Influencers with Andy Serwer: David Novak

In this episode of Influencers, Andy is joined by David Novak, former Chairman & CEO of YUM! Brands, as they discuss the U.S. economic recovery, the power of ‘purposeful recognition’ in leadership, and David's experience running one of the largest fast-food companies in the world.

Video Transcript

ANDY SERWER: An American nomad, David Novak had lived in 23 different states before he was 13 years old. Now 68, Novak credits his unique childhood for teaching him the lessons that would one day land him at the very top of the business world.

DAVID NOVAK: That, I think, helped me tremendously, because I had to go into new situations all the time.

ANDY SERWER: In this episode of "Influencers," I speak with the former Yum! Brands co-founder and CEO about his experience running one of the world's largest fast food companies, challenges to the global economic recovery, and the power of purposeful recognition in leadership.

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Hello, everyone, and welcome to "Influencers." I'm Andy Serwer. And welcome to our guest, David Novak, co-founder and CEO of David Novak Leadership, former CEO of Yum! Brands David, nice to see you.

DAVID NOVAK: Nice to see you, Andy. Looking forward to this.

ANDY SERWER: So I want to talk to you about your leadership endeavors, but need to ask you a little bit about the restaurant business and what's going on in the economy first. So of course, it's just been a very tough time during COVID for the restaurant business.

And I'm curious what you make of how places like your former company, Yum!, have fared during the lockdown. And a lot of these companies have focused on mobile apps and delivery. Does that make sense to you, or what's your sort of general take I guess?

DAVID NOVAK: Well you know, mobile apps, delivery, off-premise consumption, all of that was a trend that was happening before COVID. But what COVID did has just accelerated everything. So I think 2021 looks like 2025.

Yum! Brands I know reported their earnings last week. They had $5 billion in digital sales. They have a $20 billion run rate. That's 40% of what their revenue is these days. And what has happened is that during COVID, the consumer created a new habit, a more pronounced habit.

And that was eating at home. OK, so delivery is booming, curbside carry out is booming, the whole off-premise segment is just taking off. So I do this how leaders lead podcast with David Novak, and so I've interviewed Dan Cathy from Chick-fil-A, Niren Chaudhary at Panera bread, Brian Niccol at Chipotle.

You know, I talked to David Gibbs at Yum!. Absolutely, those brands are on fire. They have great sales growth. Their margins are at an all time high. And what's happening is the consumer just has more money in their pocket with all the stimulus spending, and they're spending it on food.

ANDY SERWER: Right. What about trends in food and eating, David? I'm curious. For instance, in fast food and QSR, quick serve restaurants. So you've got the healthier options here, over here. And then you've got people just want some comfort food or convenience over here. How do you reconcile those two trends?

DAVID NOVAK: Well I think that the best way to reconcile them is that there's different segments. There are people who want certain things, and the restaurant category is so huge you can make a living focusing on each and every one of them.

The typical quick service restaurants, they bring you quality food, conveniently, at great value. You've got the fast casual, a little bit more expensive. But that's where you see more of the niche plays for better for. If you look at Panera, they try to do food with integrity.

Chipotle is trying to do the same thing. So I think you the most important thing in the restaurant business is that you make great tasting food. Because people aren't going to eat something that doesn't taste good for very long.

ANDY SERWER: I want to ask you about a misstep in your career, David. And you are famously behind the development of Crystal Pepsi. You talked about the lessons you've learned there. But I'm wondering, how did you personally bounce back in the years that followed? And what lessons can people draw from your experience?

DAVID NOVAK: Well, I think every leader has what I call an epic fail, something where you just like to play over again and again. And believe me, I've relived those Crystal Pepsi days. But when I went to Pepsi, Pepsi was in need of turnaround. The business was not doing well.

So I developed the idea of a clear cola. The only issue that I had, the consumer loved the idea. Didn't taste enough like Pepsi. And my big learning was is I had franchise bottlers tell me, David, it needs to taste more like Pepsi. You're calling it Pepsi. And I didn't listen to them, because I thought it was such a big idea.

And if I were to listen to them, given a little bit more Pepsi flavor notes, I'm convinced that Crystal Pepsi would still be around today. But I was able to survive it, because number one, the business you know did take off when we launched Crystal Pepsi. I mean, everybody tried Crystal Pepsi.

It was like a gigantic in and out product. But people didn't come back and buy it again. So it didn't have the sustainability that I was hoping for. And when I look at this I always say, gee, what if I would have just made sure it was a better product, tasting a little bit more like Pepsi?

I think it would still be around today. And by the way, Andy, they brought it back, I think, a couple of years ago as a limited time only offering at Pepsi. So I think it's-- it had a niche. We just didn't make it as big as it could have been.

ANDY SERWER: Or was it maybe a little bit ahead of its time, because now would have seen being perceived as cleaner, or healthier, and the clear-- like the way vodka took off the excess of bourbon, right?

DAVID NOVAK: I think it was a little bit ahead of its time. But frankly, that was the reason why I developed it. Because back then, the water business was booming, Clearly Canadian was one of the hotter products. And so everything that was clear was growing.

And so that was-- because it was perceived to be better for you. And that was why I said well look, if all these clear products are doing well, why don't we just make a clear Pepsi? And it was a breakthrough idea, poorly executed.

ANDY SERWER: A lot of your work since leaving Yum! Has been around what you say is developing leaders at all ages.

DAVID NOVAK: Right.

ANDY SERWER: Does America have a shortage of leadership at the moment? And if so, where is the deficit, and how does the country fix it?

DAVID NOVAK: Well I think that America clearly has a deficit. Gallup polls will tell you that almost 80% of people go to work every day and they're not engaged. And why is that? I think that's a failing of leadership.

The biggest problem that people are looking for work is they're not getting coached. I think 70% of people would like to fire their boss. OK? People would work for less money if they had a different boss.

So I think leadership is a huge problem. And one of my big passions, and one of the things that I did when I was at Yum! Brands is that I taught a leadership program called Taking People With You. And I did it for 15 years, taught it to over 4,000 people in the company, including our franchisees.

And so I've taken-- I actually wrote a book called "Taking People With You," and I took that and developed a leadership curriculum, taught that to our people. And then I said, OK, how do we take this, and take it into the schools?

So we have a program called Lead For Change, which is the largest privately funded leadership development program in the United States. We've reached-- we have like 14,500 educators signed up every year for this now, and we've reached about two million people as we celebrate our 10th anniversary.

So we've got two million students that have gone through this, and we teach people how to lead, how to take people with you. And then how to apply that to community service. So these kids team up, and then they take their learnings, and then work on a community service project.

And do good in the world. So it's amazing. I think you can teach people how to lead. But not many people are doing it.

ANDY SERWER: I saw a video online where you were speaking to an audience, and you did. You went through the Yum! Cheer. And by the way, you realize what Yum! And Yahoo!, what they have in common? They both start started with Y, and they both have the exclamation marks after them.

DAVID NOVAK: There we go. That's right.

ANDY SERWER: We got that in common here.

DAVID NOVAK: Two great brands.

ANDY SERWER: Does that cheer really, with the y and the u and the m?

DAVID NOVAK: You know, I always felt the biggest thing you can do as a leader is bring energy wherever you can go. And so I start out all my meetings by doing a yam chair and it's like doing the Y-U-M. It's like the YMCA that everybody's dancing to.

And I've given all kinds of speeches to all different kinds of companies. And there isn't anybody that after they do it that doesn't have a smile on their face. So yeah, it works. And I don't know if you have a Yahoo cheer, but maybe you ought to come up with one.

ANDY SERWER: (SINGING) Yahoo.

Yeah, we do that a little bit.

DAVID NOVAK: There you go.

ANDY SERWER: So what characteristics, what traits would you say are essential to being a great leader?

DAVID NOVAK: Well you know, I do this "How Leaders Lead" podcast, and I've done it with all kinds of leaders from Evan Spiegel from Snap to Tony Xu at DoorDash to Brian Cornell at Target, heads of Starbucks, Adobe, Workday, all these great CEOs. I think one trait that they all have in common is they are avid learners.

I mean, they're constantly learning, constantly looking for ways to not only up their own leadership, but also find new ways to take their company to the next level. So I think being in an avid learner is absolutely a key trait. The other thing is that the best leaders are humble. They're humble enough to know that they can't do it all by themselves.

And they're confident. They're confident in their capability, but they know that nothing big happens by themselves. So they're humble enough to know that, and get other people involved. And I think the third thing that is absolutely essential is they know that talent is everything. You have to have great people.

And so they try to create a work environment and a culture where great people want to participate, want to lead, they know they're valued, and that they count. And the great leaders don't delegate culture. They take absolute-- they take charge of culture, because they know that that's going to ultimately be the big driver.

ANDY SERWER: What about a purposeful recognition? I think that's a phrase you use. And is that a must have leadership skill? And can you explain what that is and what you mean?

DAVID NOVAK: Well, purposeful recognition-- every business has four or five behaviors that is usually the cultural behaviors that the companies want to drive in their organization. They will get results.

And so purposeful recognition is let's say you're in technology. You want to be innovative. You want to meet your deadlines. You want to be on budget. You want to have great collaborators. So let's say those are the four big things that drive your company.

Purposeful recognition is identifying those four things and every time you see them, as a leader, you recognize those four things. Because what happens is people do more of what you recognize. When I was CEO of Yum! Brands, the thing that I was most proud of is we had a world renowned recognition culture.

I mean, everybody in our company had their own recognition awards. We used it to drive performance. But we recognized the behaviors that we knew would get great performance in our restaurants. Teamwork, positive energy, collaboration.

Constantly recognizing people for doing good things. So when we saw those behaviors, everybody recognized them, and guess what? Everybody did more of it. And recognition is a wonderful way to really create a lot of fun in your company as well.

You don't want to take-- you want to take the business seriously, but you don't want to take yourself too seriously. And by having fun, recognizing people, and celebrating other people's success, we were able to get great results.

ANDY SERWER: Amen to that. I love that stuff, recognizing people, I think that's super important. Couldn't agree with you more. What about diversity and inclusion? What can business leaders do, David, to make that more of a priority?

DAVID NOVAK: Yeah. Well, that's a really big hot button today, and it's critically important to every business leader. I think the first thing you have to do is you have to own it. This is not something where you just say oh, I got to get a diversity officer, and put them on this. If you really want to make diversity work, you've got to spend time on it.

I did a "How Leaders Lead" podcast with Steve Reinemund, who's the former chairman of PepsiCo, and PepsiCo was the leader on the diversity front. They bonus people on diversity, they did a lot of things to really make important. But what Steve said made it really go is that he spent 30% of his time on it.

Really making sure that they had diversity, people knew how important it was, that they were developing products that could work in multiple markets. But he made diversity something that he was absolutely passionate about, and everybody else knew it. And leaders cast shadows.

People do what the leader does. And I think Steve makes a great point. If you want diversity, you better spend a lot of time on it. And I'm seeing a lot of people do that. Steve Squarey at American Express, I mean, he is so focused on diversity because he thinks that it really makes a big difference, and it does. And he's doing it for all the right reasons. And he thinks it's going to help them drive their business results.

ANDY SERWER: Yeah, and I'm especially in the restaurant business where you got so many stores, like the company that you had, you want to reflect your customer base, understand those customers. You have a diverse bunch of people coming into your stores, right?

DAVID NOVAK: Right. Absolutely. You know, I always believe in this concept of being whole brained, OK? You need to get all kinds of different people in the room with different backgrounds, different styles, different capabilities. You bring everybody together, then you become whole brained. You're not half-brained, become fully capable of making the best decisions.

ANDY SERWER: I want to go back to culture, a company culture. You talked about that a little bit. You actually called out President Trump at one point for bullying, his bullying style. And it looks like we might have some bipartisanship coming around in Washington, DC. And without being partisan one way or the other, do you think that we have turned the corner maybe in Washington from a leadership perspective?

DAVID NOVAK: You know, I think the proof is really in the pudding on that. I still think we have way too much divisiveness and not enough unity in our country. So I'm hopeful that we'll see more of a bipartisan approach in the future. But I don't really see it happening on either side, to be honest with you.

And I'm a positive person. I think until we get a leader who can really galvanize the country, and bring it together, we're going to be struggling on that front. But I think we're one leader away.

ANDY SERWER: Fair enough. Let me ask you about labor shortages, because that's a huge issue right now. Is this going to be a drag on the restaurant industry, for instance, for a long time, or do you see it passing more quickly?

DAVID NOVAK: Yeah. Well, labor has always been a big challenge. But I think it's more difficult than ever now. I mean, everybody that I've talked to says it's never been harder to get to people to run the restaurant.

So I think we're going through a down point at this stage, in terms of the capacity of the labor. But these things kind of ebb and flow, and it'll come back. I don't know. Nothing's permanent.

ANDY SERWER: It is the core problem here that businesses simply aren't paying people enough? I mean, isn't one solution-- we just got to start--

DAVID NOVAK: Well, I think there's been a lot of stimulus money that's keeping people from working. OK, I think that's one of the issues. OK? But I think any business, you have to pay competitively to get talent. There's no business that's very successful for very long that doesn't pay competitively.

But that's another reason why I believe in recognition. I think you've got to get competitive wages, but people leave companies for two reasons. Number one, they don't get along with their boss. OK? And number two, they don't feel appreciated for what they do.

And that's why I always said, we don't want bosses, we want coaches. And we want to recognize people. And that's how you keep people. There are very few people who are going to change their life by walking across the street from KFC to Wendy's, OK?

The competition's pretty much the same. But you can change your life that you're working with a better leader. And that's another reason why I'm so passionate about doing everything I can to develop better leaders.

And it's absolutely essential to the success of our country. I always say show me a good leader, I'll show you a good business. Show me-- when a country is booming, I'll tell you there's usually a lot of good leadership behind it.

ANDY SERWER: Got to ask you another economics question now, David. And that is about inflation, because that's starting to hit food restaurants, as well. Shortages in poultry, for instance. Are you hearing from people in the business on that front?

DAVID NOVAK: Yeah. I think definitely, inflation is a factor today. And I would venture to say it's going to be a bigger factor in the next 24 months.

ANDY SERWER: Earlier this year I spoke to Yum! China CEO Joey Watt. And she emphasized that Yum! Brands are very much a part of the community in which they serve. And providing food and jobs for people around them. Is this a reflection of the leadership style that you had when you were CEO, do you think?

DAVID NOVAK: Yeah. Well, I hope so. I think what we always wanted to do was we wanted to be the defining global company that feeds the world. We wanted to be a part of our communities. We wanted to have a recognition culture.

We wanted our brands to be vibrant, and we also focused on making a difference by feeding people who couldn't afford our food. So yeah, I think that that's a key thing that we do. I mean, we wanted to put a yum on our customers' faces every time they come in. And we didn't do it all the time, obviously.

But that was always our goal. And we want to-- and we think we are a big part of the community, and we provide jobs. And I think the restaurant business itself, Andy, is much maligned. If you're a restaurant manager, you'd make $50,000 a year, the median household income in the United States is I think $47,000.

So then if you run five stores, you can make $75,000, $100,000. We have many franchisees who come up from the ranks and own their own company. So I don't think there are too many businesses that give you opportunity more than the restaurant business.

ANDY SERWER: And how has it changed since you started out? What's going on today that's different.

DAVID NOVAK: Well, I think what's the biggest thing is different now is this digital explosion. Everybody used to think about dining in, then you had the drive-through. And now you got delivery, and aggregators, and the whole thing is just exploding on the convenience front. And I think that's dramatically different.

ANDY SERWER: I mean, you're seeing people now, I think very soon, David, and correct me if I'm wrong-- the expectation when you go into a fast food restaurant within the next year is you're going to be ordering from a kiosk.

DAVID NOVAK: Yeah. Well, we have kiosks in all our Taco Bells. So I think that's happening. And we were doing that in China eight or nine years ago. So not in every restaurant, but we were definitely leading the way on that front.

But I think if you just look at technology, I think Yum! this year is spinning with its franchisees almost $500 million in technology. So that's a lot of money. You know?

ANDY SERWER: Hey, if is it fair to ask you if you had to pick a favorite between KFC, Pizza Hut, and Taco Bell, which one would you choose?

DAVID NOVAK: I always say that's like picking your babies. I can't do it. Never have, never will. I do have favorite products at each one.

ANDY SERWER: OK, give us that.

DAVID NOVAK: OK, well I love pan pizza at Pizza Hut, especially pepperoni lovers. I love original recipe at KFC. Nothing really beats it. And then at Taco Bell, I love the crunch wrap.

ANDY SERWER: There you go. Well, that's got to carry some weight right there. Let me switch over and ask you a little bit about the Novak Leadership Institute at the University of Missouri. Tell us what that's all about.

DAVID NOVAK: Well, leadership isn't taught. I mentioned earlier, we're doing it in middle schools and high schools. And there are very few universities that are doing a great job of it. So I got together with the University of Missouri, and Margaret Duffy, who's our chairman of our institute there, and we said we want to change that.

We want to become the best practice school for how to develop leaders. And so we actually have 12 accredited hours on leadership at the University of Missouri, all based around my book, "Taking People With You." And it's one of the favorite classes at the University of Missouri.

And the Novak scholars that come out of that education, when it's time for them to go interview, they're like-- they're three clicks ahead of everybody else. OK? Because they know how to really think through their situation, how to talk about leadership. Because people are always trying to identify people who can take on more.

You always higher for potential. And so, I think leadership can be taught. We're trying to lead the way at the University of Missouri, and hopefully we will become that best practice school, and more and more people will come to us. It's starting to happen already.

ANDY SERWER: And you do research there, too, because I saw, for instance, there's a study that just came out about millennials, used to be job hoppers. They just wanted perks. But now they're much more interested in respectful communication and value. You're doing research like that?

DAVID NOVAK: Yeah, we're doing research. Because I think-- and we've researched the power of recognition, which is obviously a no brainer. But it's one of those things where it makes so much common sense, but you know what? There's someone who said common sense isn't that common.

But it's like we're really trying it. Universities should be developing leaders. And why wouldn't we have leadership-- there's a lot of curriculum out there that doesn't really add value, when you think about how to go forward in your life.

This, we think, will really make a big difference. And that's why it also, Andy, I'm doing this "How Leaders Lead" podcast. Through my contacts, and through other people that I know, I'm able to bring people access to the C-suite, access to leaders, hearing how they lead, learning from them. And I think that's powerful, too. I think that will make a big difference.

ANDY SERWER: Now, speaking in the University of Missouri, you went there. You went to the journalism school, one of the best journalism schools in the country. You are a recovered journalist. Come on, man. I mean, how did you go from that to being an executive?

DAVID NOVAK: Well, the thing was what I majored in advertising. OK? So when I know I love to write always love to write. But what I really fell in love with was advertising and marketing, which was what I majored in at the J School.

So I started on the advertising route, and by working in an advertising agency, handling the Frito-Lay account. I was then recruited by PepsiCo to go head of marketing for Pizza Hut. But that got it all started.

ANDY SERWER: And you've written about, and often discussed your humble origins. You moved so many times in trailer parks growing up. What perspective has that brought you throughout your career.

DAVID NOVAK: Well, I'd lived in 23 states by the time I was in seventh grade. I lived in a trailer. Biggest house we lived in was 18 feet wide by 45 feet long. We basically moved every three months, and my mom told me we're going to check you into the school, but you better make friends, we're leaving.

So that I think helped me tremendously, because I had to go into new situations all the time, and read the lay of the land. And I think it really helped my people skills. And people often would say, how did you know this about that person? Well, you just kind of pick up instincts when you do that kind of travel, and you have to meet so many new people. And we all go through our anxieties. And I think that that helped me kind of work my way through them.

ANDY SERWER: What is the most important lesson that you've learned, David, throughout all of this? The humble origins, the advertising, running a billion dollar business, what's the most important lesson or lessons that you want to pass on to up and coming business leaders?

DAVID NOVAK: Well, I would say you have to be a constant learner. You have to be a constant learner. Someone once told me don't look up, don't look down, always look straight ahead. You're no better than anybody, and nobody is any better than you.

OK, so treat everybody the same, no matter whether they're above you or below you. But treat people with respect. I think that's really important. And then there's no power-- there's nothing more powerful than recognition.

It is your secret weapon. And the people who show appreciation to other people have people rooting for them to be successful in the end. So those are three quick ones.

ANDY SERWER: And what's next for you, David? What are you looking to accomplish in the years ahead?

DAVID NOVAK: Yeah, well, I was really-- I loved running Yum! Brands, but I liked to say to everybody I didn't know I could love something so much I miss it so little. OK? Because I think I'd filled up my life with something that I'm extremely passionate about, which is leadership development.

So my goal is to build this leadership company that we have, it's a private operating foundation. But I want to get digital leadership training, my podcast, "How Leaders Lead" podcast. I want to get all of that, just-- I want more and more people getting access to it.

And I want more and more people learning from the people that I've been able to learn from, and I want to pass on my learning. I've got another book coming out in February, which is called take charge of you, how self-coaching can-- how to use self-coaching to transform your life and career.

And I think people are frustrated, because they don't have the coaches that they're looking for. And so your life, and your career is too important to put it in somebody else's hands. Learn how to coach yourself.

And by the way, all the good leaders that I talked to have done a pretty good job of building self-awareness, figuring out, getting insights, finding what their joy is, and coaching themselves. And I would bet, Andy, you're a very good self-coach, or you wouldn't be where you're at today.

ANDY SERWER: Now, I'm learning from the master as we speak right here, David. That's for sure. And anyway, some really great wisdom coming from David Novak, CEO of David Novak leadership and former CEO of Yum! Brands. Thanks so much for joining us.

DAVID NOVAK: Thank you, Andy. I appreciate it.

ANDY SERWER: You've been watching "Influencers." I'm Andy Serwer. We'll see you next time.