The Rise and Fall of the Pizza Kings
Capital Thinking • Issue #11 • View online
Jim is a young man on the prowl for opportunity.
He sees other people working at jobs they don’t like and makes up his mind to go another way. He begins to write things down and wherever he goes, a pen and his pad go with him.
He is particularly interested in franchises: how they work, how much money do they make, what rules do they have to follow. He fills pad after pad with questions and observations.
And since he doesn’t really have the connections to visit larger enterprises, he decides to focus on the restaurant industry. After all, to observe a restaurant up close only requires he eat there - or get a job washing dishes or waiting tables. Jim makes his decision: he will open a restaurant.
Now, he just needs to find a way to get the money.
Almost 200 miles away, another young man is coming to the same conclusion, but through very different circumstances.
Jorge is from Cuba and only recently arrived in his city.
Drifting from job to job, Jorge is also seeking an opportunity and soon lands in the restaurant biz. And like Jim, he begins in the back room as a dishwasher.
Jorge is hard-working and clever. He works on getting a college degree at night and his language skills during the day.
On weekends, he deconstructs the restaurant’s business model including receipts, work schedules, and even menus. He too, lies awake at night dreaming about owning a place of his own.
Jim opens a small place where he begins to play with menus and customer service options. After growing his business rapidly, Jim gets an unsolicited buyout offer that makes him very happy and he cashes out.
Taking his profit, Jim works out a deal to purchase a large franchise, signs a long term lease on a commercial building, and gets ready to make his mark on the restaurant world.
Meanwhile Jorge has finished his business classes and is still working as a dishwasher. But that doesn’t mean he hasn’t been working behind the scenes.
His name is out to the local community and it’s clear that Jorge is developing a reputation as a smart guy. When the owner of the restaurant decides to retire, Jorge is the first one on the scene with an offer.
The only problem is that under the current franchise rules, Jorge doesn’t qualify. Since his funds are coming from several investors and Jorge won’t be the primary owner, he needs an exemption to allow him to operate without majority control.
After many telephone conversations and letters, the franchisor relents and allows his application to go through. Jorge is finally in the restaurant business.
Up until this point, both men have experienced very similar paths. Both choose the restaurant sector and both decide on franchises. They even select the same food type: Pizza.
Jim’s fame grows.
He continues to innovate and improve his performance (and his numbers). He quickly earns a reputation for quality and for keeping his hand in everything.
There is nothing he doesn’t inspect personally and it’s not long before he catches the eye of the national headquarters. They begin to ask him for advice on everything from menu items to service schedules.
Within two years of opening, Jim’s single restaurant is the most profitable in the entire chain and he is asked to join the franchisor’s board of directors.
Jorge’s star also begins to shine.
Instead of concentrating on day-to-day operational issues, Jorge works on finance and strategy. Where Jim insists on the personal touch, Jorge recruits others to help him build his budding empire.
Soon, he is able to purchase another franchise and then another. He moves to a larger, more centralized city and begins to develop a supply chain complete with warehouse, delivery trucks, and a real estate team.
Fast forward 15 years and the stories are very different.
Jim has been working non-stop 60 hour weeks for almost 20 years and his marriage crumbles under the strain. Forced to cash out, he makes the mistake of trusting his operation to someone who doesn’t share his vision and ends up losing it entirely.
His building, once a landmark in his community, sits empty.
Jorge has been on a fifteen year acquisition spree buying out as many people as his team thought he could handle. He makes a lot of enemies along the way.
After yet another change of corporate parent, Jorge comes under pressure to “down-size” and allow the corporate office to take over some of his locations. Not one to back away from a fight, Jorge continues to acquire more stores and his empire now stretches across several states and foreign countries.
He is, by far, the largest franchisee in his chain.
Negotiations continue with corporate until Jorge finally gets an offer he can live with; one that will allow him to retire in luxury with homes in Miami, the islands, and in Europe.
What’s the message here? Choose your enterprise well? Keep your eye on the goal?
Although Jorge’s story has a happier ending, there are lessons to be learned from both men.
Jim was a fanatic about customer service and was known to personally reset the tableware on every table if he was displeased. His restaurant was spotless and family friendly. His business became his life.
Jorge did a little better. He quickly found that other folks didn’t care nearly as much about his success as he did, but he could still use them to help him reach his goals. In fact, if they could operate his units 80 percent as well as he could, that was good enough.
For Jorge, business became a game.
I think it was Michael Gerber who first introduced the concept of working “on” your business instead of “in” it. And although I’m very much a proponent of maintaining the highest standards, I also have to say that overall strategy is something you shouldn’t ignore.
For business people everywhere, the question remains as to how much personal control you should retain and when you should step away to regain a sense of perspective.
Better yet, why not set up systems that allow you to have the best of both?