A Franchise Grows Up

Newly revamped, Buffalo Wild Wings is gearing up to grow past its small-business roots.

By Devlin Smith • Nov 12, 2002

Opinions expressed by Entrepreneur contributors are their own.

Buffalo Wild Wings, a bar and grill founded by two Midwestimmigrants who missed the cuisine of their native New York, was asmall company. It lacked an organized structure, and corporateemployees were wearing several hats. To grow, the company neededdirection.

Enter Sally Smith, 44. In 1994, the former CFO for Dahlberg Inc.(now Miracle Ear) came aboard as CFO for the chain. She establishedaccounting practices within Buffalo Wild Wings, formerly namedBW-3, and worked on franchisee selection. Two years later, Smithbecame president and CEO of the company and continued her work toorganize and expand the business, which has grown from about 40units to 201 during her eight years with the company.

Franchise Zone spoke with Smith about the initiatives she putforth at Buffalo Wild Wings and the future she sees for thisdeveloping franchise.

Franchise Zone: When you first joined the company, what wasyour impression of how it was running corporately?

Sally Smith: It was a very small entrepreneurialcompany--they had no home office, and everybody who worked therewore a number of hats. The president did many things; there were nofinance or accounting departments, no marketing department or humanresources. They only had five company stores and probably 30franchise locations. They were selling franchises, meeting withfranchisees and trying to run the stores they had. They were doinga very good job with the limited resources they had.

What gave you the impression the system wasstruggling?

My background is accounting and finance, and they had no abilityto tell how the stores were doing, how the franchisees were doing,if franchisees owed them money, they had no profit-and-lossstatement, no balance sheet, they hadn't filed their taxreturns, so those were some of the key indicators.

How did you put these systems in place so they could keepbetter track of how things were going financially?

The first thing was to develop a chart of accounts and identifyan accounting system that could capture financial information atthe store level and put it into an accounts receivable system toshow what the franchisees owed. I hired a controller to help withthat and started developing the accounting department, adding aseries of approval processes on purchasing, and thenbudgeting--they had never done any budgeting--in order to trackperformance.

How did the new accounting systems impactfranchisees?

This was a program franchisees could use to budget their ownstores, so they were excited about that. My ability to say,"Look, there's cash in the bank, there's inventory,our stores are performing profitably," was key to having otherfranchisees buy into our system.

Was the intention of the company all along to become a bigcompany--to move away from its entrepreneurial roots?

I'm not sure when if that was [the founders'] intentionwhen they started, but all along the way, we've stopped andsaid, "Are these the right steps to take? Do we want to getbigger?" and we've always thought the opportunity was toogreat to ignore.

What was the relationship like between the corporate officeand franchisees back then?

When I got here, there was some concern over what impact I wouldhave on the system. We started up bimonthly conference calls withour franchisees, we did a traveling meeting to talk with thefranchisees. We hired a head of operations and really wanted totalk about the potential for the company, the vision. This was verywell received--many of our franchisees opening stores today are ouroriginal franchisees.

What did you hope to achieve as president?

To know how best to grow the company, to develop a strategicplan. We set about re-energizing the company at that point. We wereabout 13 years old, we needed a new logo and to brighten up theinteriors. My goal was to improve franchisee relations as well asraise additional private equity, money to help grow the company. InJuly 1996, we didn't have a HR function or a marketing functionor real estate and development, information systems...the list goeson.

Also, I had to get to know the franchisees and figure out how wewere going to put a franchisee approval procedure in place, becausethey didn't have a way to assess whether a [prospective]franchisee had either the operational or the financialwherewithal.

Were there any specific issues you wanted to work on on thefranchisee side?

Consistency; making sure franchisees were using approvedproducts and uniforms and keeping up their stores--things anyfranchise company would want.

Did you involve your franchisees in growing the company andmaking changes to the actual restaurants?

Somewhat. We would get opinions about the interior, furnitureand qualifications. One of the things we instituted was a bimonthlyconference call with our franchisees, so we could provide them withinformation and give them the opportunity to ask questions. We wenton a road show and visited three regions in early '97. Theconference call and the regional meetings did a lot to communicatewhere we thought the company could go. In any franchise system,some are going to embrace the change and be very excited aboutmoving forward, and some are going to take a wait-and-seeattitude.

Did the bimonthly conference calls come into play inmaintaining consistency?

Those were to talk about the vision and expectations, and makethem understand the benefits of everyone having the same signageand uniforms and of serving the exact same product in stores 20miles apart so as not to confuse the customer. I have always feltthat franchisees should be the best monitor of the system. Theyshould want their neighboring franchisees to uphold the veryhighest standards, because it does affect them.

How important have the franchisees been to growth plans sinceyou've joined?

I would say in the last eight years, not a lot has changed interms of the franchisees and the franchise growth andrelationships. We've stated since I came on board that our goalwas to grow both the company side and the franchise side, and tohave somewhere around a 70/30 split between franchise and companystores, and that's about where we are right now. We've putinto place some great incentives to open additional stores.Franchisees were important then and no less important today.Franchisees have that opportunity to go out and develop a marketprobably quicker than we could on the company side.

What kind of incentives do you offer franchisees for openingmore stores?

We've got some incentives for people wanting to open two ormore in their existing territory. We'll look at the initialfranchise fee, and if they're interested in a very large unitdevelopment, we've got some incentives in terms of abatedroyalties.

How long has this program been around?

Since late summer. Actually we filed it as an addendum to ourUFOC. We unveiled it at our convention in August. We have severalexisting franchisees in the process of applying under thoseincentives.

Are you making any changes to the product?

We're always looking at our product and our menu. We want tostay current. We introduced some new sauces, salads and sandwiches.That continues to this day.

One of your goals was to implement a franchisee approvalprocedure. What had been the procedure before, and what did itevolve into?

They had no approval procedure. We wanted franchisees to meetcertain financial criteria, because we didn't want them to opena store, get partially under construction and not be able to payfor it. If they've signed more than a one-store development, wewant to make sure they can open stores two, three and four. Asimportant as the financials are, one of their partners has to be anoperator, with previous restaurant experience. Then the franchiseesmeet with the entire management team here to make sure theyunderstand what the culture of the company is. We don't wantsomebody who says, " It would be great if you just added thesethings or if you didn't do this," because then we'renot the right concept for them.

What is your expansion plan for the company?

Our three-year plan is to double in size, to go from 200 to 400restaurants. Next year we will open between 55 and 60 restaurants,a combination of franchise and company owned, in markets that wecurrently are as well as some new markets.

Are you still going to maintain that 70/30 franchise/companystore ratio?

That's our goal.

What is the current state of Buffalo Wild Wings?

The company is great. We're growing at a revenue rate ofabout 30 percent a year and our profits are growing at about thesame rate. We have a lot of interest from franchisees; we'reattracting some great employees in the field. The company looksreally good.

How does the company now compare to where it was when youfirst joined in 1994?

It's just very different, to go from 35 restaurants to over200, to go from $9 million in revenue to over $100 million. A lotof things change, but it still has that same culture, that samefeel. We all realize our potential more now than we did eight yearsago.

In the next eight years, is the company is going to keepmaking big leaps?

We'll certainly be making big leaps, but they'll bedifferent leaps. As we're opening the restaurants, we have tofigure out ways to do things more efficiently, while preservingthat culture created by the original founders 20 years ago.

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