Today we talk to Tom Potter, the founder of Eagle Boys Pizza franchise chain. Tom started the chain in 1987, grew it to 200 stores with an annual turnover of more than $100 million, sold it and now he is up so something new.
Hi Tom. So what did you sell it for? Come on, tell us the figure.
I seriously, legally, can’t tell you. And the venture capitalist that I’ve sold to are quite litigious gentlemen who don’t like me saying anything I’m not supposed to say.
So what would you be worth now? I mean you’ve done other investments so what would you be worth financially now?
That is something I don’t like to talk about… BRW said I was worth about $17 million about four or five years ago.
You’d be worth a lot more than that now.
It depends on whether the global financial crisis ruined me or not.
If it ruined you?
Well did it, did you invest in property and shares?
I didn’t have too much out there actually. I’d only just sold the company about six months before and it was pretty much sitting in the bank.
Okay, so you’ve still got it all?
I did okay. I packed up and took off overseas for nearly a year so I didn’t do any wild investing.
So you’d be worth around $20 million?
So you’ve had your year off, you’ve written a book. What did you want to write the book for?
If you were to go out to a bookstore tomorrow and say “give me a book on an Australian franchise company”, you wouldn’t find one. I mean they just barely exist. I wanted to put down on paper exactly what happened with Eagle Boys so that people really knew about when we went in and built New Zealand. Why we went into the drive throughs, how we invented the two minute pizza, all that kind of stuff.
Tell us about what you learnt from the drive throughs and how that’s being adapted to your latest venture which we’ll go into in a minute.
We pretty much found that about 70% of business in the major fast food operations goes drive through and for me that was just like a major indicator. If we’re not in drive through, we’re not in business. And as soon as we started building drive throughs at Eagle Boys, we had a massive response.
When you look back what can you really advise other franchises about?
If it was from a strategic point of view for the parent company, my advice would be to have a five year vision, a three year plan, a very clear and precise strategy and then a very good board of directors to help you achieve that.
Too many times smaller franchise companies are running out of cash, they haven’t got good advice, they don’t have a good site selection criteria, they don’t understand mass marketing and how important it is.
A good example is the sandwich chain that opened up in opposition with Subway a couple of years ago – Wendy’s brought them in from America – and they opened up a couple in Adelaide, a couple in the Gold Coast, a couple in Brisbane and they all went broke. And someone said to me “why?” and I said, well you just open them all up in one town so people know who you were. It’s just basic stuff.
Are you advising people on growing franchises at the moment, is that also what you’re doing?
Just bits and pieces, adhoc, but I’m not really putting myself out as a consultant.
But just on that. What are the other mistakes that you see the franchises making and how has the market changed for franchising in the last year?
Well, I don’t know if I could hone in on the mistakes but I just think that a very strict criteria for analysing and understanding the franchisee’s numbers, making sure they’re getting the right return on investment is something that probably falls by the wayside for a lot of franchising companies.
In our case, we really knew the numbers, knew what people were doing and if they weren’t doing it why. And I think a lot of franchise companies are in too much of a hurry to open up stores and build the group instead of being focused on making sure the ones that they’ve got are doing okay first.
Is the market for recruiting for franchises turning? I mean, it was bad and then it got a bit better through the recession. Is it starting to heat up again yet?
Look I haven’t been close enough to it for the last two years to really know. I’ve been through two previous recessions, ‘89 and ‘94. We’ve found that people were a lot more careful about what they were doing but on the other hand you had people wanting to buy themselves a job because they’d been made redundant and they were also usually not ideal franchisees either.
And so are we seeing more people doing the buying a themselves a job?
I don’t think so, I’m not hearing that yet. But I also said I have been out of the loop with Eagle Boys for over two years now.
So, what’s happened to Eagle Boys since you left?
A lot of changes. They’ve pretty much watered down the two minute pizza so that hasn’t become a guaranteed item any more.
Is that a mistake?
I don’t know. They’ve expanded the menu dramatically into various items. They’ve gone into a gourmet market. A lot of areas that I certainly wouldn’t have done but I don’t really know what the outcome is yet.
So since you’ve left the jury is out on how they’re travelling?
Do you know how their revenue’s going?
They’re certainly opening up a lot of stores. We were probably opening up 25 to 30 stores a year when I was there. One of the reasons I sold was because the company needed more capital to take it to the next level and that’s why a venture capital group came in and said okay here’s some cash, let’s have a non-dividend policy for the next five years and grow it faster and harder. So that side of things is certainly happening.
What was it like when you left, was it heart wrenching?
No, not really. The decision had been made probably a year and a half before. We had a couple of pretty good offers during that time. We sort of made a very clear plan as to who we wanted to sell to, why we wanted to sell and what we wanted to get for it and we stuck to it. And basically once that came along it was like, okay let’s do it and move on. So I probably decided that it was an unemotional move that had to be made at least two years before.
And did it take that much time to get ready for the sale?
I think so, yes. I mean the mob that we ended up selling to took a long time. They probably took a year hovering around and doing their due diligence. I wasn’t in a huge hurry to run out the door, the company was doing well, it was making plenty of money. It was not like I was desperate to get out or anything like that.
So what’s next? You’ve started your own new venture, tell us about that. How old are you now?
Well they say it usually takes a little bit longer to get bored and start the next big thing.
I had two years off and in that two years I sort of had a year where I just did nothing and travelled and then went back out and got stuck into the public speaking circuit. I seriously considered whether I wanted to become a professional director.
So you’ve had the time off, did the circuit. Did those things bore you?
I’m still a speaker, I still probably do 100 a year but that’s jump on a plane, go to Sydney in the morning, fly home in the afternoon kind of stuff. But it was more about making a decision as to what I want to do for the next probably five years. Professional public speaker? No, a bit boring.
Professional director – frustrating. I’ve been on boards of various private and public companies and I find it to be extremely difficult to penetrate through to management.
So what is the issue there, you want to have a more hands on role?
I’ll give you an example. When I was on the board at Brumby’s, there were too many directors, they all had different agendas, the company was sluggish to say the least. It was opening as many stores as it was closing. So I really thumped my hand on the table and said come on guys let’s get a strategy in place. I mean, Baker’s Delight have come from nothing and tripled the size of where we are. We need to improve the model, we need to reinvest. Everybody was in there looking at the ceiling and looking at the floor and I thought I can’t achieve anything here. And it was just one of those things where you go, turn up, do your job, get paid. If I’m not going to actually make a difference, why be here?
Is there any way that you can vet before you take on a board position and see if you can make a difference?
Look I’ve done that and what they say in some cases and what they do are two different things. So it’s a turkey shoot and sometimes I achieve a lot. I’ve got to say the time that I’ve spent on the AFL Commission has been really good, we’ve seen some great results.
What’s different there then?
They’ve definitely got a longer term strategy. They’ve got good people, they understand business, they understand the sport. They’ve got a good mix of the right people to get the job done. And in the most cases there isn’t a hidden agenda. You see a lot of those guys are sitting there saying let’s pump the share price, they’re saying let’s create a great sporting business.
So you’ve now decided to get back, roll your sleeves up and get your hands dirty, what are you doing?
Well the first one’s open, Crusty Devil and what I’ve seen is a continuous decline in the bakery, particularly hot bread business over the last 10 years. It’s been driven by a couple of reasons, one of them is category killers like The Coffee Club and Muffin Break have come in and then you’ve got the vast majority of independent bakeries which are extremely run down, tired, grubby, hot, uncomfortable and with a very small range.
We decided to go the other way. Most of these little hot bread shops do eight and 10 grand a week and the product’s not great, so let’s build bakeries that do $30,000 and $40,000 a week. Put in a lot of signature products, produce all our own pies, all our own cakes, use all fresh creams, fresh custards. Just one of those “if we build it, they will come” approaches. And once we get the model right, build some drive throughs and start opening these places up 24 hours a day. I’ve been to Adelaide, there’s a couple over there that do very well, there’s certainly some great bakeries in Melbourne. I tell you Queensland is really years behind a lot of the other states.
The bakeries here are fantastic.
They are. We’ve been open six weeks and last week we did 3,600 customers for the week. So we’re probably doing two and a half times what the average bakery does in Queensland already.
What’s the potential for international expansion given that Queensland’s behind?
I haven’t actually got a lot of intention to expand outside of Queensland. I want to build four or five bakeries, turn over $8-10 million a year and live happily ever after.
I’m going to talk to you in two years and we’ll see if you’re happy still with that vision.
We won’t be franchising.
No you won’t, the king of franchising won’t franchise.
Well the thing is if you’re going to build one, you’ve got to build 200. If we’re going to build 200, I have to set aside the next 20 years but then I’ll be 66 and that’s really not where I want to be. And if you have a bit of a look at your picture you go okay I’ve got my investment sitting over there and I’ve got my property sitting over there and I own this house and I own this and that and I go – now what am I going to do? Right okay let’s go and build half a dozen bakeries, put in some good people, make sure it’s managed well, great cashflow business and have some fun. I mean I could sit back on my arse and just live off my investments but it’s just really not invigorating. And I’ve got to say that probably the last five months since we’ve been building this, I’m having fun again.
And are you having good coffee in there? I mean the Queensland coffee I have to say Tom needs improvement.
We’re actually bringing in our coffee up from Sydney.
Put in a coffee culture up there. It’s better than it was but being a coffee snob from Melbourne…
That’s alright I’m a born and bred Victorian so you can say what you like.
So what do you expect revenue wise, are you $8-10 million and you’re set?
I reckon we can build probably four to six of these and do a turnover of up to $50,000 a week out of them and put some good systems in place and give some great service from both ends.
And I bet within a year a few people would have come to you and say give me the franchise for this, I can do a great job out here and you will have done it.
No I’d actually have 100 grand on you that I won’t.
I’m not going to bet 100 grand.
I say this to a lot of people; if you’ve got four burger shops that are really doing well, great. If you want to go into franchising, it’s like the difference between being a motor mechanic and a gynecologist. I mean they are entirely different businesses. I mean you think you might know that you’re working on a bunch of stuff, but you don’t, you need to bring in expertise.
It’s like in media the difference between a subscription paid model and a free model or an advertising model. They’re different businesses.
We would go through periods of five and six years when I owned Eagle Boys making no money at all. I mean just pouring it all back in and building infrastructure and employing people and building training modules. Luckily enough there was decent pay out at the end when I got out because it was a long grind to get to build 250 stores throughout Australia and New Zealand and then saying gee what have we got for this? Not a lot, hopefully there’s some pay at the end because all we’ve got is a great business that looks good with a good cashflow. I mean it’s a very difficult business being a franchisor in Australia.
Very interesting. Is it easier in other places because of bigger populations or what’s the difference?
I spent years studying in the US and I reckon half the yanks are successful despite themselves, I really do. I just think there’s such big numbers over there and it’s just a different consumer market.
Okay so you’re set on the future. I mean you’ve got a really good nose for opportunities. What are the other opportunities in the retail and franchising sector? If you hadn’t chosen this one, what else is tempting?
I actually thought that the charcoal chicken business is a very untapped industry. Particularly in Queensland. I’ve got a few mates down south that have just made small fortunes out of them and done very well and I looked at the industry but decided to stay away from it based on the fact that it’s a night business and I really didn’t want to run another night business. But I haven’t looked broadly, I’ve looked very closely and said my area of expertise is food and that’s really where I’ve stuck and looked at it. But look there are some great businesses out there whether they are Muffin Break or whatever it is. It boils down to two things: location and who’s running the place.
Always does, thanks for your time today.
You’re welcome Amanda.
We’ll catch up in a year and we’ll see who wins the bet.