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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

Start-small-finish-big-book

“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.

Fred-Deluca-book-advice

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

Make Your Business A Good Neighbour

Take your business from invisible and struggling to a thriving neighbourhood landmark.

Richard Mukheibir

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Is your business invisible to your customers? You may have fewer customers than you would like because your business does not seem relevant to those in your neighbourhood. This is an even bigger mistake than not being able to reach beyond your direct trading area.

To appeal to people – customers – you should also present your business as a group of people who help other people. This can be helping supply them with goods they need to buy, helping provide them with loans or simply being a reassuring and consistent presence in your neighbourhood.

As our Local Area Marketing Manager, Juan Botha, tells Cash Converters’ franchisees, this is about blending and fitting in like a neighbour. It is about give and take. And all of that adds up to community engagement.

Related: Effective Ways To Bring Customers To Your Door

Here are six of his top tips:

  1. Introduce the family: Cultivate a friendly, welcoming atmosphere in your shop or office. Introduce new staff to regular customers. Make sure that new customers can get to know staff through your in-store welcome boards and name badges.
  2. Find your partners: Identify the gatekeepers in your community and create partnerships with them. Think about approaching sports clubs, schools, church groups, sewing circles and book clubs.
  3. Snatch some selfies: If you have local celebrities as customers, take a selfie and post it on your social media: “Guess who came to say hello today . . .” Build relationships with local heroes and you will be able to call on them to host your in-house fun day or charity drive.
  4. Give back to business: Be involved in local business chambers and groupings as more than a participant. Show you are a good business neighbour by facilitating speed networking, hosting a speaker or sponsoring a sound system or catering for the next meeting.
  5. Adopt a cause: Identify a local charity and rally support for it.
  6. Help the community: Launch or participate in a community project – anything from an area clean-up or helping repaint school classrooms to planting trees or a community vegetable garden.

Building relationships helps you build your business’s reputation. That is because you can make people start to feel a certain way about your business and influence them positively towards you. Then, when they need something that you supply, you will be top of mind.

That neighbourhood warmth creates a sense of ownership. These prospective customers will already know how you can benefit their lives and so are more likely to become your regular customers.

They will be acting on the fact that people remember you for the experience you give them. As top American writer Maya Angelou said, their memories will be shaped by how you make them feel – not how or what you make them think. Relationships may be intangible but they can bring real value to your business.

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Franchisors

Why Your Franchise Should Adopt A Shared Value Business Model

Stay ahead of the curve in an evolving business environment and unlock business growth by addressing social issues.

Diana Albertyn

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Have you heard the term ‘profit with purpose’ in your business ownership circles, but not sure how exactly it could be applied to your franchise? As a franchisor, entrenching this model into your core business strategy could see your current growth potential multiply – along with the communities that play a role in your business’ success.

“By leveraging resources, market access, scale and their capacity for innovation, businesses can advance and accelerate development while generating commercial returns.”– Serial entrepreneur Cindy Langeveld.

Considered the key to profit and progress, the shared value business model enables your franchise to go beyond just ticking the CSR box. Here’s why and how your franchise can start establishing partnerships for business growth:

Indicates your business has a conscience

Not only is a profit-first business approach is no longer viable for long-term business growth, the role of the consumer is becoming more prominent – and they are leaning towards buying from corporations that demonstrate conscientious business practices. Donating blankets to a charity is good, but how are you impacting those involved in the value chain that sustains your business?

Related: 3 Crucial Considerations For New Multi-unit Franchisees

Chicken franchise chain Nando’s, for example, creates shared value for the key players in the success of their brand – the small farmers in Southern Africa who farm their unique African Bird’s Eye Chillies used in the PERi-PERi flavour.

This farming initiative was started ten years ago in Mozambique with just six small farms. Today it includes 1400 farmers and produces in excess of 360 tonnes of chilli across Southern Africa.

Ensures your profit creates progress

nandos-peri-peri-farming-initiativeWhile implementing shared value business models helps consumers see your business in a better light, it’s important for the initiatives that stem from it have a visible, positive and measurable impact on the communities concerned.

“I’ll never forget my first impact assessment. I sat with one of our farmers and a translator who told me about the impact growing chilli crops for Nando’s was having on his life and his community” recalls Sam Hirst, Nando’s PERi-PERi Farming Initiative Manager.

Nando’s has grown and sustained its network of farmers through learning and improving on the process, despite the challenges involved. Empowering the small farmer has required unprecedented effort and working very closely with farmers every day and every step of the way to overcome challenges such as generating working capital to set up the infrastructure the farmers needed, managing unpredictable weather conditions, and high transactional costs.

Related: Why Your Franchise Brand Should Be Culturally Relevant

Creates sustainable partnerships

The purpose of implementing a shared value business model is so make a sustainable difference in both your business’ growth and that of the communities involved in your supply chain. For Nando’s the motivation was the potential impact the chilli farming could have in its communities.

The franchise has consequently invested in providing these farmers with the tools and skills for sustainable farming. Investing in technologies and various new processes has enabled Nando’s to secure prices and contracts directly with the farmers, avoiding potential negative economic impact on the farmers’ financial security.

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Franchisors

3 Employment Best Practices To Apply In Your Franchise

Brand new to franchising? As a first-time franchisee, you may need some guidance on managing your recruitment processes within your business.

Diana Albertyn

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You’ve just hired your first few employees. Congratulations. As an owner-operator who is also new to business ownership, navigating the human resources aspect of your franchise may be daunting, especially when growth is imminent. Your franchisor offers support, but may not want to play a huge role in recruiting and managing your staff.

“Employee management and HR compliance is a tricky topic, especially with the relationship between franchisors and franchisees. Depending on what HR support the franchisor can and cannot provide, the franchisee may be on their own in this all-important area.” – Dean Haller, President and founder of HRSentry

This, however, doesn’t mean you’ll have to blindly search your way through human resources practices, hoping you’ll eventually get it right. Invest a little time into learning the basics, and you’ll make the best decisions until you can afford to hire an HR specialist – and pick up some expertise along the way.

1. Equip newcomers with the tools for success

Consider the type of information, tools and training your new recruits may need to function productively in their new work environment – and ensure they get it. “Studies indicate that most new employees decide whether to stay or leave a company within the first six months, so be sure to be welcoming early on to help them feel part of your team,” advises Haller.

Related: Why Your Franchise Brand Should Be Culturally Relevant

“If you’re thoughtful of your employees’ new experience, they will become more productive and engaged, and thus, more likely to stay.”

Remember the first time you went through the manuals while familiarising yourself with the franchise concept? A new employees’ experience is similar as they have to take in a lot of new information while acquainting themselves with their new workspace, colleagues and systems. Make the on-boarding easier, by reasonably introducing each aspect during orientation and training.

2. Remain stern on performance standards

Once both parties are satisfied with the training and support offered, new staff should be made aware of expectations and receive continuous and constructive feedback on their performance based on these.

Should employees fail to meet their KPIs, it’s important you’re able to identify if your best efforts have failed and whether termination is an option. “Don’t procrastinate. Make sure all performance-related reasons are documented clearly,” says Haller. “Treat the person with dignity and respect –not only because it’s the right thing to do, but because it’s good business practice and can help you avoid any potential legal action against your business in the future.”

You can avoid this situation early on by hiring employees whose CVs not only meet your business’ operational needs, your company culture too.

Related: As Consumers’ Tastes Change Can Your Franchise Keep Up?

3. Acknowledge and reward hard work

During key periods of business growth, it’s easy to overlook good performance. And even when you acknowledge your best employees, sometimes money in the bank isn’t as meaningful as creative tokens of appreciation.

“Get creative,” says Haller. “Provide flexible work schedules, interesting assignments, or a gift certificate to a great restaurant or spa. Be mindful that it’s costly to replace a good employee, so reward your employees with some kind of benefits if you can,” he adds.

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