Grace didn't want to rock the boat. They were both making more money and expanding faster than he'd ever thought possible. But the relationship soured with each step he took beyond the strict operational guidelines that corporate set. When he added a place for employee goals on the evaluation form, he found himself chided like a child caught coloring outside the lines. When he tried to introduce Nexxus products to his store, he was pressured to take them out, "or they'd put me on their 'can't expand' list of bad boys."
Grace tried to take the reprimands coolly, "eating my annual plate of crap, I called it," but that didn't help either. "I'd call the national office, and they'd ask me, 'When are you going to clean up your act so you can get more franchises?' " Even more intimidating were their veiled threats to take his share of the advertising dollars and spend them in another market.
By 1983 corporate was having some growing pains of its own. Franchised haircutting had become an industry, with fierce competition for market share, and Supercuts was lagging. The franchisor had tried to expand east, but failed to sell enough units to penetrate the markets, and cash flow was tight. So it raised prices, systemwide, from $6 to $8. Unilaterally.
The results were predictable. Dollar volume and the franchisor's royalty income went up. But unit volume, market share, and the franchisees' net all went down, as much as 20% for some shops, between 15% and 18% for Grace. The new TV campaign corporate unveiled that fall was no help to the units, either: image ads, soft-sell spots calculated more to sell new franchises than more haircuts, Grace complained.
"Now I was getting nervous. Sure, I was making $600,000 a year, but I'd made $750,000 the year before. I kept saying, 'Gee, things are sliding a bit, but if we can hold it right here, we'll be all right.' "
But the center would not hold. As unit volumes kept falling, pushing the weaker franchisees close to collapse, angry owners created a franchisee association, demanding more support, a say in personnel, and a change in advertising policy. Grace, hoping for conciliation, refused to join, "afraid we'd get so embroiled it would destroy everything."
Six months later he changed his mind, eventually serving as both an officer and director of the association in its increasingly bitter fight. The franchisees demanded change, a fair hearing, and a full audit of the advertising accounts. The franchisor demanded loyalty. When the association sued, the corporation countersued and put the business on the market.
In 1987, when Supercuts Inc. was sold to a group of investors, financing was contingent on a settlement of all suits, and the issues, responsibilities, and rights were formally resolved. "A classic check-and-balance system," Grace calls it: franchisees were given seats on an executive council, with a voice in policy and personnel decisions, and control of part of the advertising funds. "The new owners want to expand, and they need to keep franchisees happy. They said they weren't giving us anything they didn't think we should have. It has made relations much better than they were under the original owner."
Better, perhaps, but still stormy. In 1988 the association passed a vote of no confidence in the new owners, and talk of another suit filled the air. This time Grace had to excuse himself. As a board member of both sides, he'd be voting on whether to sue himself. Then the franchisor put Supercuts Inc. up for sale again, forcing the association to ask what it could gain from yet another new owner, this one, presumably, wildly leveraged.
For the moment at least, things have calmed down, and confidence has been restored. The sale offer has been withdrawn, and talk of lawsuits has ended. Instead, the franchisees have tried bringing a family therapist to their meetings, hoping to introduce "benefit-of-doubt policy" to keep them from tearing one another apart.
Grace, who toyed with the idea of buying the entire corporation for himself, tries to look at the bright side. "I think their hearts are in the right place," he says of the current owners, "although I'm not sure it will be enough. Some conflict is inevitable. We work off two different lines. They look at gross, and we look at net."
Freedom to pursue the net was the biggest change for Grace under new ownership. The new owners invited him to speak on boosting product sales at the company convention and cheered the plan to launch Superstyles, an attempt to raise the average ticket price by rebundling haircuts with a wash and blow-dry. Introduced last year, it is the most dramatic change he has made to the old Supercuts formula -- and it added another $30,000 to his bottom line.
He's free to grow again, too, after a four-year red light, and has opened three new units within the last 18 months. But his strategy is different from what it was nine years ago. The return will be lower, 30% to 40% on each shop, and the capital will be his own, plus what he can borrow.
He's not yet sure how to proceed, Grace says. "I could keep on doing a slow, level expansion, a shop or two a year. I've got the management to do that for a long time." Or he might take another "big chunk," a 25-unit new market rollout somewhere in the East, "although if I do that, the question will be whether I can spread my personality that far."
It would be a big step, he admits, "although I'd guess I could do 90% of what I'm doing here on the strength of the system." The secret will be to find the right leverage point, someone who could play his role, working one-on-one with each of the 25 new store managers.
He's already got one strong candidate in California general manager Becky Malie, although he'd have to develop another layer of incentives to make it fair. And he's got three candidates for her job. And a dozen more to take their spots. That's how the system works.
