Sounds weird, right? Just bear with me…
I don’t know where I heard this story, I don’t even know if it’s true. But, it’s a good story and speaks to the difference between a good strategy “in theory” versus “in practice”.
Over the years, I have encountered many companies large and small that have either failed to execute operationally on great strategies or the strategies, themselves, were not well thought out. The Taco Strategy serves as a good reminder to: (1) always put the customer first, (2) play to your core competencies, and finally (3) stay within your lanes.
Many years ago, an enterprising Mexican man with a knack for making the best tacos his friends had ever experienced opened a small taco stand just off the highway and over the border south of San Diego, California and just outside Tijuana.
The taco stand wasn’t much, but it was all he could afford. There was just enough space in the kitchen to make tacos. He used a cooler for self-service soda, beer, and water. There were 3 plastic tables and 2 plastic chairs at each table. Everything was visibly used, but nothing was the same color. To order, customers stood in the dirt under a sign that read “TACOS”. When customers left, they were to remind the owner how many tacos and drinks they had.
While it doesn’t sound like much, it was a huge success. Mexicans, rich and poor, flocked to the taco stand. Americans heading to Baja California also loved it on their drive south for their surf trips or just to relax along the Mexican coastline.
Everyone loved the taco stand because of the incredibly tasty ingredients, bountiful portions, friendly and jovial atmosphere, and the super low prices.
Then, some overly smart business folks in Private Equity on a surf trip stopped in and loved their tacos and had a brainy idea to “make some real money”. They bought out the owner, they moved the original taco stand to where the really nice restaurants could be found, leased a large footprint, exchanged the plastic tables and chairs and paper napkins for elegant furniture and white linens. A maître D’ was hired to welcome guests and quarterback the restaurant during peak times. Additional “improvements” included reducing and standardizing portions and cooking methods, buying cheaper frozen ingredients in bulk and at scale for steeper discounts. Prices were increased to cover the new fixed costs. As the new owners modeled out EBITDA over the next 5 years, they saw only hockey stick predictions since their assumptions included rolling the concept out into future restaurant locations in Cancun, Cabo, Playa del Carmen, then up the coast in Cali, then onto Houston, Denver, and Las Vegas, – the sky was the limit !!!
In just a couple months, the concept failed miserably because the new owners were too focused on profits and they forgot about the essence of the business. They allowed their fixed costs (high rent, expensive and unnecessary ambiance) to get out of control while at the same time they whittled away the bountiful and quality ingredients. The new owners learned a valuable lesson: don’t ignore core competencies and your customers by trying to be something you’re not.