The Next Big Thing

With $14 million to spend on his hunch, the former chairman of Boston Chicken scoured the country for a concept worthy of franchising. Here's why he didn't choose yours

"Pasta," George Naddaff is saying. "You put it in some hot water and pour some sauce on it, and you've got 16,000 people selling pasta. Good product. But how much more different are you going to make pasta? Oh, you're going to build a chain. Is that going to impress me? Absolutely not. Oh, you have a thicker pizza; oh, you have a thinner pizza. Is that going to get me in the deal? I don't think so. Do we need another yogurt chain? Is there anything easier to knock off than a coffee shop?"

If Naddaff's rant makes him sound like a dyspeptic restaurant critic, that may be because he has spent the last year visiting restaurants across the country. His mission: to identify a wildly franchisable concept worthy of the $14 million he has raised to take it public and grow it fast. "I'm looking for another Boston Chicken," says Naddaff. That might sound insufferably ambitious, if not for this: George A. Naddaff is the fellow who discovered the original Boston Chicken Inc., the restaurant chain that wowed Wall Street when it went public on November 8, 1993, setting a record for a single-day gain by an initial public offering.

That was a year after Naddaff had sold a controlling interest in the company to a group of former Blockbuster Entertainment Corp. executives, who have since renamed the company's units Boston Market. But the offering turned Naddaff, a major stockholder, into a multimillionaire and a "guru of franchising," as he calls himself. His official anointment came when underwriter GKN Securities Corp. approached him with the idea of raising public funds to identify and acquire a private restaurant chain worthy of franchising. In November 1994 Food Trends Acquisition Corp. -- which includes Naddaff as chairman, as well as alumni of Boston Chicken -- raised a total of $16.2 million, which, minus costs and working capital, left about $14 million. Naddaff had up to 18 months to identify a candidate that met specific criteria: a fair market value of more than $10 million and an operating profit at the individual-unit level. Naddaff's choice -- a five-unit restaurant chain based in Rockville, Md., and operated by Silver Diner Development Inc. -- also required approval by 80% of Food Trends' shareholders.

Naddaff had 20 years of franchising experience when he first set foot in a Boston Chicken outlet, in February 1987. With a partner, he had started out as a Kentucky Fried Chicken franchisee in 1967, opening 19 units. Subsequently, he launched Living and Learning Centres Inc. and VR Business Brokers Inc., both of which he sold. In 1994 Naddaff started Coffee by George, a double-drive-through-restaurant concept that ate up about $5 million before he closed it. "I'd like to forget about it," he says.

As for his current search, Naddaff couches his own motivation in terms of a bodacious generalization: "There is no greater drive in human existence than ego gratification."

Sixty-five-year-old Naddaff recently set up shop at the site of a former bank branch in suburban Newtonville, Mass. It's a strategic location, psychologically speaking: the original Boston Chicken store is around the corner, and one of his former Kentucky Fried Chicken franchises is down the street. "I'm in my 'hood," says Naddaff.

Inc. senior editor Joshua Hyatt talked with Naddaff about what makes a concept perfect for franchising, how he evaluated the businesses he saw, and why it's so hard to find a good dinner theater in the neighborhood.

Inc.: What did you do the day after you'd raised $14 million to buy a mystery company?
Naddaff: When you tell the restaurant community that you have $14 million at a time when Wall Street has shut down on IPOs, they call. "Come out and see these 18 bakery-delis," they'd say, or "Come out and see me, George, I'll feed you at Spaghetti Freddy's." We looked at 80 or 90 of these companies in various segments -- they were all replicable -- and we narrowed it down from there.

Inc.: How did you screen the leads you were getting over the phone?
Naddaff: Let's say a guy has 10 units. I say to him, I want the financials on the 10 units. I want them to be profitable at the operating level. If they don't pass that first screen test, I don't talk anymore.

Inc.: Why did you make profitability the first test if you were looking at growth companies?
Naddaff: It's important to see that they are profitable at the unit level. I don't mind if they are not profitable at the corporate level; they could still be an early Boston Chicken. We weren't making money either when the Blockbuster guys first came to see us.

But let's say they do have the numbers and we exchange several phone calls and I ask for some references. Then I'll probably call someone I know in their town and say, "Tell us about this company." If they check out, I'll fly out there, and we'll do what we call the road show. We smell the guy's feet, he shows us some restaurants, we look at his team. We might find out that he has a weak financial guy or a weak operations guy, or that some of the franchisees they've got they shouldn't have sold to. I talked to a company that had 80 restaurants, and a third of the franchisees weren't making it. We wouldn't have touched that.