Lesson #4: The Name of the Game is Profit or Perish
Lesson #4: The Name of the Game is Profit or Perish
In the very first year that Subway hit the million dollar mark in sales, DeLuca’s practices were called into question by his accountant. The company may have had over a million dollars worth of sales, but it was also recording a loss of $100,000. Subway’s operations were simple and its startup costs were low compares to its competitors; opening a Subway franchise cost $85,000 compared to $1.1 million for a McDonald’s franchise. And, while Subway outlets did bake their own bread in-store, no other cooking was done on the premises.
It was a hard lesson to learn for DeLuca. Sales were soaring so he assumed his company was on the right track, but the financial books revealed otherwise. It was then that he realized it did not matter how much his company was bringing in; if he was not in complete control over his expenses – over what was going out – it was irrelevant.
DeLuca accepted the mistake and rationalized it as necessary for the stage he was at. Subway was in its brand-building stage and sometimes it was necessary to risk profit for long-term gain since brands do not get built overnight. But DeLuca knew that strategy could only go on for so long.
After that, DeLuca began to focus not on improving the product, but on the business system as a whole. He began taking advantage of economies of scale in obtaining cost savings, and passing those on to his franchisees. Even as the company continued to expand, DeLuca made sure that startup costs were low per average store. He also provided support to each franchisee in the form of equipment, financing, supplies, training, and more. DeLuca wanted to ensure that both he and his franchisees had the most chance for success.
“I thought initially that it would be a small-scale business,” says DeLuca. “But after I brought in franchising we got to about 200 stores in the early 1980s. It was then that I wondered how well we could really do.”
Now that DeLuca has a better handle on his expenses and the cost of franchising, he is setting his sights even higher. Having conquered the U.S. market, which is still going strong, DeLuca is aiming for the U.K. and Europe. By 2012, DeLuca hopes to have 2,000 stores throughout the U.K. and Ireland. Subway remains one of the leading international fast food chains because DeLuca learned early on the importance of profiting or perishing.
Lesson 4 The Name of the Game is Profit or Perish
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In Subway’s early days, DeLuca maintained a close watch over all of his expenses, making sure that they were always kept to a minimum. He also made sure that he never ran out of money; he knew that a cash flow crisis was one of the top reasons why businesses failed. He was personally in charge of opening Subway’s first nine stores. But as Subway’s franchises began to multiply and its revenues soar, DeLuca came into a different kind of crisis, one that he had not been ready for.
In the very first year that Subway hit the million dollar mark in sales, DeLuca’s practices were called into question by his accountant. The company may have had over a million dollars worth of sales, but it was also recording a loss of $100,000. Subway’s operations were simple and its startup costs were low compares to its competitors; opening a Subway franchise cost $85,000 compared to $1.1 million for a McDonald’s franchise. And, while Subway outlets did bake their own bread in-store, no other cooking was done on the premises.
It was a hard lesson to learn for DeLuca. Sales were soaring so he assumed his company was on the right track, but the financial books revealed otherwise. It was then that he realized it did not matter how much his company was bringing in; if he was not in complete control over his expenses – over what was going out – it was irrelevant.
DeLuca accepted the mistake and rationalized it as necessary for the stage he was at. Subway was in its brand-building stage and sometimes it was necessary to risk profit for long-term gain since brands do not get built overnight. But DeLuca knew that strategy could only go on for so long.
After that, DeLuca began to focus not on improving the product, but on the business system as a whole. He began taking advantage of economies of scale in obtaining cost savings, and passing those on to his franchisees. Even as the company continued to expand, DeLuca made sure that startup costs were low per average store. He also provided support to each franchisee in the form of equipment, financing, supplies, training, and more. DeLuca wanted to ensure that both he and his franchisees had the most chance for success.
“I thought initially that it would be a small-scale business,” says DeLuca. “But after I brought in franchising we got to about 200 stores in the early 1980s. It was then that I wondered how well we could really do.”
Now that DeLuca has a better handle on his expenses and the cost of franchising, he is setting his sights even higher. Having conquered the U.S. market, which is still going strong, DeLuca is aiming for the U.K. and Europe. By 2012, DeLuca hopes to have 2,000 stores throughout the U.K. and Ireland. Subway remains one of the leading international fast food chains because DeLuca learned early on the importance of profiting or perishing.
Lesson 4 The Name of the Game is Profit or Perish
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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