Saturday, October 4, 2008

Hot Pockets cofounder shares success story with SDM - SDM Pulse, Fall 2008

By Emad D. Zand, SDM ’08

Editor’s note: In spring 2008, Emad D. Zand, SDM ’08, organized a lecture titled “The Story of Hot Pockets and an Entrepreneur’s Life,” delivered by David Merage, cofounder of Chef America, which was launched in 1977. Zand, who is copresident of the MIT Sloan Middle East Business Club, offers his impressions of the talk.

Many SDM students, myself included, have entrepreneurial aspirations when they arrive at MIT. The plan is to leverage rich technical experience, combined with new skill sets in systems thinking and business developed during the program, and take the business world by storm. Hearing real-life stories from prominent entrepreneurs helps all of us to understand the many factors that contribute to success—not just leadership skills but also vision, determination, the ability to choose good partners, and the willingness to make sacrifices and to take risks along the way.
David Merage, cofounder of Chef America (known for its Hot Pockets)
poses with Emad D. Zand, SDM ’08, and others during his visit to MIT
last spring. From left: Patrick Zeitouni, MBA ’09, copresident of  MIT
Sloan Middle East Business Club; John M. Grace, SDM industry codirector;
Shimrit Ben-Yair, MBA ’09, copresident of MIT Sloan Marketing Club; Zand;
Merage;  Pat Hale, director of the SDM Fellows Program; Peter Kurzina,
MIT Sloan senior lecturer;  David Weber, director of MIT Sloan corporate
relations; and Faisal Alibrahim, MBA ’09, copresident of MIT Sloan
Middle East Business Club
In spring 2008, David Merage, cofounder of Chef America, delivered a lecture at MIT titled “The Story of Hot Pockets™ and an Entrepreneur’s Life.” Chef America is a national frozen food manufacturer known for creating and marketing many innovative and successful products, including Hot Pockets, Lean Pockets, and Croissant Pockets. In 2002, Chef America was sold to Nestlé. At the time of its sale, it had reached $750 million in annual sales, employed 1,800 people, and was growing at a rate of 15 percent per year, making it one of the fastest growing food companies in the world. Nestlé acquired Chef America for $2.6 billion.

Secret of success
In his talk, Merage said that the entrepreneurial spirit runs strong in his family; his father encouraged him to build a family business as a strategy to foster personal and family strength. But it was also clear that Merage had drive, competency, and the resourcefulness needed by a successful entrepreneur.

During a business trip to Europe, Merage and his brother discovered Belgian waffles, which had yet to be introduced to the American market. Inspired, they went to work, researching business models and testing concept viability before concluding that manufacturing and distributing a frozen waffle product to coffee shops and restaurants would yield the highest return.

With a lot of drive but without any previous technical expertise or any experience in the food industry, the team spent nights and weekends engineering equipment, formulating recipes, and creating products in a garage-like setting. In 1977, Merage, his brother, and their father formed Chef America and began mass production of their Belgian waffles. Building on that success, they soon began research and development on a frozen lunch product that they called the “Hot Pocket” and sold to schools, caterers, and vending companies.

Merage stressed that employees’ dedication to the corporation’s goals was crucial to the venture’s success. The founders were able to create a sense of community and respect for employees and not allow room for politics in the organization. The transparency of the organization boosted employees’ sense of belonging and kept them motivated. Transparency and respect are much more effective than financial incentives in motivating employees to meet corporate objectives, Merage said.

More than 80 students and faculty members attended the talk, which was open to all MIT students. Sponsored by the System Design and Management Program, MIT Entrepreneurship Center, MIT Sloan Jewish Students Organization, MIT Sloan Marketing Club, and MIT Sloan Middle East Business Club, the lecture was followed by a luncheon at the MIT Faculty Club for a small group of students, who had the opportunity to dine with Merage and ask more specific questions in a less formal setting.

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