In Search Of The Perfect Business
Successful franchise marketing leads a deli business to explosive growth.
Put yourself in Rick Cardin's shoes.
You've got a Harvard B-school doctorate, you've done a decade of prestigious and lucrative consulting work, and now you want to build a business of your own. What kind? You don't know. All you know is that you want to do it right. So starting from scratch, you systematically devote all your skills, training, and experience to determining what would make the single best start-up concept in the land.
It takes three years.
This is what you come up with.
As any venture capitalist, securities underwriter, or marketing type will tell you, sometimes a company's appeal has less to do with its product than with, well, its story. Here's Rick Cardin's.
It's 1981. Cardin, 35, is in Massachusetts, where he's spent most of his life being the kind of guy you wish you could hate: Phi Beta Kappa at Tufts; Harvard M.B.A. with distinction; Harvard doctorate; director at a renowned management-consulting firm.
Except you can't hate him. He's tall, charming, smart, and modest -- a disarming combination. And he works hard. While billing -- billing -- as much as 70 hours per week to major international companies for advice on strategic planning and organizational structure, he has also helped grow the consulting firm threefold. He's a success. He's making $175,000 a year.
But he'll tell you, looking back, that by 1981 something had happened to him. After seven years solving other people's problems, and all the overachieving years before that, he'd come to a pair of conclusions. First, it wasn't fun anymore. "To be a successful older consultant, of which there aren't many," he says, "you have to enjoy one specific field and stick to it." Cardin's loves, however, were general -- and generalists have no future. Especially when it comes to money.
Which brought him to his second conclusion: if he'd devoted the same seven years of skill and effort to an enterprise of his own, he'd have built a company by now. He'd have a stake, not just a paycheck, however plump. "And making the business grow was what I'd loved most all along," he says. He'd have been more satisfied, happier, possibly even rich. So at year end he quit. Rick Cardin was now an entrepreneur.
One problem, though. He was an entrepreneur who had no idea what business he wanted to build. He knew only that whatever it was -- remember his résumé? -- he wanted it ambitious. He wanted the perfect start-up. And he was convinced that logic could get him there.
Because he'd had no time to spend it, he'd piled up enough cash to live on for a while. He took a year to travel, read, relax, and think. Then he began his search -- conducted with his customary analytical vengeance. For six months he wandered through the offices of more business brokers than he could count. What's for sale? he'd ask. What are buyers after? How about pricing? Cash-flow expectations? Typical seller financing? Tell me what you know.
If there is an epiphany at the heart of every business, then this is when Cardin had his. In office after office, whether flyblown or plush, he'd find more people looking for companies than there were companies for sale. He'd see letters from would-be buyers stacked two inches high, dwarfing the quarter-inch of businesses being offered. He'd hear brokers telling him: forget the specifics. The product most in demand is businesses themselves. Period.
That's when Cardin got his idea. His simple, straightforward idea -- "so obvious that an idiot could have thought of it," he says today. His business, he decided, would be the creating and selling of businesses.
At this point in the story we'll skip some steps -- though you can be certain Cardin didn't. He moves to San Francisco. Time passes. There's this woman.
By late 1983 he's concluded that creating and selling businesses means franchising. With companies going for only three to five times cash flow, there wasn't enough return in a straight sale to make starting them worthwhile. As a seller, you needed recurring revenue. You needed royalty checks.
Franchising made sense for buyers, too. "It takes almost the same steps to start a small business as a large one," Cardin remembers thinking. "You find or design a product; you negotiate a lease; you find equipment to manufacture that product. Whether for a $10-million factory or a delicatessen, it takes all those steps. And if you do it once, for the first and maybe only time in your life, you're a rank amateur dealing at every step with people who do that step as their lifework." People need help. He could start a company to provide it. "Basically," he realized, "franchising is the consulting business." Except you keep getting paid. This revelation in mind, he spent the next year trying to divine the ideal franchise concept (see "Cardin's Guide," page 5).
In the end (to skip still more steps), all indicators pointed to the last place Rick Cardin, Ivy League theoretician and globe-girdling bon vivant, ever expected to end up: sandwich shops. As the Guide explains, it was the business that best met all criteria -- stable, nonfad, recession-proof, limited risk, potentially public, pleasant to work in, easy to add value to, and more.
It was late in 1983 -- when he was stalking every franchise-world notable who'd help -- that Cardin met Joseph S. Sanfellipo, whose own résumé read like night to Cardin's day. Then 35 and co-owner of a transmission-repair franchisor that he had expanded in five years from 5 to 100 units, Sanfellipo had founded or cofounded a dozen companies, mostly in franchising, since quitting school and leaving home at age 12. He had been a millionaire at 24, bankrupt at 30, and a millionaire again a few years later, as he pushed Gibraltar Transmission Corp. to a position among the market leaders.
Sanfellipo, a franchising insider, pointed Cardin toward at least two more top players: Neil Frumkin, a longtime franchise real-estate guru for many companies, including Pizza Hut Inc., which added 2,000 units under his direction in the late '70s; and Lester Singer, Touche Ross & Co.'s expert on restaurants and franchising. Both men came on as directors.
Sanfellipo himself, at Cardin's pleading ("One thing I've done is surround myself with streetwise guys"), joined the company as president -- receiving or buying from Cardin enough stock to become an equal partner. Today the two split about 60% of the company's stock.
