and accounting academic background, I’d had a complete on-the-job training on corporate finance. So when we went public, my boss, to my surprise, asked me to move from the general counselor’s job to chief financial officer. This got me out of the legal field formally and started broadening my relationship, a different statement to the board, maybe to our franchisees, maybe to our stockholders. And by the time I’d been CFO for a year, I’d been with the company almost 10 years. And as I said, we’d done two leveraged buyout transactions, one IPO, and then I had moved to the CFO job, therefore working with multi-year business plans, budgets, board communications, and stock market communications. So I had really gotten a big education about the company, even though I still had a line job, you might say. The twist that occurred then, Adam, was that because I’d been with the company almost 10 years and I was approaching the age of 40, which to me said that I was going to die soon or something. I went to my boss and I said, You know, I’m going to leave. We’ve had this IPO, and I’ve had this liquidity event. I’m about to turn 40, and I’m going to go out and see what else the world offers. And he was a little chagrined with that. He was quiet for a while. And then he came back and said, Why don’t you just stay here and run the company? You can be the chief operating officer. Everybody will report to you. You report to me, a nd you can run the company. And so I thought, well, that’s a heck of an offer. Here, I thought I would leave the company to have a different experience. But at that moment, I thought, well, if I can stay here and have a different experience, why not do that? And so I did. And this is now said to the employees and the board and the world, this guy’s running the company, even if he’s not CEO, he’s running the company day to day. And the,n to my surprise, a year and a half later, my boss left. And literally the day he left, the board turned to me and said, Do you want to be CEO? And so I was offered the opportunity without applying for it. So I became CEO then, after having been with the company 11 years and having had the wonderful fortune to have had an apprenticeship for 11 years to learn about this company, including building my own management team and so on. And so from there, you talked about the outset, we had some building plans, and things started working well, and they just built on each other, built and built. It was an interesting run.
Adam: Cliff, there’s a lot about that interesting run that I want to unpack. Starting off with that moment when you went to your boss and said, I’m 40. You didn’t say to him, Life is about to end, but you thought to yourself, Life is about to end. But he said, I’m out of here. I’m going to leave. And he said, instead of leaving, why don’t you become COO? And there are so many people out there who are at that crossroads in their career where they feel like they’re not necessarily getting as much as they believe they can out of their current role. They think they can get more. What advice would you give?
Clifford: The first thing would be in touch with yourself about why you’re thinking about jumping, and make sure that it’s all positive motivators. You know, it’s not out of anger, it’s not out of resentment, but rather if you feel like you’ve hit a dead end where you are, and or a position perhaps being offered to you opens up a path that your current position won’t. If you have a number of years investment with an organization, and particularly if the organization is growing and opportunity is going to be available one way or another, if it is growing and you just don’t know what the opportunity is going to be, And perhaps you owe it to yourself before making a leap to sit down with someone in the organization, someone of influence and someone with a good assessment of how you’re thought of and what your path might be, and kind of lay that out so that you don’t walk away from something that could end up being a stronger base and a stronger upside in the long run because of the education that you’ve had in the first place, meaning you jump to a new job and you lose that base. So one, I think you probably owe it to yourself to make sure, before you jump, that you’re not jumping to something for what seems like a fresh opportunity. And maybe it’ll be better, maybe it won’t. I once had a person jump to a smaller company because they offered her an officer position. And when she showed up and said, Where’s my staff? They said, we didn’t promise you any staff. So she got the officer position, but she was actually in a worse position than she’d been in. She stayed with us. So being in touch with yourself about why you’re jumping and then making sure that what you’re jumping to really is going to provide more opportunity for you over time. I was in the fortunate position that Sonic had gone through a fantastic turnaround, and it was about to start growing. Now that would have been hard to predict, but to the point that by the time I became CEO, the turnaround had been fantastic. The store count had not grown that much. What we were about to do was just enter into an explosion of growth that would last 20 years. So, back to the advice about folks, be in touch with yourself about why. Make sure that the best opportunity isn’t the one you already have under your belt, and there’s going to be an opportunity for growth and development before you take the leap. But if your current situation is stagnant, you don’t see a way through that. And the best way to be able to engage in growth is by departing from your employer. Then, when a better opportunity comes along and it’s clear it’s a better opportunity, then take that opportunity.
Adam: You were describing how you were able to rise within your career and ultimately become the CEO of Sonic. You were talking about going out and selling all the time, and that ties in to what you shared when you were talking about what leaders need to do to be effective. Leaders need to be successful communicators and Something that I hear from so many of the most successful leaders that I talk to is that one of the most important skills that anyone today needs to develop, if not the most important skill, is the ability to persuade. How can anyone become a better communicator? How can anyone become more effective at selling? How can anyone become more effective at persuading?
Clifford: Make sure you understand your potential buyer. And in other words, what are their values? What do they want out of something? And therefore, what’s the best way to sell to them? So I may, as an example, go back to Sonic, the number one thing we had to sell as a franchise, at least in terms of supporting growth, one thing I had to sell beyond the franchise was investment to public stockholders. So how I would talk to public stockholders about why Sonic should be attracted to them was slightly different from how I would talk to a franchisee about it. And so I think you have to be mindful about who you’re trying to sell and what it is you’re trying to sell. And then you need to fashion truthfully. I don’t mean giving opposite stories in different situations, but you need to fashion your pitch based on who it is you’re selling to in a way that will appeal to them most. And in doing so, you increase the likelihood of somebody, you know quote, buying. It’s less about the necessity for a hard sell and more about fashioning the proposal to fit the buyer, but doing so truthfully.
Adam: A lot of what you’re sharing really centers around doing the work, doing the research, listening, and something else that you shared as we were talking about the essentials of successful leadership. Being honest, being authentic, being genuine, not trying to be something that you’re not, not being one thing for one person and something else for another person, being yourself, and putting forth the best solution for the person you’re persuading.
Clifford: If you’re not authentic, people are going to pick up on that pretty fast. That’s not going to get you anywhere, you know, in the long run. And most of the things we’re talking about, particularly if it’s a franchising business, they’re going to be watching you for the long run. So consistency and authenticity are two big characteristics people want to see.
Adam: What were the keys to growing and scaling Soni,c, and what advice do you have for anyone on how to grow and scale their business?
Clifford: Good question, because I think most of us want to do that. I used to say to our operators, the world’s turning. You may think you’re standing still, but if you’re standing still, you’re falling behind because things are changing around you. So don’t stand still. You’re either going to move forward or fall back. So let’s try to move forward together. That was my pitch to them. I always talk to people in terms of opportunity and building opportunities, so that everyone liked the concept of more opportunities for themselves, and that a franchise operator, when they opened a new store, had the consequence of hiring 20, 30 people. At that drive-in, it may be in many cases their first job. I mean, in many cases, it is. In our industry, industry, it is the first job. You’re hiring a lot of 16-, 17-, 18-year-olds into a first job. But beyond that, it’s hiring a system manager at one of your other stores to become the manager of the next store, creating an opportunity for them. It’s a multi-store supervisor that is overseeing four stores, and this becomes a fifth store, and so helps them out enormously. It’s all the vendors that help you get into business and or operate your stores, helping those vendors in terms of increasing. And obviously, then for the individual franchisee, if the store is successful, which you expect it to be, they’re increasing their portfolio. So it really is about the momentum of a business and working to increase store-level profitability. But then, for someone adding stores, it means they’re improving their aggregate profitability. And in the pitch to them, you can’t sit still. The world’s going to keep moving. Do you want your competitor to outpace you in that marketplace, or do you want to outpace your competitor? And then all the while helping them grow their business in such a way that it is not just successful on an individual store basis, but from an enterprise standpoint, sustainable, you know, sustainable operations, sustainable growth. So my pitch always was we’re about creating opportunity for people, and growth is one of the best ways to do that.
Adam: When you say the world keeps moving, it really ties into the focus of your new book, which is how you were able to drive Sonic into the digital age. How can leaders drive their businesses into this new digital age?
Clifford: One is thinking about it from the nuts and bolts standpoint of the underpinnings of how you operate your business, keeping things current with technology. But the bigger thing that many businesses have not kept current on isass their customers have evolved rapidly in the use of technology, many businesses have not necessarily changed their method of engaging the customer, consistent with the way the customer is changing. And a lot of that means through technology, through certain devices, through social media, through broader means of communication, of ways to reach customers and inform them of what you’re offering, allow them to purchase it, pay for it, whatever it is. You know, the most simple example I can give you, because these things occur in stages, even though more and more we did it with a broader design, but the first new technology program I caused to be implemented at Sonic was in 2001-2-3, and that was to attach credit card readers to the menu housing when you pulled into the stall at a Sonic drive-in. Before that time, the only way you could pay for something you could pay with a credit card, but 95% of our sales came in cash. And why was that? Well, because if you want to pay with a credit card, you have to hand the card over to the car hop, who would disappear with that card. And come back a few minutes later and give you your card back. And in essence, this was a disincentive for people to use credit cards. So in 2001, 95% of our business was cash. In 2001, we also hit 2 billion in sales. Now, between that time and when I left the company, we sold the company in 2018. We grew from $2 billion to $4.5 billion in sales. I can tell you that 100% of that incremental difference, $2.5 billion, from $2 to $4.5, 100% of that incremental difference came to us through credit cards. So the attachment of a credit card reader to a menu housing in a parking stall meant that people only wanted to use a credit card. Two, when they used it, they spent 40% more than when they paid cash. Our average cash check was $5. When people use credit cards, the average check is seven bucks. So it was great for sales, great for profit, very convenient for the customer, and convenient for the operator. You didn’t have to have a Carhub run two trips. They simply paid for it with a credit card, and Carhub didn’t have to do anything in terms of collecting for the transaction. So that was an application of technology that really was utilized to increase the convenience for the customer and even for the operator, and one that the customers embraced fully, and it was hugely profitable for our company. There’s a simple explanation. Operators, by the way, resisted a little bit upfront because of the cost, but the payback was so fast. Now, later on, once the technology became more complex and we’re talking about new point of sale systems and so on, you know, my pitch to them was our point of sale systems are antiquated. We’re going to need to update regardless. However, if we integrate all of these systems that we’re installing, we’ll get a lot more out of them, and it’s not going to cost you, the operator, anything more. So that was the pitch to them. We had video screens on the menu housings in the parking stall, but we had our vendors pay for that because we advertise our vendors’ products. So we tried to do it in such a way that the integration of these things didn’t cost the operator any more, even though there was this huge investment. But the consequences, literally just as we were selling the company, it was unfortunate. I would have loved to have stayed around and managed the effect of it. The customer is able to order off premises, pay off premises, and pull in. Instead of waiting four minutes to get food, we literally had customers when they ordered off-premises and paid off-premises. Instead of our goal of four minutes, customers got there, made-to-order food in one minute and 50 seconds, and they were gone. So the impact on the business was huge when COVID hit. After we sold the company, people were using that left and right, just exploded. And we talk about that in our book, when I say we, my coauthor, Craig Miller, who was my chief information officer, my partner in all of that. We talk about that in the book, Bricks and Clicks. But it was a long process, a tough process, selling items at a time in the context of a broader picture, trying to show people that it would take their business to a stronger and better place. That’ll be stronger for their customers as well. They make more money as a consequence. But also in this world, this digital world, we didn’t have any choice. We needed to move where our customer was going, period.
Adam: You shared a lot of really important themes, starting off with the power of leadership and the power of persuasion. Leaders who can articulate a powerful vision and build buy-in from customers, from partners, from employees, from vendors, from all the stakeholders are going to be able to get to where they want to be.
Clifford: That’s true. Technology is one of the biggest ways to conceptualize this. We were mindful of the Wayne Gretzky quote when he would say, I skate to where the puck is going. And when we did credit card readers attached to the menu housing 25 years ago, today, it seems obvious, but when we did that, we skated to where the puck was going as related to the customer and the use of credit cards and transactions. Before 2000, not so common, but a younger population in particular was going to be doing that like crazy. And so we skated to where the puck was going, and so the customer went with us. And with the other elements as well, the mobile order, mobile pay, the ordering on an app, the payment on an app, the ability to remove barriers for customers in terms of speed and convenience, each of those was skating to where the puck was going. And the folks that bought our company in 2018, at least in 1920 and 21, they benefit from that enormously, and not so much since then. But those systems work like clockwork. And particularly during COVID, which sped up so many uses of technology. Man, it was extraordinary how well they worked through COVID. Just amazing.
Adam: Cliff, what you’re really speaking to is the ability to drive innovation, foster a culture of innovation.
Clifford: Well, I think that leaders have to, one, start with the customer, understand who your customer is and what their needs are, and how you can address those needs better. But then ask and answer the question, how can you use technology to be woven into your business? It’s not just a question of having an app. How are you going to weave it into the brand experience so that it increases the convenience for your customer and or your operator, but it’s got to be for the customer. How do you weave that in such a way that you stay true to the brand experience on the one hand and yet improve the customer experience on the other so that it is a win-win deal, and both of you come out ahead, you come out ahead, your customer comes out ahead. But the leader in the business has to think about how it is integrated into the business, not how it is built as a standalone, separate project. This is where the CEO can’t look at technology as something to turn over to the tech guys. They’ve got to think about it as a customer engagement initiative. And how is it woven into the brand experience in such a way that is true to the brand and yet more highly convenient for the customer? That’s the dance. It’s a tricky one.
Adam: Cliff, what can anyone listening to this conversation do to become more successful personally and professionally?
Clifford: Work hard and remain diligent about all aspects of your work. But beyond that, keep your eyes open, keep your head up, understand what trends are, understand where your customers are going, and move to your customer. Listen to your customer. Customers are never going to lead you wrong. Listen to your customer. Move with your customer. When I started thinking about that credit card attachment to the stall menu housing, I learned about that at a small conference where a Visa representative was underwriting the conference. The Visa representative said, Who makes the food-buying decisions? Answer, mom, women. What if you accept credit cards at your restaurants? This is the year 2001 versus not accepting an answer. If you accept it, women will be at least twice as likely. Today, it’s probably 10 times more likely. Twice as likely to come into your shop. So it is being aware of those trends. And then when you learn about these customer preferences, 58% of our business was women. And so if women prefer credit cards, I need to prefer credit cards. Listening to your customer and going where your customer wants to go, true to your brand. That’s a big factor.
Adam: You never know where you’re going to get your next idea, but you’re going to be a lot more likely to get it if you keep your mind open and you keep your ears open.
Clifford: That’s it. You’ve got to keep those eyes and ears open, be observing, get educated about your consumer, and move your brain in that direction. Consumer won’t lead you wrong.
Adam: Cliff, thank you for all the great advice, and thank you for being a part of Thirty Minute Mentors.
Clifford: Adam, it’s my pleasure to be with you, and I appreciate the opportunity. Thank you very much.
