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With Only A $1 000 Loan Legendary Subway Founder Fred DeLuca Began A Business Empire

Fred DeLuca started Subway at the age of 17 with a $1 000 loan from business partner Peter Buck. Today it’s the largest fast food chain in the world. Here are his lessons on building a successful business.

GG van Rooyen

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Vital Stats

  • Player: Fred DeLuca
  • Company: Subway
  • Established: 1965
  • Claim to fame: Subway is the biggest fast food chain in the world — bigger even than McDonald’s and Starbucks.
  • Visit: subway.com

On 14 September 2015, the fast food industry lost a legend. Fred DeLuca, the co-founder of Subway, passed away from leukaemia, which he had been diagnosed with in 2013.

His death wasn’t widely reported locally, because he was never that well known here, and that’s a shame – DeLuca deserves to be placed right up there in the pantheon of fast food legends alongside McDonald’s Ray Kroc and Starbucks’ Howard Schultz.

In fact, as a brand, Subway never really gets the respect it deserves. Do you know, for example, that it’s the biggest franchise in the world by quite some margin? It boasts around 44 000 stores in more than 110 countries. By comparison, McDonald’s has around 35 000 stores and Starbucks 24 000.

Related: Subway’s Co-founder Fred Deluca Dies at 67

It’s also the purest franchise company of the three. While McDonald’s owns quite a number of stores directly and is famous for dabbling heavily in real estate, and Starbucks has chosen to eschew franchising entirely, Subway is completely franchise driven. All of its stores are owned by franchisees, which has allowed it to scale very successfully (it went from 200 stores in 1982 to 44 000 today) and never feel the need to go public. Even today, Subway is a private company.

So DeLuca left behind a massive empire when he passed away. But he also left something else behind. A few years earlier, he penned a book titled Start Small, Finish Big: Fifteen Key Lessons to Start and Run Your Own Successful Business. As its name suggests, it offers advice on running a business — franchise or otherwise.

Now, there’s no shortage of business books out there, but DeLuca’s is refreshing for its practical and street-smart approach. He shuns talk of passion, legacy and ‘changing the world’ in favour of the nitty gritty realities of business growth.

Here are Fred DeLuca’s tips for building a business:

1. Start small book excerpt

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“Most people think that starting a business is a complex proposition. Dynamic entrepreneurs with big plans and lots of resources are the type who start businesses. They have special training, brilliant ideas, unique strategies, and a cadre of sophisticated advisers at their beck and call. Most people don’t think that regular folks with ordinary ideas and limited resources can make much happen. Boy, would they be surprised at the way the real world works.”

The takeaway

As the saying goes, every 1 000-mile journey starts with a single step. Opening a franchise store can seem daunting, unattainable even. Purchasing a fast food restaurant, after all, can cost millions. But if opening one is your dream, there are ways to make it come true — to get a foot in the door. You might not be able to afford a large restaurant yet, but what about a food cart selling boerie rolls or hotdogs? There are brands out there that are actively trying to make franchising accessible to more people by growing franchisees within the system.

Related: Should You Purchase An Existing Franchise?

2. Earn a few cents book excerpt

“Odd jobs laid the foundation of my career. Whether it was Subway or some other business, or an entirely different profession, the value of my childhood work experiences cannot be underestimated. I believe that’s true for most people who start a business and succeed. Even though I wasn’t aware of it at the time, those odd jobs provided the foundational knowledge that I would need to take the next step toward building a real business.”

The takeaway

At its core, a business is about getting customers and bringing in money. It can be surprisingly easy to lose sight of this when dealing with all the different aspects of a store. It’s tempting to get lost in retail or website design, or to focus only on product. But having a great product or wonderful store is not enough. Only one thing makes a business successful: Having customers. So it’s important to focus on bringing in the cents.

3. Keep the faith book excerpt

“When you tell your relatives, friends, and neighbours that you plan to start your own business, some of them will go out of their way to convince you that you can’t do what you plan to do. They may say your idea will never work, or they may tell you to keep your job and play it safe. They might tell you it’s too risky, or you don’t have the background, the money, the knowledge, or the drive to succeed in business. I learnt this lesson within six months of getting into business. That’s when Pete and I realised our first sandwich shop was an economic failure. At that point, it would have been so easy to give up the belief in our idea, and our vision, and close our business. Fortunately, we didn’t take that approach.”

The takeaway

There will come a time when you want to throw in the towel — it’s a virtual certainty. Every business has its ups and downs, and there will be times when you think success is out of reach. That’s when it’s important to keep the faith and remind yourself why you’re doing this. Owning and running a business isn’t easy. On most days, it will be harder than working for someone else, but it’s a rewarding experience that’s worth fighting for.

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4. Ready, fire, aim! Book excerpt

“I learnt this lesson by opening the first restaurant without any experience. In other words, I learnt it by doing it and not just thinking about it. With clarity about the idea for Subway, and at least a glimpse of the vision, I went to work the next day! Someone else might have taken time to plot out the job requirements and to write a business plan, but doing those things may have prevented me from actually starting. There’s a good chance the planning process would have consumed my energy.”

The takeaway

Taking the leap and actually opening a store is always a big and risky move, which is why it’s easy to get stuck in the planning phase — never quite feeling ready to take the plunge. The timing will never be ‘perfect’. There will always be a reason to delay things a year or two. You’ll never feel ‘ready’. At some stage, though, you will need to just go ahead and do it. Most lessons can only be learnt in the thick of things.

Related: Franchise Or Start-Up?

5. Profit or perish book excerpt

“Early in Subway’s development I found out that it’s easy to make a lot of sales and still not make a profit! That’s when I learnt about ‘profit or perish’. One day my accountant congratulated me for generating annual sales in excess of $1 million for the first time. But in the next breath he also explained that unfortunately I had lost $100 000 that year! How could that happen? It didn’t take me long to figure out there are only two ways to make money: Increase sales and decrease costs. Believe me, this is a lesson worth learning as soon as possible. It’s a lesson that we teach our franchisees at Subway.”

The takeaway

An awful lot of businesses fail because they lack financial controls. Just because money is coming in doesn’t mean a business is profitable. The focus of every business should be on reducing costs and increasing sales. And this can only be done if the financial state of the business is constantly being monitored. Know exactly how much money is in your bank account, and make sure more is coming in than is going out.

6. Continuously improve your business book excerpt

“This is a lesson that may not become apparent until you’re faced with competition. Businesses do not stand still. They may fall behind some times, but those that succeed do so by continuously improving their operation. Progress requires that they introduce new products, new ways to serve their customers, new ways to market, new ways to get ahead of everyone else. This is not a once-and-done experience. It’s continuous. Even today, when we introduce new ideas at Subway, our competition won’t be far behind. The only way to stay in business is to continuously make these improvements.”

The takeaway

It’s important to join a franchise organisation that is forward-thinking and focused on innovation. Even a market leader can die if it refuses to move with the times. It is also important, however, to always try and improve your own store. ‘Good enough’ is never, well, good enough. Success comes from always trying to be better.

7. Believe in your people book excerpt

“If you want something done as well as you can do it, do it yourself. But if you want it done even better, let someone else do it. That’s right! I think most jobs in my organisation can be done better by other people. Why? Sometimes they do a job better because of specialised knowledge, or because of their personality, or because of their problem-solving ability, or because of the way they focus on details, or because of their intelligence, or simply because of the amount of time they can devote to the job.”

The takeaway

If an employee can’t do something better than you can do it, you’ve hired the wrong person. It’s important to hire the right people, train them well, and then allow them to get the job done. You need to be able to trust your employees and know that they’re invested in the business.

Related: Assemble Your Franchise Team Like A Pro

8. Never run out of money book excerpt

“Here’s a scary thought. Even if your business does well, you may run short of money. Even worse, you may run out of money and fail as a result, even though everything in your business appears to be going well. How could this happen? How can this be avoided? Extra money is almost always needed in business. If your business is good and you attract new customers, cash may be tight as you wait for them to pay you. Also, you might need to add capacity, or you may want to open a second location. If business is bad you’ll need some extra money to tide you over while you correct the situation. That’s why the most important rule of business is to always have cash in the bank and to never, ever run out of money. Keep your expenses low, collect any money due to you as soon as possible, and borrow money before you need to.”

The takeaway

Liquidity is crucial. Many new franchisees fail to take into account the operating capital they’ll need once the business is up and running, and consequently find themselves running out of money early on. Don’t sink all your capital into the set-up of your store. Save enough to keep things afloat for a while.

9. Attract new customers every day book excerpt

“When I travel around the world and meet with Subway franchisees, one of them will sometimes say to me, ‘My sales are lower this year than last year. Why do you think that’s happening, Fred?’ My standard answer is: ‘Because you have fewer customers this year.’ As simple as it sounds, the idea that more customers equals more sales, and fewer customers equals fewer sales, often escapes many entrepreneurs. For some odd reason— maybe because it is so simple— it’s a rule that’s easy to overlook. But if you want a lot of sales, you need to attract a lot of new customers and to keep them coming back. That’s why it’s important to learn how to create Awareness, to gain Trial, and earn Usage (ATU).”

The takeaway

Customers are key. Any business lives or dies by the amount of customers it manages to attract. Every action in the business should be aimed at attracting first-time customers, and making sure they keep coming back.

Remember this

A franchise is a business like any other, and, in many ways, it requires the same attitude and approach as a start-up.

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Franchisors

Get Your Franchise Running Smoothly – Even When You’re Not There

Does the thought of taking time off from your franchise outlet make you nervous? Then you have to learn to run your business instead of letting it run you.

Diana Albertyn

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“A sign of a successful business is one that can operate without your physical presence 24/7,” says Brad Sugars, start-up expert, author and founder of ActionCOACH. While your franchise systems and operations are designed to run smoothly and consistently, is your staff trained to be productive in your absence?

“Franchises are already by nature systematised operations, so it boils down to how you as a business owner hire and train people to get the necessary jobs done,” says Sugars.

If you know a sick day will cause havoc in your store, an assessment of how you’re running your business is needed. Are you really running a successful franchise if things fall about without your supervision? Take a step back and consider the following steps to manage your franchise without it controlling your life. Pretty soon you could book that vacation.

Determine your role in the franchise

Are you managing the franchise, taking orders, doing admin and handling every other aspect of the business? Then you’re not hiring the right people, because those roles should be filled by people who can be left to carry them out unsupervised.

Related: How To Write An Operations Manual For Your Franchise

“And if you don’t have the right people for the job then it might be time to start hiring, so you can free up your franchise’s most valuable resource – you,” says Pieter Scholtz, co-Master Licensee for ActionCOACH in Southern Africa.

“You need to get an idea of how you can hire people to take repetitive or administrative tasks away from you. Ask yourself: ‘Do I really need to be doing this?’” says Sugars. Your business cannot run optimally if you’re the single most-knowledgeable and capable person there.

Lead with clarity

You have long-term goals for your business, perhaps even acquiring more locations and running multiple units. While growth is good, you need to share the load and ensure everyone employed in your business is working towards the same goals, otherwise, it’ll be difficult to get there. Sugars suggests asking yourself the following:

  • How will you make your vision a reality?
  • What makes you different from other franchisees and business owners?
  • What kind of team do you want to recruit and create?
  • How does all of this deliver value to your customer?

Conveying your vision can help ensure employees know how to get to the end-goal faster and more efficiently.

Related: 3 Steps To Ensure Your Franchisees Flourish Your Support System

Plan for long-term cash flow

Loyal customers ensure a constant flow of cash through the franchise and this requires exceptional service and the building of strong relationships. “Target your top-spending customers and establish a good relationship with them for long-term cash flow,” Sugars suggests.

Although the broader campaigns are covered by the marketing fee you’re paying to your franchisor, it’s wise to focus on your local’s tastes and suggestions when looking to deliver an experience worth returning for.

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Are Your Employees On Board With Your Franchise’s Brand Promise?

You cannot run a successful franchise if your staff isn’t aligned to the brand’s values.

Diana Albertyn

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Are the people who work in your franchise outlet familiar with the franchise’s brand promise? As a franchisee, you’re required to deliver a uniform experience, so any customer who walks through your door feels like they’re at the same store the franchisor has across multiple locations. If your employees aren’t able to embody the franchise’s brand promise at every interaction, you have a challenge on hand.

“If your company’s brand promise is a warm and friendly atmosphere, you can’t deliver that if your employees aren’t warm and friendly,” says Robin William, Senior Practice Consultant at Gallup.

“Selecting the right employees is essential to providing the right brand service. Hiring people who can’t behave the way the brand wants them to will doom a service initiative.”

Related: How To Write An Operations Manual For Your Franchise

When employees know what’s expected of them, they’re able to keep the promise the franchise makes to customers – leading to higher customer and employee engagement, trust, and revenue.

More than a mission statement

Even if you’ve ensured every one of your staff members know the brand’s mission statement, how can you be sure they’re able to exemplify it in their behaviour every day? William suggests that you do the following:

  • Create structures and mechanisms to consistently instil brand values in the franchise’s culture.
  • Discuss brand behaviours daily.
  • Demonstrate brand behaviours yourself every day.
  • Praise the efforts of individuals who demonstrate brand behaviours.
  • Hold employees accountable for not exhibiting brand behaviours.

Once you’ve clearly defined the right brand behaviours, it’ll be easier to have staff on board who deliver your franchisor’s brand promise.

Internalise the culture

Here’s a conundrum. Do your staff know what to do in a situation where a customer’s request might not be aligned with the brand promise, but the brand promise is always to deliver on customers’ requests? It’s a tricky situation, but if you’ve clearly articulated the promise, your staff will know how to “Behave the brand”, says William.

“Do whatever it takes to deliver on its brand promise. Whether it’s focusing quality, fast service, customer care, or low prices,” he says.

“Employees must execute brand and service behaviours consistently, and frequent reminders can help employees understand and internalise these behaviours.”

Related: 3 Challenges To Establishing A Franchise System And How To Overcome Them

Empower your staff

Investing in your staff is the best way to encourage them to act in line with your brand’s promise. Once they understand why it’s important to act along the lines of your brand, they will feel empowered and motivated to do so.

Starbucks trains employees to memorise customers’ names and preferences in line with their promise of making everyone who visits their stores feel at home. Apple’s strategy of hiring nice, smart people who are passionate about service and the product aligns with the company’s belief that knowledge can be improved, but personality cannot.

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How To Write An Operations Manual For Your Franchise

After establishing that your business is franchise material, ensure you’ve created a clear roadmap to success for your franchisees.

Diana Albertyn

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Documenting the replicability of your business is key to launching a viable franchise operation. Without manuals and instructions on how exactly you carried out your concept to its current level of success, your franchisees won’t accomplish the results you anticipate.

“Unless you can capture your business on paper, you cannot claim to have a business system to sell. Even detailed documentation may not be enough,” says Franchise Direct’s Lorraine Courtney.

“You may need to provide structured education programmes for new franchisees and their staff to teach them your business system.”

With the help of an experienced franchise consultant, you can devise the critical document that contains all the aspects of what make your brand successful.

Related: 3 Challenges To Establishing A Franchise System And How To Overcome Them

Why you need a franchise operations manual

If you’re second-guessing the importance of crafting an operations manual, then you shouldn’t go into franchising. “Your operations manual is your go-to document for deciding who is responsible for what in any franchisor-franchisee relationship,” says Dani Peleva, Managing Director at online marketing agency, Local Fame.

According to Peleva, your manual should generally include each franchisee’s contractual obligations to you as well as the complete details on how you expect them to fulfil these obligations.

“On a basic level, it tells your franchisees what you expect of them. It gives them all the information that you’ve accumulated while operating your franchise,” says Peleva. After familiarising themselves with this manual, franchisees should know how the information can be used to build their own business up to be as successful as the original store.

What an operations manual will do for your business

When all your franchisees know what’s expected from them as they run their respective locations, the entire brand is then able to provide a cohesive, coherent customer experience, which is crucial to your success as a franchisor.

A good manual will also help you build better relationships with your franchisees as they won’t need to constantly contact you to clarify aspects of the business they’re not sure of. If they’re applying the information in the manual, they should know everything you know about how to run this type of business, meaning they’ll make good profits – for you and themselves.

Related: 3 Steps To Ensure Your Franchisees Flourish Your Support System

“One of the steps most potential franchisees make before signing an agreement will be to contact your other franchisees. A strong manual will help your current franchisees return positive feedback,” adds Peleva.

How to decide which elements to include

Obligations detailed in your franchisee agreement will have to correspond with steps on how to achieve them in your franchise manual. As a new franchisor, you cannot be expected to have a manual as thick and wordy as your established counterparts.

Peleva suggests covering aspects such as:

  • How to set up a franchisee location and start trading
  • How daily operations will be conducted
  • How development or expansion will be controlled.

“Your operations manual should always include as much detail as possible regarding operational practices that are to be followed,” says Peleva. “A simple list item that states ‘this obligation must be fulfilled’ is not helpful. Looks always to the ‘how’ of the issue and you’ll cover everything you need to.”

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