When Tom Potter first opened his pizza business the overwhelming customer reaction astounded him. The Albury Beagle Boys store was the beginnings of the successful Eagle Boys Pizza chain of franchise opportunities and was the initial step in Tom Potter’s quest to become a business owner by the age of 27. He was three years ahead of his target.
Yet no business success story is all good news; surviving the rollercoaster ride is what makes a good business and the challenges come from internal and external sources. Knowing when to take advice, and where to get it, is essential. Potter admits he left it too late to bring in some very experienced people to the board.
“I want to hammer home that it’s all good and well to have a strategy, cash flow and a business plan, but you need people around you who have done it before. The best set-up is two to three advisors who are not involved financially with you; in pizzas, a retailer and franchisor onboard is important. We had a good balance.”
Building the business
So what is the key to good franchise management? Management needs to maintain a hands-on approach, he says, citing how senior figures at Eagle Boys directly attend briefing meetings with ad agencies or marketing departments to keep on top of the developments.
Secondly he says the quality of franchisees can’t be underestimated and the first 20 in particular will reflect the franchise philosophy because they really understand the culture. While many franchisors lay claim to a belief, and experience, that the franchisees who help build a system from scratch can prove problematic as standards slip at the expense of much-needed growth, Potter’s experience is the opposite.
“When it got to 50 plus we let franchisees slip through the tracks, the wrong people for the wrong job. Of course there is an anxiety to bring franchisees in to the system, but they absolutely should fit the culture,” he cautions. “We had five to six stores, all crackers, and franchisees who understood the business. We just had a dream run but we were slowly slipping. You need checks and balances.”
And that is where a strong senior team comes into its own. A franchisor needs a good strategy and business plan but requires it to be monitored, Potter says. “People should question and lean on you as CEO and check every month. Our five directors were supplied full information every month.”
It isn’t just the franchisor who should be focused on the strategy though he suggests. Before buying into the business a franchisee should be sure of the strategy and ask the franchisor, can you present your business plan or summary, what is the strategy for the company?
In March 2007 Tom Potter handed over control to a new team, an Australian venture capital group, retaining some shares and for 12 months a consultancy role. He played lots of golf, enjoyed a more relaxed lifestyle and did some public speaking. But he is well and truly back on the work wheel with a new food project.
So looking back to the highs and lows of his career with Eagle Boys what would he do differently? “Spend more time learning the marketing side of the business. I worked the operations side, I like to understand the product but more business momentum is all about talk, about marketing. It took many years to understand how to analyse the competition, hit the target market, and get it right.
“The franchisee is paying royalties and marketing fees; the CEO should be involved because it is the most money they will spend on behalf of the franchisee.”
Getting the right franchisee
Franchise opportunities are a wonderful way to get into business he says but enthusiasm, motivation and good presentation do not necessarily make a great franchisee. It’s important for both franchisees and franchisors to recognise that not everyone is suited to a particular industry and franchisees at interviews may not be all they seem.
“The franchisee who interviews best is probably hiding the fact they are going to be a shocker. There are baby-faced assassins but it might be the industry they’re in, they might just not be suited. We had the most likeable bloke in Bendigo but he was a salesman. He could not run a pizza shop. He was so enthusiastic, he didn’t deliberately set out to fail.”
The solution to poor franchisee selection for Eagle Boys was to conduct a psychological profile of the 10 best and 10 worst performing franchisees to find out the tendencies for failure and success. But how does a franchisee convince the franchisor, and themselves, they are right for the franchise opportunity? Potter’s advice is to go and spend a month in the business.
“If you’re committing your life savings at least take a holiday and work in the store. Does it suit your lifestyle, family, can you handle a store? Because there is always the expectation that business is going to be wonderful. ”
It’s a view predominantly held by the male franchisees, he says, and that’s why, if there is a couple involved, both should attend interviews.
“Because six months later he’s working hard and the wife’s unhappy because he told her a sugar-coated version. Women are less emotional and more conservative. A bloke sees the opportunity, a woman puts the brakes on. Its half their money anyway,” he reasons. “If you’re a male chauvinist it will come back to bite you.” Addressing the lifestyle changes that are going to occur for the franchisee to enjoy the business is a crucial step in the decision making process, Potter suggests. “This is absolutely critical: why are you running the business?”
As a tireless entrepreneur, with plans to franchise his latest project, Potter is convinced of the value of franchising. “Franchising is a wonderful business model to allow multiple people to become wealthy. Some extra well off franchisees are getting $200,000 per annum from a $300,000 investment.”
Franchisee risk
One successful franchisee is Chandresh Raniga, the Mackay Eagle Boys franchisee. But he started with nothing. In his book The Eagle Boys Story, Tom Potter writes about helping Raniga, a delivery driver and accounting student, raise the funds to buy a franchise. Potter lent him $10,000 to use as surety for a $40,000 loan from a bank. The $40,000 total was then paid into another bank and was the foundation for an extra $100,000 in lease financing.
Potter’s investment paid off because he regards Raniga as a model franchisee who has willingly re-invested significant funds in relocating stores, has been awarded national franchisee of the year, and turns out great profit from excellent sales.
The plain fact is that the franchisee has to make money for it to be a success. Potter suggests a formula: if you earn $100,000 on a wage and you spend $250,000 on a new business, what is the acceptable profit out of the business every year? “You have to double that if you’re going to be working harder, have more responsibility and risk a quarter of a million dollars. You have to be a nut not to double it,” he says.
There is no doubt that buying into one of the myriad of franchise opportunities with less than 100 stores is difficult because every advisor cautions against it, says Potter, in case it’s a fad. But once a franchise reaches a 200 store portfolio incoming franchisees can get too flippant and less diligent. “It’s not a guaranteed success, you can still fail,” he warns.
Fast franchises
Eagle Boys now has 275 franchised stores and the pizza business in Australia has changed. And the future of fast food is in speed. “Unless you have fast service and drive thru you’re not a serious player. Look at the dollars made and the top 60 to 70 per cent of the market comes from instant service.”
Potter is backing this opinion with his wallet. “I’ve just started a new business, the Crusty Devil Bakehouse, a 24 hour bakery, drive through, in south east Queensland. Brisbane is very under serviced. We’ll have full air conditioned drive thru’s, and the first outlet is in Carina on a main corner.”
One of the beauties of a bakery model is the opportunity to change a product to suit the local market he says; so cakes and bread options will vary according to the local demographics and tastes. It has got off to good beginnings; like the pizza start-up more than 20 years ago the bakery has tapped into a local demand and is serving up to 700 customers a day.