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Money Talks

By Dr. Gregg Dimkoff
Professor, Grand Valley State University
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I never met a dozen donuts I didn’t like. Even those donuts stamped out a thousand miles away, frozen, thrown into a shipping container, and delivered to grocery stores where they are thawed and then frosted are pretty tasty if I’m hungry enough. But special donuts are, well, special. So, whenever I’m in Muskegon — yes, the city in severe economic straights with an outsized unemployment rate — I like to stop in at Ryke’s to get my share.

The last time I was there, a Saturday morning, the place was almost sold out of my favorites: Bismarcks and long johns. Customers were everywhere. In fact, every time I stop at Ryke’s, there is always a crowd. How can a business be that successful in, of all places, Muskegon? Clearly, the owner is on to something. I mentioned this to my friend as we sat at a table inhaling donuts. She suggested I ask Butch Rouwhorst, the owner, the secret of his business success. He had been walking by our table as he moved about the store. So I stopped him and asked. We chatted a bit, and Butch promised to call me to discuss his business practices.

I asked Butch whether the donuts and cakes were fogging my mind, or whether his business was doing really well. In fact, he explained, overall sales had quadrupled since he bought Ryke’s in 2003. That’s a little more than a 20 percent growth rate per year. Ryke’s sold 80 cakes in 2004, and now sells 300 — a 25 percent annual growth rate. Was the recession hurting his sales, I asked. The answer is no: January 2010 sales were 18-20 percent higher than January 2009, continuing a seven-year trend.

So what does it take to do well in economically depressed Muskegon? What makes for a successful business? Yes, just about everyone loves donuts and cakes, but if that’s all it takes to be successful — sell something that’s both legal and to die for — donuts and cakes and chocolate would be for sale everywhere. They’d be for sale in hair salons, oil change shops and lumberyards.

They aren’t, however, because it takes knowledge, experience, and business smarts to do really well in any line of business. Rouwhorst describes six reasons for his success: quality ingredients, customer service, hard work, reasonable prices, a diversified product line, and good and experienced employees.

Quality begins with fresh, high quality ingredients, many handmade from scratch. For example, Ryke’s makes its own butter cream and uses only cane sugar instead of beet sugar. Both give a higher quality, better tasting product. Competitors often use less expensive ingredients like partially hydrogenated shortening and frozen ingredients, leading to less flavorful products.

Customer service begins with the store’s mission statement, Get it Ryke’s the first time. Butch’s wife, Renee, is the firm’s sales person. When customers walk into the bakery, Ryke’s goal is to make them feel part of the Ryke’s family. Upon entering the store, the Rouwhorsts want them to glance around and get the feeling that the world isn’t such a bad place.

After Rouwhorst purchased the bakery, he began diversifying the product line. He added a café. He began a catering service and began making cakes. Together, the catering and cakes business now account for 70-80 percent of the company’s revenue.

Another key to success is company employees. The employee turnover rate is low, making for more experienced workers making fewer mistakes working more productively. The company pays higher wages than most of its competitors, offers health insurance to any employee working at least 17 hours per week, and offers a 401(k) plan with a company match.

There you have it — the keys to success. In fact, are these keys to success any different from any other business? If the focus can make Ryke’s highly successful, will it work for other companies? It does, and you likely can name several successful businesses applying the same standards of excellence as Ryke’s. Those businesses have been around for years, and likely will be around for many more. Like Ryke’s, they often are local icons.

At the other extreme are many failing businesses. Think of all the restaurants that come and go. Many failing restaurants get into trouble because of their high rates of employee turnover, poor customer service, low quality ingredients and lack of adequate diversification. Extreme opposites of Ryke’s philosophy are the passenger airline companies and the big banks. It seems that employees of both lie awake at night thinking of new ways to slap on new fees and in other ways make doing business with them a most unpleasant experience. Lucky for them those customers put up with enormous abuse before they take their business elsewhere, if it’s possible to do so. Most other businesses aren’t so lucky. Many of their customers will disappear forever in a moment of discontent.

The owners of Ryke’s know what it takes to thrive in the challenging Muskegon business climate. Reasons for their success can serve as good lessons for many business owners. No magic is needed, just attention to details that matter to customers.

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