Franchising For Growth and Sustainable Earnings

Do you know what Burger King, Wendy’s, Blockbuster Entertainment and Starbucks have in common? Well, I worked with all of them while their respective founders were still in charge and each of those founders were dynamic visionaries with an obsession on winning and execution.

I began my career in 1972 as an Project Engineer for Burger King Corporation, in Miami. My contribution was to implement a Labor Scheduling System for store managers which improved the proficiency for each store employee, created a much improved store layout and improved the overall sales-to-labor productivity. Years later, I became the first Vice President of Architecture and Construction where we designed all of our store configurations for maximizing our peak-hour capabilities (Customers per Minute). We focused our performance on our Sales-To-Investment Ratio and maximizing our store level profit because that was the common ground for company and franchise restaurants.

In 1981, I joined Wendy’s during their tenth year. Over the next nine-years, we opened thousands of new restaurants. During their peak growth years, Wendy’s opened over 500 new stores per year. Internally, the health of our system was not only gauged on the stock price and earnings per share – we were focused on the profitability at store level because that was the common ground we had between the Company-owned and Franchise-owned restaurants. We knew that if our franchisees were making more money – they would build more stores. If the company stores were making more money – we would report higher earnings and everybody would win. Our Wendy’s franchisees were a critical barometer to how we were doing. We had Two-Commandments regarding our franchisees.

1. Never give a franchisee the simple privilege of paying more royalty without any incremental flow-through profit.

2. We don’t make money on royalty income. We only make money when the franchisee is building more restaurants and that won’t happen if you violate Commandment #1.

Our entire Senior Management Team at Wendy’s was committed to constantly improving the External Guest Experience by focusing on the Internal Guest (most companies call them employees). Dave insisted on quality food, quick service and clean restrooms. To all of us, Dave Thomas was more than our founder and spiritual leader. He was also Wendy’s dad.

In 1990, I joined the Wayne Huizenga’s group at Blockbuster Entertainment, when we only had 900-stores open. During the next seven years – we never opened less than 700 new stores in any given year and when I left, we had 6,500 stores operating. That growth was due to company-owned and franchise-owned stores earning more money than they were expecting. Our entire Senior Management Team was focused on improving the “movie knowledge” so our store associates could match our members to the movies that they would like. Once again, the health of our system was gauged by the store level profits for our company and franchise stores for the same reasons mentioned earlier.

My time at Starbucks was a short one, but when I joined the Howard Schultz team at Starbucks Coffee Company, we had 250-stores operating in the US and had just completed opening 100-new stores the previous year. We were going to begin to reproduce the West Coast success on the East Coast and we opened 150-new stores in 19-months, always focusing on delivering The Starbucks Experience to every Guest, every day in every store. We did that by focusing on the job enrichment and training that we provided to all of our Store Partners (most companies call them employees). All of our growth was through company-owned stores, but store-level earnings were the key to what has become a very successful, quality brand.

What do all three of these brands have in common? How did they facilitate their “exponential growth” plans? Obviously, all three brands had access to “publicly traded” funds – but their successful growth rates were far more attributed to other commonalities.

All three brands had a point of difference from their competitors. They differentiating and exploiting that difference against the industry, while hiring and training the “internal customer” dedicated to exceeding the expectations of the “external customer”.

Equally important to an exponential growth strategy is never build new stores beyond your ability to develop a quality staff to operate them. In all 3 of these companies, we had a “people-plan” as part of our “asset-plan” for growth. In fact, growing pains are simply the result of growing a business faster than your ability to operate.

Never expand by transferring experience managers into your new operation unless you are guaranteed that there is competent management to replace them. To do otherwise, you will experience “profitless-prosperity” – or negative-same-store-sales while you are growing exponentially.

Regardless of your industry, your customers are most essential to your business success and your ability to survive during a good economy and the poor economic times. Constantly upgrade your staff, especially during periods of economic slowdowns because if you are focused on outstanding customer service, mediocrity is most apparent when sales begin to slide.