Imperial Forces

Founding a Chain

To build a chain of stores, you take on the headaches, risk and financial burdens of opening and operating multiple locations. On the plus side, though, you have firm control of the business-and the profits.

Lea Marquez-Peterson and her husband, Dan, founded American Retail Corp. in 1996. The company operates a group of Tucson, Arizona, gas stations and mini-marts that includes one Arco AM/PM, one Shell and four Chevron stations. The 32-year-old co-founder had technical know-how (she's got an MBA) and industry experience: She had worked for Shell Oil. Her long-term plans are to have 30 stations statewide.

She and Dan, 33, put together a business plan and did three-year cash-flow and income projections before starting the business. They also recruited private investors to help fund the stations, each of which operates as a separate limited liability company. The parent company had an estimated $15 million in sales last year, and because it's one of Arizona's largest independently owned chains, it enjoys considerable buying power with oil companies and other suppliers.

Falling gasoline prices and a weakening economy have forced Marquez-Peterson to be flexible-for instance, she made each station a separate LLC to attract investors leery of investing in a group of stations. In 2001, she founded a spinoff company, American Retail Management Services, to manage corporate service stations. "You have to look at what's out there, what's working and then just go for it," she says.

American Retail expanded at a breakneck pace in the 1990s, a strategy that was scary but probably smart. As Greg Njoes, a PricewaterhouseCoopers consultant in Century City, California, points out: "Many companies limit themselves by not thinking big enough in good times, and others can't adapt to change quickly in bad. You need to have a master plan, but constantly find ways to provide things your customers want."

Vince Trapani has done just that, but his empire, unlike Marquez-Peterson's, wasn't built in a day. He founded his Bayshore, New York, automotive remanufacturing company, USA Industries, in 1986. Ten years later, he employed 53 people and pulled in $3 million annually in local sales-not exactly the numbers of an empire. But since 1996, reinvesting in the company has paid off: USA Industries has gone from $3 million to $27 million in annual sales, employs 240 people, and distributes to clients nationwide through three New York locations and a 10,000-square-foot warehouse in Texas. Reinvesting gave Trapani the money for marketing and to take on larger orders. And Trapani plans to purchase a facility this year in California. "We played everything very safe until we achieved financial strength and started to grow," says Trapani, 48.

The slow-but-steady plan is the avenue most experts recommend for building successful chains. Phil Holland opened his first Yum Yum doughnut shop in Los Angeles in 1970 and learned the business from the ground up. "I did everything myself, from making doughnuts to taking out the trash," he says. After a year in the trenches, Holland got a second store up and running by putting additional financing in place and developing a solid idea of the site criteria he wanted to follow for his new stores. Eventually the chain blossomed to 138 stores. Holland, who sold his interest in 1989 and now consults through his Web site, says expansion timing is crucial: "An entrepreneur should never start opening secondary units or franchising until the first unit is absolutely solid, in the black, and all its operational systems are in place."

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This article was originally published in the March 2002 print edition of Entrepreneur with the headline: Imperial Forces.

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