Don Boroian - How to Buy and Manage a Franchise

The American Dream with a Safety Net:
An Introduction to Franchising
Fred DeLuca needed cash. At seventeen, he was ready for college, but unless he raised some
money fast, he knew he couldn’t cover his first-year expenses at Connecticut’s University of
Bridgeport. As it would turn out, DeLuca’s solution for financing his college education would
lead to one of the biggest franchising success stories of the late eighties and early nineties. But
back in 1965, all he wanted was a financial fix.
DeLuca approached a wealthy family friend for the money. He recalls hoping that Peter
Buck, a nuclear physicist, would “reach into his pocket and pull out a big stack of hundred-dollar
bills.” Instead, Buck offered something more valuable – a business proposition. Instead of a gift
or loan, he would give the youngster $1,000 to open a submarine sandwich shop. And so Pete’s
Submarines of Bridgeport was born.
After a slow start (and a name change), the partners added fifteen more sandwich shops
in the following eight years. The chain had potential for further growth, but the traditional
method of building and operating company-owned stores was proving to be slow and costly.
The choice of an alternative wasn’t hard to make. McDonald’s and Kentucky Fried Chicken,
among others, had set an excellent example by franchising, and it was in that direction that
DeLuca turned to expand his business.
More than twenty-five years after it was started as a collegiate money-making venture,
this submarine sandwich idea has truly paid off. DeLuca and Buck’s business has become the
pacesetter among sandwich chains, setting a growth standard believed to be untouched by even
mega outlet food giants such as McDonald’s or Domino’s Pizza. In a single year – 1988 –
Subway, as the franchise is now called, opened more than one thousand outlets, a feat never
previously accomplished by a single chain.
Of course, opening a sandwich shop isn’t a rocket-scientist type of proposition. All one
needs is money (which, as has been demonstrated, can be someone else’s) and desire. Even
making that shop a success isn’t a superhuman task. Combine hard work, a good product, and a
reasonably decent location, and you can be the local roast beef and salami king. But to establish
and successfully duplicate such a store a few thousand times across the country and around the
world takes more than a profitable outlet (or even a few such outlets). It takes one of two things:
(1) Nearly unlimited capital (quite literally in the billions of dollars) to finance such growth; or
(2) the proven, synergistic power of franchising.
Chapter One
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So if you happen to have a couple of billion dollars lying around in a family trust, or a
friendly banker whose loan checks come preprinted with nine zeros, then what follows will
likely not be of much interest to you. But if you have a desire to become part of – or simply
learn more about – franchising, the successful and growing form of business the U.S.
Department of Commerce has called “the wave of the future”, this book is the source you’ve
been looking for.
As franchising has grown in prominence and performance, it has attracted wide coverage in the
media – some positive, some negative; some aimed at potential franchisees, some at franchisors;
some purely analytical, some philosophical and esoteric. But what was missing was a
comprehensive, easy to read (and perhaps fun to read) book that tied it all together – a book that
combined practical and useful information for both franchisees and franchisors with unbiased
reporting and interpretation of the development and influence of franchising. The challenge,
then, is to fill this information gap.
This book sets out to be the only book anyone (be they franchisees, franchisors, or even
just curious consumers) needs to read about franchising. And that’s not just a boast or some
lofty goal – it is our personal mission as authors.
Perhaps it sounds too simple: anyone with any interest in franchising. But it’s true. This book
was written with the widest possible variety of readers in mind. Whether you are interested in
purchasing a franchise (that is, becoming a franchisee), developing an existing business into a
franchise (becoming a franchisor), or simply learning more about the form of business
responsible for more than one-third of all retail sales in the United States, this book will inform,
educate, and perhaps even amaze you.
Do you dream of becoming your own boss but are wary of striking out on your own?
We’ll help you assess whether you’re ready (financially and emotionally) to become a
franchisee. Are you ready to buy a franchise, but not sure which one to choose? We’ll give you
some valuable advice to help narrow which franchises are best suited to you.
Perhaps you own a small (or even not so small) business and are considering expansion.
We’ll help you answer two questions of paramount importance when it comes to considering a
franchise program: (1) Is your business franchisable? and, (2) if so, what is the best way to go
about it? The fact is times have never been better to consider expansion through franchising, for
anyone who owns or operates a successful business. There is definitely an audience of qualified
potential franchisees available. Big corporations, including many Fortune 500 companies, are
stripping away layers of middle managers with layoffs and early retirements. Add to this pool of
Why This Book?
Who Should Read This Book?
Compliments of Francorp Connect, Inc. 8 www.francorpconnect.com
talent the growing number of executives whose jobs have been “leveraged” out of existence (due
to buy outs, mergers, and other corporate reshufflings), and you have an experienced and
professional class of people ready for a new challenge. For many of these people – and others
ready for a change – franchising is the best choice.
Joe’s brother, John Mancuso, is a good example of a new breed of franchisee. He owned
and operated a small machine shop in Hartford, Connecticut, for the past half dozen years. He
also was a customer of the local Physicians Weight Loss Center in Hartford, and trimmed down
from a hefty 270 pounds to close to 210 pounds. He was thrilled with his weight loss -- so much
so that he sold his machine shop and used the proceeds to acquire the franchise location where he
had lost weight. Rather than start a new business in an area that interested him (but in which he
had no practical experience), he bought the franchise and the national reputation and source of
knowledge that went with it – a franchise that he knew was effective, because it helped him lose
weight.
John had never anticipated being involved with franchising, but at the age of forty, he too
came to marvel at the power of the concept. (But, as you’ll learn later in this book, John lost
more than just weight. That was another motivation to write this book.)
Franchising is a broad term that described a relationship between two or more parties. In
general, the purpose of this relationship is to distribute goods and/or services. The two primary
types of franchise systems in the United States are product or tradename franchising and
business-format franchising. Product or tradename franchising is franchising in its most limited
form: A manufacturer grants another party a license to sell goods produced by the manufacturer.
Principal examples of this form of franchising include sales of cars through dealerships, gasoline
through service station, and soft drinks through local bottlers.
For the purposes of this book, we will almost always be discussing the other type –
business-format franchising. We will refer to it by the simpler term franchising. Under
business-format franchising, a business owner or manager (the franchisor) allows someone to
market products or services using her name, trademark, and most importantly, her prescribed
business format – thus the name business-format franchising. (Frequently – in fact, usually – the
products sold are not provided by the franchisor.) In return for use of the name and system, the
franchisee – as that person or organization is called – pays a fee and, usually, an ongoing royalty
(in the form of a percentage of sales). Moreover, the franchisee pays all the costs of going into
business. The effect of business-format franchising is to make it less a system of distribution
than a system of proliferation or expansion.