Conversations From the Corner Office

FULL INTERVIEW TRANSCRIPT

California Pizza Kitchen Co-Founders, Co-CEOs Larry Flax and Rick Rosenfield talk with Kai Ryssdal

KAI RYSSDAL: Gentlemen, welcome to the program.

RICK ROSENFIELD: Thank you.

LARRY FLAX: Thank you.

RYSSDAL: It occurs to me that this really isn't so much about the pizza, this place. Rick, what do you think?

ROSENFIELD: Well, pizza's our middle name, and it started out to be about the pizza, and it's evolved into a lot more than the pizza today. It's evolved into a global brand, or at least the beginnings of a global brand.

RYSSDAL: Is that where you wanna go?

ROSENFIELD: Sure. You know, that's always been our . . . I guess our dream has been, since we opened the first CPK in Beverly Hills in 1985, to bring barbecue chicken pizza to Rome.

RYSSDAL: Larry, tell us that story about Beverly Hills in 1985.

FLAX: The beginning of the . . .

RYSSDAL: Go way back with it.

FLAX: . . . The very first night of terror you mean when we opened. We were practicing attorneys then. We had a law practice, and we'd moved it over next to the restaurant, our law offices, so we were literally right next to the restaurant, because our real intent was . . . why we wanted to start a pizza chain, and we wanted to be a chain, it was gonna be a business, not just a simple investment. So we were looking for something that we thought had legs, so to speak, and we thought the idea of owning California pizzas, the style of pizza, and putting in the wood-burning ovens and the open hearth into the restaurant. A more casual, accessible concept was a pretty good idea, but we didn't really intend to leave the law practice so fast because we didn't think we could sustain ourselves off of one, 1,700-square-foot restaurant on South Beverly Drive.

So, we opened the doors, and as we opened the doors to California Pizza Kitchen, the doors to our law practice slammed shut, because in looking back at it, we were kind of naive to believe — and we were criminal law specialists — that people would come to us as lawyers after it was announced we were in the pizza business. Now, we didn't see that right away.

RYSSDAL: A little credibility gap there?

FLAX: Yeah, but we didn't see that upon our opening of the restaurant in our own heads, but it sure turned out to be true. Because the fact of the matter is we never got a new client after we opened the doors . . .

RYSSDAL: Is that right? That's interesting.

FLAX: — of CPK. So all of a sudden, we had started to steal second before we knew we could.

RYSSDAL: Was it about getting out of the law, or was it about getting into the restaurant business?

ROSENFIELD: It was about getting . . . it was both.

FLAX: We loved the restaurant business, but we were getting tired of the law, and so I guess it was a combination of . . . the timing was perfect. We had just finished a two-and-a-half-month trial, when we started the ball rolling on this, up in San Francisco where we pretty much lived and breathed the case seven days a week, and then Rick had just had his little girl, and he was missing her being a baby, and we, you know, we . . . our practice took us all over the United States, and so he wanted to get out of it. I had a girlfriend at the time in Houston, Texas, and so I wasn't getting to see her, and we were both pretty miserable with being stuck in San Francisco, and we said, "Let's do something. There's gotta be something better than this," you know.

RYSSDAL: But Rick, I can't imagine that having a law firm work you that hard is that much different than trying to start a restaurant.

ROSENFIELD: Yeah, it is sort of odd to think that we wanted to do something "easy" like go into the restaurant business, but Larry's right. I think it was pretty clear we both loved restaurants and wanted to be out of law, so the timing was perfect. In fact, in our entire law practice, which started in 1973, we always had one restaurant idea or another. We just never did it. We kept being interfered with by clients that were throwing retainers at us.

RYSSDAL: What ideas did you reject before you came up with California Pizza Kitchen?

ROSENFIELD: Well, one story I've told before is rather interesting. I was the speaker years ago at the National Restaurant Convention, and I told this story that the first one we did, we approached Tony Roma's when it had one unit, and we wanted to be franchisees, and they turned us down because they didn't want any lawyers as franchisees. Well, when I told that story at this National Restaurant event, Tony Roma's . . . I'm sorry, it wasn't Tony Roma's son. It was Clint Murchison, the owner of the Dallas Cowboys.

RYSSDAL: Dallas Cowboys, yeah.

ROSENFIELD: Yeah, he had bought out Tony Roma's when it had one unit, so it was Clint Murchison's son that came up to me and said, "I think Dad made a mistake!" So that was fun. So we tried . . . we came up with that, and then when they turned us down we were gonna do our own rib concept, and we looked at sites for that and never got it done.

RYSSDAL: Now, Larry, why pizza, and why not Greek food or a hamburger place? I mean . . .

FLAX: Well, you know, it evolved. First we were just generally talking about doing an Italian restaurant and pastas and pizzas. In fact, our first . . . the first chain idea we really had was going to be a fast-food pasta concept. There was this place called Mama Mia's that Rick's brother introduced him to in Chicago, which was a concept where you went through a line, and they made these fresh pastas to order, and at the end of the line they delivered 'em to you with different sauces and stuff like that.

We thought that would be a pretty good idea, and then a friend of our, Bob Mandler, who started the Chin Chin chain, who also used to practice law with us — another lawyer who escaped. He called us one day because we had told him this idea that we were sort of thinking of this pasta concept, and he said, "Gee, there's an idea just like that called Demadia's over in the Glendale Galleria that I just read about in Nation's Restaurant News, and it sounds just like what you're talking about."

So we immediately got in the car that day and shot out to Glendale and found this place in the Galleria, and sure enough, people go into the line and they were making the three different kinds of pastas, three different kinds of sauces and a tossed salad you could get and then at the end of the line was this round pizza, sort of under hot lamps like you see in New York . . .

RYSSDAL: Yeah, yeah.

FLAX: . . . you know, all over. But as we sat and watched this place for a couple hours, we really sort of dawdled over our coffee and stuff like that, and we watched the line go through. About 50% of the people were getting the pizza when they could have had this fresh pasta. So we said, "Wow! This is pretty impressive."

So as good lawyers, we started researching pizza, and then Wolfgang Puck, certainly emerged in our sights, and with all the notoriety he was getting for the duck sauce with pizza and the different . . . then called the "California Style Pizza," which Alice Waters really started up at Chez Panisse. So a lot of people don't know that Wolfgang actually borrowed an idea from Alice Waters at Chez Panisse and putting it in the wood-oven.

RYSSDAL: I didn't know that either. That's interesting.

FLAX: . . . and starting with features. We said — and pretty much that day, it dawned on us — "My God! If we could take the "California Style Pizza," and move it to a more accessible venue," because we couldn't get into Spago. I mean, we didn't know . . . "Bernard" was then at the door, you had to know, you know, you had to know people to get in and stuff like that, and you know, we weren't in that stature, so we said, "Gee, you know, we're not in that stature. What about opening a place that does this style of pizza for everybody?"

RYSSDAL: So you have this great idea. You go back to the offices. You sit down, and being the good lawyers that you are, you draw up the corporate charter and all the documents, and you split it right down the middle. You guys are cofounders, co-presidents, cochairmen, I guess, as well. Why? Why not just have one guy be the CEO, one guy be the chairman and the president, and sort of divvy things up that way?

ROSENFIELD: Oh that never would have been our idea.

FLAX: Well, because we were 50/50 partners. Take it back. Don't worry about corporate name. Take it all the way back to what we were in law. We were 50/50 partners. Always 50/50 partners and that's the concept to this day that we work under.

RYSSDAL: Which is great when you're in a two-person law firm, right? But now you're running a company with 10,000, 12,000, 15,000 employees. You have sales of half a billion dollars a year. And yet, still it's a co-president, co-CEO, co-chairman arrangement. Who's the "decider" here, if I could borrow a phrase?

ROSENFIELD: Well, it isn't . . . The decision-making for the 33 years that we've been business partners has always been the two of us agreeing to . . . and we don't always start from the same place, but we always get to the same place, and so that's what we do as lawyers. We debate it and we come to the conclusion. We have good healthy debates in front of our senior team. They're not afraid of us. At the end of the day, what I've always said is, "Larry and I both have healthy egos, but neither one of us have egos vested in being right," and I think that's the secret.

FLAX: Yeah, you wanna get the right answer, not win.

RYSSDAL: Right. You don't care to . . .

ROSENFIELD: Besides, we don't actually know whose idea things are anyway, because one comes up with the idea, the other guy molds it, we mold it off each other, and it evolves into some combination of ideas.

FLAX: Yeah, you start worrying about whose idea was something, you're spending a lot of wasted time.

RYSSDAL: It's a little bit — in fact more than a little bit — it's a lot like an old married couple. I mean, you guys have been married . . .

ROSENFIELD: Oh, absolutely!

RYSSDAL: I mean, basically married for 40 years.

FLAX: Well, we always say — taking the sex out of it — we're like what people married should be. They're good friends and good partners, and they're vested in making great decisions for their partnership.

RYSSDAL: One of you — and I'll let you figure out which one wants to answer this — what are the valid organizational benefits of having the split at the top like that? Having two people in each of those key jobs?

ROSENFIELD: Well I think you get the benefit, again, of the debate so that one of us can feel certain about something, and then not have it subject to debate. I think . . . You know, what I've always thought is this is the real advantage, because if I were running it alone, it would be very lonely. I'd have to make very lonely decisions. I don't feel lonely about decisions. When Larry and I come to a decision together, because we do about every major decision affecting this company, okay? When we come together, there's a comfort in knowing that it's shared by someone who you really respect, and we've given our best shot at it. So I think that that's a tremendous benefit to the company.

FLAX: But also as we've grown, and now we're . . . I think we have 14,000+ employees, and we're in I don't know how many states now and foreign countries and with a couple hundred restaurants, the challenges of running the company have grown tremendously to the point where we used to do everything in lockstep together, we now divide up and do different things. In other words, we have different responsibilities and interests. Now, that doesn't mean we don't crossover and talk about each other's doing, but we do . . . are able to divide and conquer, so to speak.

RYSSDAL: So what's the natural division of labor between you two? Who does what?

FLAX: Well, right now Rick is the more . . . he's always been the more left brain. He's always . . . he's the guy, because we're a public company, and you know the kind of intensity, or maybe you don't know, but I can tell you that all the new regulations and all the intensity of running a public company is you have to be on your toes every day all the time making sure you're dotting the i's and crossing the t's and — which is fine, and it always should have been done that way. But boy, it sure . . . you sure have to do it by law now that there's a lot of bureaucracy looking over your shoulder every second. And so it takes a lot of time and effort to run a public company and to pay attention to the financial side of things, and Rick likes that.

ROSENFIELD: Well, it also flows into investor relations, because you have to be quite conscious of the comments you make the public and fair disclosure obligations, and so it naturally fits a lawyer to be able to do that. Larry, he likes the hands-on operational part, the day-to-day part, and I'm on top of that with him daily and what's going on, but he really loves that hands-on part.

FLAX: I like to get into it and create food and work with the food and work with the people and get into the restaurant side of it, and it's very much fun and exciting to me.

ROSENFIELD: When it comes to the menu development, we both do menu development. That's, interestingly . . .

RYSSDAL: It's a clinical term for getting into the test kitchen and throwing stuff on the pizza crust, right?

ROSENFIELD: Well, it is quite interesting, you know. If we look at our menu as it's evolved over the years, we don't have a master chef at California Pizza Kitchen. So we have food development people that work with us, but probably we've come up with about 95% of the menu items.

RYSSDAL: When you say "we," you mean the two of you?

ROSENFIELD: "We," meaning Larry and I, yeah. To this day . . .

FLAX: Occasionally, somebody will come up with an idea from one of our restaurants, or we have a Vice President of Food & Beverage who comes up with something, but 90% of that menu's ours.

RYSSDAL: All right, so I actually, as it happens, I have a menu sitting right here.

ROSENFIELD: Surprise!

RYSSDAL: There was one that I wanted to ask you about. A lot of these sound really good, you know, shrimp on a pizza sounds great, and barbecue chicken has been a big hit.

ROSENFIELD: Well, that . . . that's our Big Mac.

RYSSDAL: I have to ask you about this "Pear & Gorgonzola Pizza?" Where did that come from? I mean, even though they're lovely together with a glass of wine, but stuck in an oven?

FLAX: No, because we started playing with ideas of what's good on salad can be good on pizza. You know, we have Tricoloré Pizza, and that evolved from the taste of putting something that would taste good on a salad onto a pizza, and the pear and gorgonzola salad is not strange . . . should not be strange to you.

RYSSDAL: No, it's not strange. It's quite delicious.

FLAX: But we'll do things like that, taste 'em. If it tastes good to us, we have the ability now, with all the restaurants we have, to test anything. I other words, there's no idea we can't test by putting it in a restaurant for like a month.

ROSENFIELD: On actual people . . . on customers.

FLAX: On real people. They order it and they like it, great! If they don't order it, they don't like it . . .

ROSENFIELD: But then we measure it as well. We ask them what they say and their intent to reorder, etc. So, as we say, it's all testable.

RYSSDAL: All right, so all the good ones get on the menu. What are some of the ones that you haven't really worked out so well?

ROSENFIELD: Well, it's a great story because it goes back 20 years or so, and Larry's still hurt by it. His egg salad pizza never made it. He picked the wrong time. He came out with the egg salad pizza, then they came out with the cholesterol scare . . .

FLAX: Same day!

RYSSDAL: Oh man!

FLAX: The same day that we opened the test of the egg salad pizza in Brentwood, California . . . I remember exactly where we did it. It was amazing. It was the same week, same day that the report came out from the government on eggs and cholesterol, and that eggs were a terrible 250 mg of cholesterol in every egg, or something like that, and it just killed it.

ROSENFIELD: But I remember . . . what I'll always remember is during the early years when people would say, "So what, Larry, is the biggest disaster that's ever happened?" He would say, "It's the egg salad pizza?" I'd say, "Larry, that's not exactly a disaster. You made a couple quarts of egg salad and nobody bought it," you know . . .

FLAX: It was my first failure!

ROSENFIELD: "This is not a financial crisis."

FLAX: You know it's like reading a record that doesn't . . . you know, you're used to having some hits, you know. By then, I don't know how many restaurants we had then, but it was our what? Seventh restaurant? Sixth or seventh?

ROSENFIELD: Uh, fifth, I think. Fifth, yeah.

FLAX: And so we pretty much were having hits, you know, every time we put a pizza out, it would hit, and this was our first one that didn't make it. And so it was like the first flop, you know?

RYSSDAL: So clearly you guys have worked out a relationship where having two people in the top job has a lot of benefits. There must be some drawbacks, though.

ROSENFIELD: I wish I could think of any.

FLAX: I don't wish you could . . .

RYSSDAL: Oh come on!

ROSENFIELD: No, but I'm really serious about that. Again, I don't think it works for everybody, that's for sure. I mean, this is not . . .

FLAX: Well, the drawbacks are more a misperception by people than it is reality in terms of our running a company.

RYSSDAL: What are some of the misperceptions then?

FLAX: Well, first of all, they think, you know, as a public company, they always wanna know about compensation. Now, you got two CEOs. Is there too much compensation?

ROSENFIELD: Are you paying twice as much?

FLAX: You know, so it's their criticism of that end of things. That is probably one of the things we have to always explain and justify. But it's not a real true criticism.

ROSENFIELD: Well, I suppose if I think about another possible negative ramification is we can sometimes we played by our executives like "Mom" and "Dad." "Well, Mom said it's okay!"

FLAX: Yeah, there is an opportunity for some of the underlings to play you both.

ROSENFIELD: But with politics and stuff . . . so that could happen.

FLAX: Politics can happen, and that's one of the troubles, is we always have to make sure we're talking to each other about what people are talking to us about.

RYSSDAL: How many times a day do you guys talk when you're not in the office? A lot of phone conversations?

ROSENFIELD: Yeah, we still . . .

FLAX: Every day.

ROSENFIELD: You know, our offices are set up right next to each other with our conference room in the middle, and it's all glass, so we see and hear each other all day.

FLAX: I can usually speak loud enough that he can hear me in his office.

ROSENFIELD: Exactly, we'll yell across the office to each other. So we're really together on all the decisions during the day, and we will talk in the evening or talk in the morning, and almost always talk in the car on the way in in the morning.

FLAX: Yeah, that's what we love about car-phones, is we can talk all the time while we're driving.

RYSSDAL: Tensions, though. I mean, in any functioning relationship, there must be moments where one or the other are just, "Oh, God! Grrr!"

ROSENFIELD: I know that sounds like . . . we sound like Pollyanna, but we don't have that relationship.

FLAX: We've never had a fight based on emotion. In other words, what is amazing about our ability to, after 30-some-odd years, is you look back and it is a never if . . . any disagreement is not based on an emotional . . . you know, it's not about something else, where you're aggravated and you sort of get angry about something else. It's always . . . we'll have emotional debates about things that are important, but it's never personal, and it's never . . . you know, and it's about trying to figure it out. But we don't have those kind of anxieties that people have where jealousies are involved, you know. It's just not part of our history.

ROSENFIELD: And by the way, each of us feel empowered to make decisions. The way we tease about, Larry will call me and say, "Oh, I made an executive decision. I decided this." Or I do the same to him, I said . . . and you know what? We know each other's thinking so well. I think that's what you have to understand. We are so on the same page. We really do know what the other would say about that, and so that's the other aspect of it.

RYSSDAL: Now that you are a public company, have big institutional investors and analysts addressed some sort of codification of communication between you two? Because it's entirely possible that one of you could decide to open a store that would tank and the other one might not know about it.

ROSENFIELD: No! No, no that . . .

FLAX: No, that couldn't happen.

ROSENFIELD: No, the real estate decisions are made by both of us.

FLAX: Yeah, we're scared to ever make one by ourselves. We don't wanna be blamed.

ROSENFIELD: No, that's a committee of which we both actually . . . the opening of a store or decision to do a store is made by the team . . . a real estate team, which we lead, and there's no such thing as a restaurant that we both don't know about.

FLAX: We'll make the final decision, but boy, it's a whole bunch of people participate in the ultimate decision of opening any restaurant. A lot of people's eyes are on the spot and site. Directors, vice presidents, real estate people, a lot of demographic studies go on, because we have a great history of our own demographics, what's worked, what hasn't, and then eventually when it gets down to the call, we make it together.

ROSENFIELD: But he doesn't have to go and say . . . and tell me . . . get permission to test a food item.

RYSSDAL: Right, right. Except for the egg salad thing.

ROSENFIELD: No, he could test it.

FLAX: Well, that's true. A failed food item costs us nothing. It is not dangerous. It doesn't hurt the image of the company. But a failed restaurant site is very bad.

ROSENFIELD: Yeah, we both make every major decision, that's for sure.

RYSSDAL: There will come a day, soon, eventually, at some point, when you guys decide to retire, to step down, possibly even on the same day, knowing the two of you.

ROSENFIELD: Well, that would be true. If we did decide to retire, it would be on the same day.

RYSSDAL: Which leads me to, there will eventually be one person running this company.

ROSENFIELD: Right.

RYSSDAL: How is that going to affect the organization?

FLAX: You don't know . . . who can see that far in the future, but both Rick and I talk about this all the time. We're already talking about when our next contract negotiation with our board. I mean, we both are looking probably seven, eight years into the future, and don't see ourselves leaving the California Pizza Kitchen. I mean, you know, we don't think at 65, like I'm gonna be 65 this year, "Boy, it's time to retire." I mean, I just don't see it. I'm having too much fun. So we don't see that road that far down the path where we know exactly how it will function or who we'll pick to take over.

ROSENFIELD: The interesting aspect of our businesses that . . . what drives our success in a lot of ways is our culture. You know, we call it "ROCK." I don't know if you've heard that? R-O-C-K; Respect, Opportunity, Communication, Kindness . . . and the people who have succeeded in our organization are what we call "ROCK Stars," and it's cute, but we really mean it. If you look at our 32 regional directors, our 32 regional directors have been with us an average of 12+ years, and they are the ones that get it. So that's why this company has been so resilient whenever it has run into a wall.

You know with the former management, when Larry and I weren't running it. At the core, at the restaurant level, it operates, and so in terms of thinking about who would ever succeed us, it would have to be somebody that is totally is in step with that culture, because that's the only one we would ever pass the baton to. And we're not, as Larry said, we're not thinking about it now. We have two-and-a-half more years on this contract, and then we'll re-up it again.

But when the time comes, it's gonna have to be somebody who has proven themselves to understand our culture and to have succeeded in the culture, because that's what it's all dependent upon.

RYSSDAL: It's probably worth mentioning that you guys were away from the company for quite a while. How did that happen and how did it come to pass that you came back?

ROSENFIELD: Well, what happened was, we never quite left. There's actually been a couple of incarnations where people think we've left the company a couple of times, and we haven't really ever gone away completely.

The first period was in . . . and that led to what you were just referring to in the second period. The first period was in 1992. We were about to go public. We had 25 restaurants, and along came PepsiCo. At that time, they owned Taco Bell, KFC and Pizza Hut, and they said, "We want to buy in," and they did, and they bought two-thirds of the company, and that . . . when they decided to get out of the restaurant business and spin-off their restaurants into Yum!, it was actually first one they called TRICON which became Yum! as it is today, in '96, we had an agreement with them that they couldn't spin us into that.

And so they put it out for auction, and a New York venture group bought it with our approval, because we had the right to veto it, and they insisted on putting their own CEO in, which we went along with. But again, in the Pepsi period, we were actually CEOs for a while. Okay? But we've always been chairmen of the board, and we stayed chairmen of the board, and stayed chairmen of the board during the period when this new CEO came in to run the company starting around '98. And with that venture group in place, they took the company public in 2000, and by early 2002 they had made many, many times their investment and had basically sold out.

And the board became an independent board truly in the real world. But the CEO was getting along with Larry and I less and less, quite frankly. And we were not about to let the fact that we didn't approve of a lot of the things he was doing . . . he had the right to run the company. He was the CEO, and so we sort of stepped back, again, while we were chairmen, and it led finally to some clashes, and the clashes led to us leaving the company. Not leaving the offices, but still staying as chairmen. In early . . . I'm sorry, in January of 2003.

RYSSDAL: 2003. He was doing, though, a lot of the things that you guys did in an earlier phase . . . growing extremely quickly. Perhaps, as you came to believe, too fast. Larry?

FLAX: Well, I think we were fully, at that time, capable of opening at the speed he was opening, but he was not making good real estate decisions. In other words, it was never about . . . it wasn't about opening bad restaurants from an operational point of view. They still delivered the concept, you know. It wasn't like everybody fell apart in the restaurants because they were opening too many restaurants. It was picking the wrong real estate, just like we had done earlier. He didn't learn, and he didn't want to consult with us, and he thought he understood how to open restaurants, and it just, quite frankly . . .

ROSENFIELD: He stopped talking to us. He didn't want us in the real estate meetings. He didn't want to hear our input because we were often likely to tell him "no" on deals he wanted to do, and so that became very much part of the estrangement that we weren't included, and I didn't wanna be here on a daily basis when I wasn't included in decisions.

RYSSDAL: You have to imagine, though, some guy trying to run a company with the founders, the outspoken, experienced, not afraid to share their experiences, founders looking right over his shoulder.

ROSENFIELD: Yep, I get that part, and we understood that and we stepped back, and we gave him enough rope to which he managed to . . .

FLAX: Yeah, in all fairness, I only had one clash with him, and that was right at the end when we were getting ready to come back and then like literally the week before . . .

ROSENFIELD: Oh, we had clashes before we left.

FLAX: Well, we had more disagreements. This was a real . . . where we really clashed.

ROSENFIELD: We clashed.

FLAX: But other than that, we actually went along with the program of letting him run the company, and that's why we moved out. In other words, we moved our offices out of the company so we wouldn't . . .

ROSENFIELD: That was in January of 2003, and then the board asked us to run it in July of 2003.

RYSSDAL: How do you go about coming back to a company that you founded, which has had some tough times, how do you turn it around? How do you make it work?

ROSENFIELD: It was quite emotional. The day we came back, I . . . you know, we . . . I remember it quite well.

RYSSDAL: Did you think you were done?

ROSENFIELD: Never.

RYSSDAL: Did you think that it was over really with your substantive connection with this company?

FLAX: No, no.

ROSENFIELD: Oh, no! Because remember we stayed as chairmen.

RYSSDAL: Chairmen of the board, right.

ROSENFIELD: Okay, and then we . . .

FLAX: And that gets a lot of the PR . . . remember, our pictures were still on the menu. You know, we would do a lot of public relations. We'd go to openings. We'd do things. We were very much involved.

RYSSDAL: The fluff, really?

ROSENFIELD: Yeah, I'd say fluff

FLAX: And we were giving advice.

ROSENFIELD: And we could . . . well, fluff, other than the menu development, which was really core.

RYSSDAL: Yeah, the really important stuff.

FLAX: Yeah, we stayed in that.

ROSENFIELD: That was our core.

RYSSDAL: So the day you come back . . .

ROSENFIELD: So the day we came back, we were nervous about running a public company. We were nervous about upsetting the apple cart, but it had to be done, and we had the confidence of the board, and so we came up.

But the other aspect of it was, and I think if you talk to our people, they would say, "Boy, it was a highlight, because we rallied the troops." Because deep down, these people that I'm talking about that have been with us a long time, those regional directors and the general managers, they were seeing the shift in culture. They were seeing that the former management team were not really maintaining the culture and the commitment to quality that we had, and so . . . well, we sorted out those that trusted us and believed in us and those that didn't, and so that's what happened ultimately is we weeded some out. You know, the ones that rallied, that were there for us stayed, and the ones that were political and didn't believe in us, ultimately we weeded through them.

RYSSDAL: You guys are in a segment of the food market called "fast-casual." Why then would you go with a company like Pepsi which was "fast-fast." I mean, Pizza Hut and KFC and all those guys?

ROSENFIELD: Well, I think what we are . . . with full-service restaurants isn't "fast-casual," that's actually our ASAPs, is the term you're using. But I think your question is, "We're in 'casual dining' . . .

RYSSDAL: Ah-ha, okay.

ROSENFIELD: Okay? "And Pepsi is in fast-food."

RYSSDAL: Right.

ROSENFIELD: Okay, well that was interesting because they came to us and said, "We're in fast-food. We're not in casual dining. We wanna learn something about casual dining." It's sort of interesting, by the way, because Pizza Hut that they owned at the time . . . we were a little puzzled, because Pizza Hut was full-service.

RYSSDAL: A lot of 'em.

ROSENFIELD: A lot of 'em. They were . . . but I guess that's what I sort of laugh at, too, is I think we were sort of a laboratory experiment to Pepsi.

RYSSDAL: How does that feel?

ROSENFIELD: Well, they gave us . . .

FLAX: Well, they were getting into the casual dining business. They bought a Chevy's, a New Mexican concept. They bought East Side Mario's at that time, which had a . . . so they were seeing . . . casual dining is really, if you think about it, had a real viable change really, just started very recently by the terms of the restaurant industry, and if you . . . like Cheesecake started about the time we started. P.F. Chang's years later, so all the things that we think of about these really popular chains, these are new concepts that Pepsi saw coming and saw the growth of casual dining as a consumer choice, and they decided they wanted to be in that business and to expand their restaurant business, and so we were part of the initial entry.

But they, quite frankly, they weren't used to a kind of slower growth that it takes to build our kind of restaurant. In other words, where you can open a restaurant a day in fast . . . or QSR restaurants, Quick Service Restaurants, and they do. With us, it doesn't work that way. You can't open a restaurant a day.

RYSSDAL: So what is your growth strategy? How do you wanna grow this company?

ROSENFIELD: Well, we have several tenets that I think we're blessed with here. One, We're building our core business, which is our full-service restaurants. We also have our fast-casual ASAP restaurants, which we're sort of retooling right now. We only have 11 of those, and we're reengineering them because we don't think we have them quite the way we want them. But the explosion of our brand . . .

FLAX: We're also in some of the airports.

ROSENFIELD: Right, and we have our airport, and those are all franchised HMS Host. But Larry and I have been the pied-pipers of our brand and of our logo since day one, since we developed it, and it's now getting traction because we have Kraft frozen pizza. I say, it's our frozen pizza that's made for us by Kraft, and that's now a big deal. That's gone over $100 million in sales. They're in 17,000 locations in all 50 states and the District of Columbia, and making a lot of brand impressions, and they're also required by our agreement to advertise us.

So we do that, and now we have a real ramp-up in our foreign franchising. So now we have . . . we're soon to have our fourth restaurant in Hong Kong. We're in Shanghai, two in Tokyo, Kuala Lumpur, Singapore, the Philippines, Jakarta . . .

RYSSDAL: Okay, so how do you go about marketing this brand, which is virtually by definition, by the very name of the company "American," California Pizza Kitchen? How do you take that overseas and market a brand like that?

ROSENFIELD: Well, you know it's interesting because CPK does not spend a lot of money on marketing. We spend 0.5% of our revenues on actually advertising, which is pretty unique. So what Larry and I have always believed in is word-of-mouth. So that's . . . and the thing . . . the reason we chose the name . . . and Larry chose it, and then I agreed with him on California Pizza Kitchen, is that people around the world would be intrigued by what's going on in California.

FLAX: You bet.

ROSENFIELD: And that's been true, so it's doing quite well overseas. We're going exploring going to Dubai right now. Larry and I are making a trip in a couple weeks to Dubai, to look at putting it . . . we've already made a trip to the Middle East before, again, in a franchise, and there's a lot of interest. We're signing Hong Kong. We just signed Mexico. We're talking to Canada. There's a lot of interest. There's a lot of interest in our brand from around the world.

RYSSDAL: Did you guys ever imagine that at the age of 60-65, you'd be leading this pizza brand around the world?

ROSENFIELD: Well, you know what? In an odd way, we did. And you know, I laugh at how naïve we were, because when we went to start CPK, we borrowed the money ourselves from the bank on the strength of our law practice, before we brought investors in, and we had to write a business plan, and I wrote in that plan that we were going to "revolutionize pizza in the United States and perhaps in the world," as we say, "The third kind of pizza." Because I grew up in Chicago, and it was the Chicago Pizza. There was New York and Chicago, and we said there was going to be an emerging third style of pizza called California Pizza, and we intended to define it.

Now, where I laugh about it and I say we were naïve is we were so naïve as to think we had come up with this great concept, and somehow we were going to turn it into a business, when in fact, if we knew everything we know now, we would have been scared out of our minds, because it's never what . . . ultimately the success of California Pizza Kitchen is only in small part due to the pizza. It's about our ability to grow, as you point out, to 14,000 people and it's about being able to run a business and keep all your stakeholders happy, your employees and your investors, etcetera, and your vendors.

RYSSDAL: Larry, what's the worst part about this job?

FLAX: The worst part about this job? Having to drive all the way to the airport, I think. We ended up locating in this office that we're in, which is right by the airport, because we had a lot of Orange County employees. This is back in the days with Pepsi, because we were very closely connected with Taco Bell at the time. John Martin, the CEO of Taco Bell was on our board, and they put some people into our company from Orange County, so when we relocated our offices, we chose this position to be equidistant, so to speak, and try to be accessible.

But it turned out to be such an economically great choice for an office building. We re-upped, and it's very good because of its accessibility to the airport for all the travel, because of being all over the United States, but it's still a long ways away from where we live, so I'd have to say the distance of going back and forth to the office is probably the worst part.

RYSSDAL: Do you guys on a Friday night or a Saturday evening get together with your wives and go out and eat at the competition?

FLAX: It's not so much about "competition" . . .

ROSENFIELD: It's not as much as the "competition." We do get together with our wives, because we're quite social together. But we're always, Larry and I are always eating . . . well, first of all, we travel a lot. We travel on business a lot. We travel to new store openings, and we travel to all the real estate that we're looking at. So when we're doing that with our team, we're always tasting competition and coming up with new menu ideas. That's where it comes from.

RYSSDAL: You guys have each mentioned real estate a couple of times. It sounds like that's a big weight on your minds, getting the actual real estate decision right.

ROSENFIELD: Oh, it is! I mean, first of all, we have a capital budget that's somewhere around $80 million this year. That's a lot of money going out the door in real estate, and that's our lifeblood, and that's where when we slipped early, we slipped because we were perhaps . . . you know, I think in the early days when we slipped and Larry and I made mistakes, it had more to do with our brand wasn't well- known, and we thought the brand was better known than it is. Because we often think we could go back in some of those sites we closed in the early days, and do quite well now. But today, we recognize if we make a real estate mistake, there's multi-millions of dollars involved in that. If we open a restaurant and we close, that's many millions of dollars so that's . . . plus, that's as I say our lifeblood and what we had to do.

[A Server brings a pizza to the table]

SERVER: Larry, it's your favorite pizza.

FLAX: It is. This is again when you talk about putting cold on hot.

RYSSDAL: This is the BLT Pizza, which I frankly don't understand for the life of me how you got mayonnaise on a pizza and make it work.

ROSENFIELD: Do you like . . . do you like . . .

RYSSDAL: I love BLTs!

ROSENFIELD: Oh, then you'll love this! Guaranteed!

RYSSDAL: All right, well, I'm gonna have a munch here in a minute. But let me finish this thought here for a second. You said not too long ago that a food item gone bad doesn't really hurt you guys, right? Because you can test it in a restaurant, and if it's . . .

So that's fine, you think of something in the middle of the night, and you try it on a pizza, and if it works, great. If not, not.

ROSENFIELD: Right.

RYSSDAL: What is it that keeps you up at night about this job?

FLAX: Well, people a lot of times . . . you know, there's always different things you worry about at different times. You know, and I say the things that I worry about a lot is managing 14,000 people and doing it without any prior corporate experience and making sure we figure out how to treat them right, how to inspire them, to bring out the best in them. You know, who's right for what position? Sometimes we have to make decisions on a major position and trying to figure out how to structure that, and then . . . so it's those kind of things that most often . . . and on any other times it can be spur of the moment worries. Sometimes, you'll wake up in the middle of the night worried about the weather in the East. You know, a snowstorm's going through the East Coast, you know, closing 15 restaurants.

ROSENFIELD: That's a pretty short-term issue, though.

FLAX: That's one night. One night and 15 restaurants, right?

ROSENFIELD: Oh no, it costs us money. Oh no, as for example, in the first quarter this year all restaurants were hit very hard . . .

FLAX: Good news is the storms usually move through.

ROSENFIELD: Yeah, we were hit quite hard by the weather, and I have answered that question. It was interesting . . .

RYSSDAL: With analysts, right?

ROSENFIELD: Yeah, in January 11th, I remember very well, I was at an analyst meeting down in Orange County, and a question was asked, "What keeps you up at night?" And I said, "Winter weather right now." And then bang! We get hit with the storms right away. But that's all very short-term, you know. Our investors really don't react to that, because I think what we've got is a good group of institutional investors at this point that have pretty relatively long-term horizons, so that's pretty comforting.

FLAX: And they're also getting educated. You know, Rick spends a lot of time going out and meeting with analysts and people that analyze . . . especially for the institutions that we're involved with, and over time, after meeting with them and our CFO a number of times, they're starting to understand the restaurant business better because they're getting educated. And you educate them and then they don't react to bad weather because they understand it's a momentary blip in your numbers. It has nothing to do with what's going to happen to you next year. In fact, a lot of 'em are smart enough to understand, "Well, you had bad news this quarter because of weather, but boy are you gonna have a great quarter a year from now."

RYSSDAL: Yeah, comparatively, right?

FLAX: Yeah!

RYSSDAL: All right, so here's what I want you do to. I want you to take a piece of this pizza, and explain to me the thought process in the test kitchen, right? So you're sitting there and you say, "Hmmm?"

FLAX: Well, this pizza was on our . . . very quickly on our original menu.

RYSSDAL: All right, so it's a BLT pizza. So it's a pizza crust with . . .

FLAX: A pizza crust with cheese and bacon on it, tomato . . .

ROSENFIELD: Well, first understand, that's how it's cooked. It goes in the oven as a cheese and bacon pizza.

RYSSDAL: All right.

FLAX: Then after it comes out of the oven, tomato, fresh tomatoes laid on it, and a lettuce tossed with mayonnaise. Because this was my . . . I'm a mayonnaise freak. I love mayonnaise, and this was my attempt to get mayonnaise on a pizza, and it was right after we took over our menu and started running it ourselves.

RYSSDAL: All right, so let me share a little story here. I had a conversation with Howard Schultz at Starbucks who was for years militant against putting non-fat milk on the menu. He viewed it as sacrilege that you would put anything less than the full-fat thing in there. It's interesting that you guys have this opportunity to experiment with your own tastes as a way to develop a product.

FLAX: Yeah, but you can never be so smart about what you think is right or wrong. There's a statement about me, because I'm very reactive, and I'll make quick . . . I'll open my mouth sometimes before my brain really gets fully engaged, and I'll come out with a passionate position on something. And with the statement about me and the restaurant, in our restaurant company, is that I'm always very certain and lots of times wrong, and I'll admit that.

And the best example, of course, that Rick always likes to talk about is in the early stages, we saw the restaurant differently. You know, Rick saw it . . . and this is where he turned out to be right. Rick saw it as a more family-style restaurant. I envisioned it as very . . . being single. Rick was married. I was single. I envisioned it as very "cool," you know, a cool place where people would go and go late night and everything like that.

In fact, I did the music for the first restaurant, and I'll never forget, because I used Blade Runner, the music from Blade Runner, which was a movie years ago, which has really great music. And I'd come in at night . . . we'd both be at the restaurant constantly, you know, back and forth. And I'd come in at night and I'd lower the lights and turn up this music and then Rick walked in, he raised the lights and turned down the music.

And I did not want highchairs in the restaurant. I didn't want to encourage children because, you know, to me it would interfere with the coolness of the restaurant.

ROSENFIELD: This is going back a long time!

RYSSDAL: Nothing kills the mood like kids!

FLAX: This is 1985, the first restaurant. But then as we grew, it became very obvious that we were a family restaurant, and it . . . what they always talk about, the story of me absolutely capitulating is when we opened the restaurant in Oakbrook, Illinois. I called up from the opening of the restaurant and really was very unhappy because they didn't have enough highchairs in the restaurant. And Rick said, "Well, that's . . . you finally did the 180!"

ROSENFIELD: You've come full-circle now, Larry!

RYSSDAL: Is there a way that this enterprise could have worked if you guys hadn't been friends beforehand?

ROSENFIELD: You mean, had we come together for the first time . . .

RYSSDAL: If you had come together and said . . . you know, met a guy at a business convention or at a law practice and said, "I want to start a restaurant." "Gee, me too!"

ROSENFIELD: Well, no. Again, that's not a hypothetical that's easy to answer. I think where you're going with that is that the fact that we have succeeded as co-everything is pretty unique and I think that's right. That you can't . . . when people say to me, "Well, you know, well I have a partner and I'm thinking of doing this," my question is, "Well what kind of partnership is it? Because at the end of the day, they're very . . . it's a pretty unique partnership that's going on for 35 years that we have that we're not masking for you at all.

Everything we're telling you, it's how we . . . the way we operate, and I don't think you can plan that. You can't plan that. I guess it's like a good marriage. You can go into it thinking it's going to work, and then it doesn't work often.

RYSSDAL: What do your wives think of this arrangement you guys have? I mean . . .

ROSENFIELD: Well, it's sort of interesting. I was reflecting on this story the other day, and when Larry and I were single . . . this goes back . . . I'll be married 30 years next month, and I remember I actually had to go meet with Larry. When I decided I wanted to get married 30 years ago, I called up Larry. I said, "Let's have breakfast," because I needed his permission.

FLAX: We've had breakfast two times in our life, other than when we're traveling, but two times when we've called. One of us has each called for a meeting on breakfast. I called for a meeting on breakfast for the name "California Pizza Kitchen." I called him and said, "You gotta meet me for breakfast." I actually called him about 5:30 a.m., because I had come up with it about 3:30 a.m., and had him meet me at Nell's, and that was . . . and the other . . . and both times we were at delicatessens.

ROSENFIELD: Right, and that's funny, and we don't go to delicatessens normally.

FLAX: And prior to that meeting . . . early breakfast meeting was when Rick called me because he had decided he wanted to propose to his wife.

ROSENFIELD: Well, it's sort of interesting, too, because my wife, when we started this said . . . she grew up in an Italian family in Birmingham, Alabama and was in the restaurant business. The family . . . the father had a very small restaurant, and she thought she had married this successful lawyer, and I told her we're gonna stop. And it's quite interesting because she was very, very supportive, and we had a young daughter, and then Esther went to work . . . that's my wife . . . went to work as the hostess at the first restaurant, and I would stay home and cook. It was awesome! But yes, she is obviously very pleased with how it's worked out.

FLAX: But I didn't have to call him for breakfast when I proposed to my wife, who we'll be married 18 years this summer, because we were on a plane together, so I asked his permission on the plane.

RYSSDAL: You'll take this in the spirit with which it's intended. It's a little weird, this dynamic you guys have.

ROSENFIELD: It is a little weird, yeah.

FLAX: Yeah, I'm not quite sure . . . there probably are other examples of it, . . . but you know, it's just fate sometimes comes together in strange ways that makes things work, and this one happens to work. But you know, I'm gonna tell you a story now you're not gonna believe. But Rick and I grew up in different cities. I grew up in Los Angeles. He grew up in Chicago. When we were both young living in those areas, we both had speed boats. He called his, "Half Fast," and I called mine, "Half Fast."

RYSSDAL: You guys are making that up!

FLAX: And that is a true story! Nobody believes it, but it's absolutely true! We didn't meet until years later.

RYSSDAL: Larry Flax and Rick Rosenfield are the cochairmen, and co-CEO's of the California Pizza Kitchen. Gentlemen, thanks for your time.

FLAX: Thank you.

ROSENFIELD: Our pleasure.

[NOTE: The text above is an extended excerpt of the interview and may have been edited. It should not be taken as a verbatim record.]

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