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Inside the Quest to Build the World's Next Biggest Franchises -- by Incubating Them Like Silicon Valley Tech Startups Aurify Brands is helping food entrepreneurs scale their fledgling brands by providing them with everything from capital to operational support and mentorship.

By Elizabeth G. Dunn

This story appears in the June 2018 issue of Entrepreneur. Subscribe »

Dani Fresh

At lunchtime on a recent Thursday, the line at Melt Shop snaked through the restaurant and out onto the pavement, not far from Rockefeller Center, in New York City. Twentysomethings in business-­casual attire and tourists alike sat around yellow picnic tables, digging into crispy grilled cheese sandwiches, milkshakes and tater tots.

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From the outside, this seems like your standard success story: Melt Shop is one of many fast-casual restaurants that have sprouted up in recent years, with stylish decor, friendly cashiers and food that's a cut above the quality of standard fast-food fare but still hovers around $10 per meal. And as a place devoted to grilled cheese sandwiches (plus tasty accessories), it also seems somehow quintessentially New York -- a city that's birthed many single-focused restaurants, including places that sell only rice pudding or mac and cheese. But Melt Shop is much more than all that, too. It's an experiment 15 years in the making -- a concept formed in a franchise factory, which is now poised to prove a concept far bigger than itself.

Its co-creators, Andy Stern and John Rigos, have many more in the pipeline just like it.

"On paper, this is a very simple business," Rigos told me. "You have to drive your sales, control your ingredients and control your labor. But doing it every day and doing it well is really hard. Two concepts across the street from each other can look like they're both busy, and one can be killing it and the other going into bankruptcy."

To figure out how to stay on the right side of that difference, Rigos and Stern have taken an intriguingly rigorous approach. The two men are veteran fast-food franchisees with roots in the tech sector, which means they appreciate the complexities of food and the importance of data. So since 2011, under the auspices of their company Aurify Brands, they've been incubating restaurants -- helping food entrepreneurs scale their fledgling brands by providing them with everything from capital to operational support to mentorship, with the ultimate goal of eventually perfecting and franchising these brands around the world. Apart from Melt Shop, their portfolio consists of a vegetable-centric salads-and-bowls concept called The Little Beet; a full-service offshoot, The Little Beet Table; a better-for-you chicken brand called Fields Good Chicken; and Make Sandwich, a gourmet sandwich shop.

But Melt Shop, with eight company-owned locations in the New York area, is the first to begin proving out the model. It has just begun to franchise -- first with two restaurants in Kuwait City and two more on the way, and a newly minted 21-unit agreement in the Philadelphia area, the first of which is slated to open by June.

That means every day is high stakes at Melt Shop. Decades of experience in franchising have taught Stern and Rigos something that most new business owners don't realize: A strong brand and standout food are crucial to being competitive, but the difference between success and failure comes down to what's happening under the hood. The lessons learned at these corporate locations are about to be replicated globally, and could help steer Aurify's brands behind it.

At the shop in Manhattan, of course, no customer realizes their freshly made grilled cheese sandwiches are so important. But Stern and Rigos are watching. And learning.

John Rigos, 50 years old with a wiry build, is the son of Greek immigrants who came to the United States and opened their own diner in Jamaica, Queens, in the early 1960s. "My father's one piece of advice was "Whatever you do, do not get into the restaurant business,'" Rigos says.

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So he didn't. He graduated from the University of Pennsylvania in 1989 and went to work on Wall Street before turning his attention to technology in the early days of the internet. He founded a company in the mid-'90s licensing digital music; after selling it, he went to work as an "entrepreneur in residence" at Idealab, a tech incubator that churned out valuable internet companies like Citysearch and Picasa during the first dot-com boom. The premise behind Idealab has remained a popular one in Silicon Valley: Give promising young entrepreneurs everything from office space to accounting services to mentorship, and they'll grow high-value companies faster and smarter.

It was at Idealab that Rigos, then in his early 30s, met Andy Stern, who was in his mid-20s and had already built and sold a company that created payment gateways for e-commerce. The duo began working together on a database solutions company for small and midsize businesses. Then 2001 hit, the dot-com bubble burst, and funding dried up.

Both Rigos and Stern took a break from startup life. Rigos bought a farm in upstate New York; Stern moved to Colorado and became a ski bum. They continued to collaborate from afar, however, making a few dead-end investments before hitting on the idea of fast-food franchising. Sure, Rigos' dad had warned against it, but they figured franchises would produce a dependable sum of cash each year without much attention. In 2003, they bought a Subway franchise in the sleepy town of Walton, near Rigos' farm.

It didn't take long for them to realize that successful franchise ownership was anything but hands-off. "You have to know every detail of how you're operating and how the brand operates," Stern says. They had a choice -- either sell the Subway or learn the business well enough to amass a large portfolio of stores. So they dove in, working shifts at the sandwich shop to understand the ins and outs of every job.

They expanded from one Subway to eight and by 2005 began buying Baskin-Robbins and Dunkin' Donuts shops in Long Island and Maryland. The following year, they became one of Five Guys' earliest franchisees, signing a development deal for up to 30 locations in Manhattan. (So far, they've built 14.)

As the years went by, however, Rigos and Stern noticed a seismic shift in consumer behavior -- away from legacy players like their Subway, Baskin-Robbins and Dunkin' Donuts franchises, and toward operators that offered higher-quality ingredients and a made-to-order menu, but with the speed and affordability of fast food. They already benefited from the trend through their Five Guys locations -- the most lucrative of their operations -- but saw an opening to forge the next generation of chain restaurants. They wanted to build their own brands.

Easier said than done. Dozens of small fast-casual brands exist in the United States, but few have become nationwide successes. Fast-casual food, by definition, is typically prepared on-site, with an emphasis on fresh or even local ingredients, making each location's labor and supply chain significantly more complicated than a traditional fast-food business's, for which ingredients are shipped from central suppliers for on-site heating and assembly.

To scale fast-casual, Stern and Rigos decided to apply the Idealab approach to restaurants -- incubating several at once, and providing the grunt work so the entrepreneurs could focus on what matters.

"The most important thing in our industry is the quality of the food and the quality of the hospitality," Stern says. "But you start a restaurant and end up dealing with hiring, construction, marketing, training, finance, back office. If we can eliminate all those responsibilities, entrepreneurs' concepts will be more successful."

In 2011, Aurify Brands launched Melt Shop as its first original concept.

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Image Credit: Dani Fresh

I visited Melt Shop one day in March with Spencer Rubin, the brand's founder and CEO. Rigos and Stern met Rubin when he was right out of college and working at a restaurant development firm called BCD, which the duo hired to help them build Five Guys locations. They admired Rubin's passion for restaurants, and after the three brainstormed their way to a premium grilled cheese sandwich concept, they decided that Aurify would back Rubin to turn it into a reality. On Rubin's 25th birthday, Melt Shop opened in a kiosk outside a subway station in Manhattan.

Melt Shop's appeal isn't hard to understand. It's comfort food done well. The restaurant offers about a dozen "melted sandwiches" that range from classic grilled cheese to fried chicken with pepper jack and cabbage slaw. They use high-quality bread from Orwashers, a venerated New York City bakery, and premium cheeses like Coach Farm goat. Parmesan-dusted tater tots, tomato soup, milkshakes and dipping sauces in flavors like truffle mayo and parsley pesto round out the menu.

The appeal to potential franchisees is a little different, though. Melt Shop was designed with a simple supply chain and basic cooking demands, making it a plug-and-play concept. (Not all their brands are like this; at The Little Beet, by contrast, a greater emphasis on local produce and a more complex menu is harder for franchisees to replicate.) Before Melt Shop could scale, though, Rubin had to make every menu item as foolproof as possible, and every process streamlined.

For instance, employees still spread sandwich bread with salted butter by hand, as they did at the outset, but they now have a butter warmer and a roller tool to shave valuable seconds from the process. Wi-fi-enabled probes automatically log ingredient temperatures for Department of Health compliance, leaving one less task for the humans. Melt Shop initially served its sandwiches in fancy hand-assembled boxes but switched to cheaper ones that come premade. "It's not a good use of labor," Rubin explains. "We use labor for what it's meant to be used for -- to take care of guests and develop staff."

It took six years of testing and learning before Rubin started exploring potential franchisees in 2017. In addition to his homegrown insights, the Melt Shop blueprint also draws on lessons from the brands where Stern and Rigos cut their franchise teeth. At Subway, for example, they admired the monthlong "university" new franchisees are required to attend. As a result, Melt Shop is investing heavily in in-store education: When the first Melt Shop opened in Kuwait, a team of trainers (including Rubin) spent five weeks on-site getting local staff up to speed. Baskin-Robbins and Dunkin' Donuts are big on menu innovation, which can drive traffic, and the Aurify guys want to do that, too -- but without requiring franchisees to invest in expensive equipment for limited-time offerings, as other brands have. "You need to have corporate-owned stores to try anything new on your own dime, and really make sure it's worth it," Stern says.

Related: 5 Affordable Franchises You Can Start for Less Than $10,000

But it has been Five Guys, which is family-owned, that has most closely influenced Aurify's approach with Melt Shop. The company spent 17 long years perfecting its operations before selling franchises, and it has a higher-touch approach to those partnerships. "They don't just tell us what we're doing badly; they help us do things better," Stern told me. "You can call and get a member of the family on the phone to ask advice."

Stern and Rigos' tech roots factor in here, as well. The duo built proprietary software tools for all their brands, automating inventory management and shift scheduling and providing future franchisees with sophisticated analytics to guide business decisions. It's an investment that runs in the hundreds of thousands of dollars, and while it's not uncommon for large quick-service players like Starbucks and Subway to create these kinds of bespoke tools, most concepts the size of Melt Shop and The Little Beet don't have access to them.

That kind of support and guidance, Rubin says, has been invaluable. Rigos and Stern have not only served as personal mentors but also shouldered the burden of fund-raising, which Rubin believes would have been impossible for him to do while trying to build Melt Shop into a replicable concept. "Their patience for R&D, plus their growth ambition, makes us the company we are today," Rubin says.

When it came time to franchise Melt Shop stateside, the founders were looking for someone exactly like Drew Smith. He's a fellow Five Guys franchisee -- a sophisticated multi-unit developer with prior experience in fast-casual, meaning he can help Melt Shop scale quickly.

Smith decided to buy into the brand after going to Melt Shop for lunch with a group of 10 adults and children, all of whom were happy with their meal. As he thought about it, he decided Melt Shop complements his existing Five Guys portfolio. The burger brand skews heavily male, but Melt Shop plays well with moms and kids. Smith also likes Aurify's approach of continuously evolving and improving offerings. It's the one thing that's in contrast to his experience with the notoriously change-averse Five Guys.

"[Aurify] looks at what works and what doesn't and makes decisions that benefit the business," he says. "It took Five Guys eight years to add bottled water to the menu."

That agility will be increasingly important for Aurify's brands as they aim to expand within a crowded restaurant landscape. Joe Pawlak, a managing principal at the market research firm Technomic, says that after more than a decade of explosive growth, certain parts of the fast-casual segment have become saturated. There are no major "melted sandwich" players, but there are plenty of places with overlapping products: Panera, Jersey Mike's, Firehouse Subs and Which Wich could all be seen as competitors. Even Make Sandwich, one of Aurify's own, would launch into the same broad category if and when it franchises. Two of its other brands, Fields Good Chicken and The Little Beet, fall into the equally stuffed "salads-and-bowls" territory.

Of course, Aurify will be competing not just for customers but for franchisees as well. And its strategy -- seeking out experienced franchisees to develop multi-unit deals -- is a popular one. "Everyone is chasing multi-unit franchisees who have 20, 30, 50, 100 franchises," says Scott Lehr, an executive vice president at the International Franchise Association, an industry advocacy group. And most of those coveted developers, Lehr adds, are focused on working with brands with proven ROI. "The challenge for a newer, smaller fast-casual business is they have to be able to show ROI through a corporate unit, or they're not going to get the big multi-unit guys to [join them]."

Still, Aurify has high hopes. Rubin believes Melt Shop can grow to 100 stores in just five years, and the income it produces will allow the parent company to invest heavily in growing its other brands. Stern and Rigos stress that there's no set timeline for franchising their other concepts, but they're keenly aware that Melt Shop's performance will largely determine how easy it is to attract franchisees for future Aurify brands. "It absolutely will have an impact," Stern says.

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He and Rigos remain up for the challenge. They're confident that though Melt Shop is small, their resolve to drive unit-level economics and profits will appeal to savvy franchisees. And they also hold firm on a lesson they took from their days in tech: Success relies upon a dogged determination to tweak and troubleshoot.

"The whole notion of resilience is very much a part of our DNA," Rigos says. "It's never a linear trajectory of growth; it's always ups and downs. We've seen what it takes. We don't give up."

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