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FRANCHISES

The Billionaire Bootstrapper
 

A $550 sink nearly prevented Fred DeLuca from amassing a billion-dollar fortune.

Subway's Fred DeLuca at the counter. He built the first one by himself.

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Fred DeLuca was a recent high school grad looking for a way to pay for college when he founded a sandwich store in Bridgeport, Connecticut. He had $1,000 in his pocket. He didn't sign a lease, in part because the $25 lawyer's fee was too steep. Three decades and 25,818 stores later, DeLuca's company, Subway, is one of the largest privately held businesses in the world and he is worth at least $1 billion. DeLuca shared his experiences with writer Tom Nawrocki.

In 1965 Pete Buck, a friend of your family's, gave you $1,000 and suggested you open a sandwich shop. Why sandwiches?
When Pete was a kid up in Portland, Maine, the big treat on Sunday was to go down to an Italian delicatessen. Then, where our families had met in upstate New York, there was a small chain called Mike's. The day we talked, he pulled out a little newspaper clipping about Mike Davis, the guy behind Mike's. He started with nothing, and after 10 years, he owned 32 stores.

How quickly were you able to open your first store?
I talked to Pete on Sunday. I borrowed my dad's car on Monday and drove around a little bit and found a vacant store. Pete came over on Saturday, and we rented it, with no lease--you probably couldn't do that today. Then, I built a counter and a partition, using eight-foot studs. I didn't even carry it to the ceiling or put Sheetrock on the back.

I put ads in the newspaper saying something like, "Student needs refrigerator," and I'd buy old household refrigerators for 10 bucks apiece. Never had plans drawn, never went to the city for building permits.

Really? You opened without official approval?
Somewhere in the middle of construction, somebody came by and said, "What are you doing here?" I said, "I'm building a sandwich store." They said, "You know, you can't just build a sandwich store without getting some approvals." I walked to town hall and said, "I have to get some kind of license for the store I'm gonna open." The lady behind the counter said, "We need some kind of plans for your store." I said, "Well, I don't have any plans." She said, "If you could draw something out, that would be great." So I drew a sketch, gave it to her, she stamped it, and that was it.

The city didn't require anything else of you?
This was almost a backbreaker: We learned that we had to install a special sink that cost $550, so Pete had to give me a second thousand dollars.

And operating capital?
You'd sell the sandwiches for cash today, and you'd pay the employees and the food bill tomorrow. So we had the float.

How were your vendors?
Every Friday, my mother and I would pay a visit to the people who sold us meat, vegetables, bread, and paper. It was a little social call. We'd come with a check and they'd say, "How's business?" and we'd say a little something. They knew we were always there to pay the bills, even though we never paid as much as we bought and balances always built up. If we didn't drive around to deliver checks, which is a totally inefficient thing to do, I am positive that we would not have built the kind of relationship that allowed them to be as comfortable with us.

Subway had its struggles, but I know opening day was busy. What happened?
On the first day that we opened, I had to go to the university to take an English exam. I make the first sandwich to show my buddy how to make a sandwich, then I go to take the test. I come back, and there's a line of customers out the door. And Pete is walking across the parking lot holding this paper bag. He said, "I had to go buy some knives." I worked in a hardware store, so I knew that knives could be expensive or cheap, so I looked in the bag and said, "Oh, Jesus, there goes the budget."

Was it hard being a 17-year-old who didn't know anything about business?
I had a lot to learn. One time, my car broke down. This kid picked me up, we get to talking, and we passed by my store. He says to me, "That is a great place to eat. They make terrific sandwiches, and you get all the soda you want for free." I said, "How does it work?" He said, "You order some sandwiches, and when the kid"--he was referring to me--"when the kid turns around to make them, you just take a case of soda out of the cooler and sneak it out to your car." So, you see, the lessons I learned back then--they were so simple.

Read an extended interview with Fred DeLuca at www.inc.com/keyword/jul06.

IMAGE: Jeffery Salter/Corbis
Last updated: Jul 1, 2006




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