Growing Your Business Your Way

How to Grow Like Subway and Starbucks

What advice would you give entrepreneurs who are building their businesses? Who should use your model? Who should use the other model?
Schultz: There is no one business strategy that works for everyone. But if you're going to build a company-owned model in a business where you need rapid growth, it's very important for an entrepreneur to understand that growth is going to cover up problems for a while. Growth can be seductive, but you need to stay ahead of the growth curve, anticipating the day growth might slow down. In a growth business, you can't play catch-up. While the business is still growing, you need to hire people who've been through rapid growth and slowdown before, who already have experience with other companies. Many entrepreneurs don't understand the value of hiring [experienced] people from outside [the company] while you're still growing. You can't build a 50-story building if the foundation is weak.

DeLuca: I think that if you're going to use franchising as the route for your company, it's important to make the franchise inexpensive enough that it's accessible to a wide range of people, so that people in all parts of the country could afford to buy and run a franchise. Our franchises cost much less to buy into than [those of] many of our competitors. [Subway franchises usually cost between $86,000 and $213,000. By comparison, McDonald's franchises cost $489,900 to $1.5 million, while KFC franchises cost $1 million to $1.7 million.] That's how you can expand. Even in this relatively weak economy, our applications for franchises have been up significantly. But if you want a business that depends on quickly saturating the market in big cities, maybe you want to keep some of it company-owned.

What are your short-term and long-term strategies for your respective companies?
DeLuca: We're trying to establish more of a presence overseas. [DeLuca spoke to Entrepreneur from Amsterdam, Netherlands, where he spends part of his time.] We have expanded to many countries, but we don't have great market penetration in a lot of them. We're not a household name in Europe or Asia yet, the way we are in the United States. So that's a goal. We don't really change our menu that much when we franchise overseas, though of course there are some differences internationally. It's more an issue of getting more stores in the market so we get better-known.

Schultz: We fully believe that we can have 15,000 Starbucks stores outside America and 10,000 in North America. We still have less than 7 percent of the coffee consumption in America, but we're having a big impact on people who drink traditional coffee brands. People are leaving those brands for us. China could be a huge growth market; we've had tremendous success at our stores there. The word saturation is not even in our vocabulary.

Sandwich Central
There are approximately 19,500 Subway restaurants worldwide.
Subway plans to have 30,000 locations by 2010.
Turkey sandwiches are Subway's best-selling menu item.
Subway estimates that approximately 2,000 Subway sandwiches are made every minute.
Fred DeLuca founded Subway in 1965 in Bridgeport, Connecticut, when he was just 17 years old.
Learn more about Subway franchise opportunitiesin our Franchise Zone.

Joshua Kurlantzick is a writer in Washington, DC.

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This article was originally published in the November 2003 print edition of Entrepreneur with the headline: Serving Up Success.

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