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Franchise Gurus Speak Out

Learn from the franchising legends who have built some of today's biggest brands.
September 1, 2006
URL: http://www.entrepreneur.com/article/166058

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Do the names Frank Carney, John Hewitt or Fred DeLuca ring a bell? How about Pizza Hut, Jackson Hewitt Tax Service or Subway? Most consumers have personally come in contact with the brands these franchisors spent decades building. As busy as these franchising legends are, we were able to steal a moment of their time to gain some insight on what leads to franchisee success as well as what to expect from the franchising industry overall.

Topping It Off
When it comes to franchising, there's no better expert than Frank Carney. After all, he knows franchising from both sides: as a franchisor and as a franchisee. In 1958, he and his brother, Dan, co-founded Pizza Hut. They grew the business so successfully that it attracted the attention of PepsiCo, which bought the company in 1977. In 1994, Carney returned to pizza and became a Papa John's Pizza franchisee. He currently has 116 stores in five different markets.

Wilson: Obviously, you've been very successful as a Papa John's Pizza franchisee. What have you done to become such a success?

Frank Carney: I kind of have a sixth sense about the business. It helps keep me from becoming complacent. My sixth sense says, "If you keep working, you'll find a problem. If you fix the problem, you've got a good chance of [improving business]." I really like to take a store or find a group of stores that isn't doing very well and work with the area manager or the local operating partner and keep trying different things until we find something that works. And I'd say 80 percent of the time, we're able to do that. how can prospective franchisees be sure the franchise is a good fit?

Carney: I think it's the same as a job. If you don't really enjoy a job, you probably won't be there very long or you won't be very successful at it. It's about whether you really like what you're doing or not.

How has the world of franchising changed since you started franchising Pizza Hut in 1959?

Carney: It's much more detailed and much tougher. The fees have risen, along with the prices of [supplies]. The Pizza Hut system didn't have all the rules you see in franchising today, and that's probably not bad, but it feels different. We didn't spend a lot of time policing our franchisees. We preferred to spend time figuring out how to grow [the franchise]. Today, there is almost a conscious direction toward control--"you can't do this without our permission." In Pizza Hut, franchisees didn't have to ask our permission very often, and I liked the franchisees testing different things to make their businesses better so we could spread [the ideas] to all the franchises. That's just a different way of looking at the business. The current franchisors can get there. It just takes a lot longer, because [many of them think] only the company people can do it right.

If you were starting Pizza Hut today, what would you do differently?

Carney: There is not a lot I'd change. I still think I would have an easier-going franchise than the control syndrome that's out there today. The syndrome is out there for a good reason, because franchisors have been sued by franchisees, and you have to take that seriously. But I still believe there's a way to work more closely [with franchisees] than what I see in most franchise companies. The atmosphere can be more permissive and still not risk running afoul of the law or the regulations.

Taxes Pay

As the founder of two tax preparation service franchises--Jackson Hewitt Tax Service and Liberty Tax Service--John Hewitt knows what it takes to build established franchises in a competitive industry. He started by learning the ropes at H&R Block, where he worked for 12 years. In 1981, Hewitt and his father created a tax interview software program that they believed would revolutionize tax preparation. H&R Block didn't share the sentiment. With the encouragement of his father, Hewitt decided to take a chance and launch his own franchise company, Jackson Hewitt Tax Service, which later became a public company. In 1997, to Hewitt's chagrin, shareholders decided to sell the company for $483 million, of which Hewitt received 5 percent. Hewitt took his earnings and bought a Canadian tax company that same year. In 2000, that company became Virginia Beach, Virginia-based Liberty Tax Service.

Wilson: What mind-set should franchisees be in when they start their journey?

John Hewitt: Most [new franchisees] say, "That sounds great. Let's seize the American Dream." But when it gets right down to it, it's a very scary thing. God didn't put anyone on earth to skate through without difficulties. There are going to be problems. You have to be able to live with the fact that there's no one to depend on but yourself. When you're theentrepreneur, it's make or break.

What's the best way for franchisees to ensure success?

Hewitt: The key is, you're buying a provensystem. The most important thing about acquiring a McDonald's, for example, or a Liberty Tax Service, is following the system. So you must be prepared to listen to others who have blazed the path for you. It sounds simple, but human beings don't listen to their doctors, their dentists, their parents or their spouses. They don't listen to anyone. Even the smartest people learn by their own mistakes. It's very difficult to learn by the mistakes of others.

How can potential investors determine whether a franchise is right for them or is a solid investment?

Hewitt: Nothing can replace talking to the owners, to the people who have been there. We have 1,200 references--not only all our existing franchisees, but also everyone who has been a franchisee. People prove how they feel by their footsteps. They stay. I certainly wouldn't invest in any franchise system without talking to the people who are part of that system.

If you were starting either Jackson Hewitt Tax Service or Liberty Tax Service today, what would you do differently?

Hewitt: One of the things H&R Block pioneered back in the '50s when they first started was an area development/master franchises concept. I didn't copy that. I was worried [that] if we had a franchisee serving another franchisee, it would be doubly hard to get the franchisee in his office to follow the system. I didn't try that at Jackson Hewitt or when we started Liberty. And then I decided to at least try a few, and if it didn't work, to scrap it. It has been the most phenomenal program we've ever done. Now we have 80 area developers. It's like there are three entrepreneurs in every territory: a unit franchisee who runs the office, a master franchisee or area developer that supports them, and me. We're all three trying to get market share in that territory. It really gives us a competitive edge.

Sub Master

Fred DeLuca was just a 17-year-old kid when he started his first small sub shop, Pete's Super Submarines, with a $1,000 loan from family friend Peter Buck in 1965. But now that his sub shop, today called Subway, has become internationally recognized and has topped our Franchise 500® list 14 times, it's obvious that what he did in 1965 was anything but child's play. DeLuca is no longer a teen, but he is still going strong and has a lifetime of wisdom to pass along.

Wilson: When entering into a franchisesystem as internationally recognized and successful as Subway, what do franchisees have to keep in mind?

Fred DeLuca: You have to be cognizant of the importance of customers and providing the right product and service for the customers. You have to realize that the customer really is king. People who go into more establishedbusinesses probably have to be careful not to be casual about that. When you have a brand-new business and nobody knows who you are, you know you have to work really hard for your customers. On the other hand, if you enter a franchise where everyone knows [your brand name], it's possible to think you sort of deserve the customers, and that can lead to complacency toward the customer.

What is the biggest challenge prospective subway franchisees face?

DeLuca: If someone wants to get into a Subway business today, it's particularly hard, because a lot of people who already own Subway stores are building additional ones. So, in many markets, it's [difficult] to find places to build new stores that existing franchisees aren't ready, willing and able to take.

What have been some of the most important lessons you've learned since starting Subway?

DeLuca: One of the earliest things we learned is that it's very important to set a long-term goal. [Having a long-term goal] continues to keep the team focused on a mission. I also learned the importance of persistence. Even if you set a long-term goal, that doesn't mean it's a straight-line journey. Often, there are problems and obstacles along the way. Sometimes the obstacles are big ones. How you handle the obstacles has a big impact on how you do. If you give up, then you obviously don't get there, but if you're persistent and you keep thinking of new ways to approach the business, you're more likely to reach your goal.

If you were starting Subway today, what would you do differently?

DeLuca: In my [very] first decision, I made an error. When we talked about opening the store, the location criterion Peter Buck described to me was to rent a little store, and that's exactly what I did. But the location was horrible, and that, in and of itself, could be death for a business. You could have everything right but be in the wrong place. You think your business is no good, but really the problem is your place is no good. If I was counseling a relative or a friend, I would say, "Before you pick your location, make sure you understand where your potential customers are going to come from, then make sure you position yourself in such a way that they can easily find you, so you're on their mind. You should not be hidden somewhere."