Brenda L. Hill-Riggins was waiting in line for food stamps in 1992 when she got the news that her Miami plumbing firm had won its first big contract. Unfortunately, her staff wasn't big enough to supply the 10 people the client needed. No problem. Hill-Riggins pulled two people out of the welfare line and hired them on the spot.
An auspicious way to start an empire? Maybe not. But Hill-Riggins cleared $2 million in 2001 and expects a series of high-profile contracts to pan out this year to the tune of $9 million. "I have the vision to grow this company, and I'm the type of person who wants to win," says the 43-year-old president and co-founder (with husband Marcus A. Riggins) of M.A.R.S Plumbing Contractors Inc., which has moved past leaky-toilet calls into installing plumbing systems for the Tampa Bay Buccaneers' Raymond James Stadium and the Miami Heat's AmericanAirlines arena.
A divorced mother who didn't finish high school, Hill-Riggins proves it doesn't take an MBA or an entrepreneur in the family to build an empire. What does it take? If you said "money, money, money," you'd be wrong. If you said "guts, vision and a plan," you'd be closer.
While there isn't an exact formula for empire-building (though wouldn't it be nice if there were?), we've mapped out some guidelines for you to follow, as well as posted some warning signs about the kind of bumps you might encounter on the road to success.
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."
Expanding Via Franchising
Once your systems are in place, franchising may be your best bet for expanding nationwide quickly. When you franchise, you sell your concept, operations, products and marketing strategy to other entrepreneurs who contract with you to open new locations, operate them according to your system and pay you a percentage of their sales. Because the capital for expansion comes from your franchisees rather than loans or other sources, your business can grow larger much faster than it otherwise could. Before jumping into franchising, however, you need to make sure both your personality and your business concept are suited for this way of doing business.
Running a franchised business is very different than running one or even multiple locations. Instead of being hands-on in your store or office, you'll take on a more corporate role. And rather than selling your product or service to end-users, your job will be selling potential franchisees on the profit potential of your concept.
How do you know whether your franchise concept will work? There are several questions to ask yourself:
- Can the quality of the product or service be easily maintained across multiple locations? One of the big draws of a franchise system is that customers know they'll get the same quality at any location they visit.
- Is the concept teachable? Successful franchises are based on a structured system, with operations manuals and standardized procedures. If the success of your business is largely due to your own personality and presence, or if all the knowledge needed to run the business is locked up in your head, you're not ready to franchise.
- Is the concept replicable? Can it be repeated in many locations nationwide? If your company gives river-rafting tours, it isn't likely to be a good franchising candidate, because its potential is limited by geography.
- Will potential franchisees find your concept appealing? Before franchisees can sell your products or services, you have to sell them your idea. Spark their imaginations by offering an innovative edge, such as a new type of fast food or a new way to provide a service.
You can always look outside your company for help. If you build your empire with aid from investors who take part ownership and continue providing capital, you may eventually take it public or sell it to a larger company. You could also merge with competitors, acquire smaller firms or form partnerships with other businesses. While a large payoff can result from these methods, by the time you grow really large, your ownership share and influence may be diluted.
If you have an invention or design that can be patented or copyrighted and commercialized, you can license it for royalties and a percentage of sales. Licensing is a smart choice if you want to concentrate on your core competency-invention, perhaps-and leave the rest to the pros. Manufacturing and marketing a product yourself can cost big bucks. Licensing serves as a cost-effective solution.
However you go about it-through franchising, establishing a chain, forming strategic partnerships, licensing or some other strategy-taking advantage of government and private-industry resources is a must. Being flexible, knowing when to wait and when to move, and building up your management team and systems infrastructure before you expand are all crucial. Weigh your options and then seize the moment. Someday, the sun may not set on your empire.
Mom 'n' Pop Mentality: Limited vision, unprepared for success, small thinkers
Empire-Builder: Big plans in detail from the start
Mom 'n' Pop: One-man show, my way or the highway, "I'm the owner around here"
Empire-Builder: Surrounded by strategic partners and people who compensate for weak areas
Mom 'n' Pop: Too busy putting out fires to network, afraid of contact with competitors, narrow understanding of larger market forces
Empire-Builder: Natural network marketer, makes the right people contacts, understands the industry, becomes a major player from the start
Mom 'n' Pop: Budget causes missed opportunities, "can't afford" to protect intellectual property
Empire-Builder: Willing to put cash into marketing, hires consultants, gets legal protection for proprietary ideas or innovation
Karen E. Klein's small-business articles have appeared in Business Week and the Los Angeles Times.