Fast and Serious
EXCLUSIVE: Franchise Times ranks the smartest-growing brands
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Bruce Dean, CEO and co-founder of Black Bear Diner, doesn’t believe in grand gestures to grow his restaurant franchise. Rather, he works with people at every level, asking them to think of small steps to create incremental improvement, day in and day out. “It’s something I’ve always believed in,” he says.
“How do we take it to the next level?” His is one of 40 insightful responses when Franchise Times set out to learn how the smartest-growing brands in franchising soar above the rest. We’re proud to present the second annual Franchise Times Fast and Serious list, the only ranking to report the franchisors growing quickly, yes, but in a sustainable way—we’re not interested in brands that rocket one year then fall to earth the next, so our proprietary formula measures 10 separate points of growth over a three-year period. (For details, see page 34.) Want to know which CEO isn’t above doing dishes with the crew?
Or who swears by a “seed and spread” philosophy? Or which franchisor is actively seeking emerging brands to add to the mix? Read on.
Stories by Beth Ewen • Research by Matt Haskin
If Amit Kleinberger, pictured to the left, looks familiar, it’s because his company, Menchie’s, ranked No. 1 on last year’s Fast and Serious list and did it all over again this year.
Rather than profile Menchie’s again, we decided to feature the No. 2 company, Sky Zone, on our cover and on the opposite page. But that doesn’t mean we’re not impressed by Menchie’s accomplishment. They’ve kept up a blistering pace, with 147 units in 2011 and $96 million in sales, to 420 units and $191 million in sales two years later.
Kleinberger is famous for his work ethic, working “on average” 110 hours a week, he told Franchise Times last year when we visited Menchie’s headquarters in Los Angeles, and routinely sending emails late at night and early in the morning.
“We believe we don’t sell frozen yogurt. We believe we make people smile,” Kleinberger said, and he’s determined to keep doing so for as long as it takes to be recognized as the No. 1 fro-yo chain worldwide.
“I believe with every bone in my body, in 20, 30 or 40 years, yes! I believe we’ll capture that position, and I believe we’re positioned to do it not because of a product but because of a purpose.” For now, he can take pride in another No. 1, atop the Fast and Serious list, two years in a row.
BAM! goes the dodgeball, hitting Sky Zone’s CEO Jeff Platt hard in the chest as he poses for a photographer. Platt flinches but keeps smiling, and pretty soon J.J., the attacker and one of Platt’s employees, changes tactics. Ping! goes the Nerf bullet. Ping, ping, ping, until finally, mercifully, J.J. puts down his weapon and gets back to work.
Yet Platt keeps his game face on all along. He has worked for three years to create a culture at his downtown L.A.-based franchise where staff members can have fun, and he’s got the foosball table, the Ping-Pong table, the big-screen TV and the fully stocked kitchen to prove it. Would you like coffee or water, visitors are asked. Espresso or Americano? Still or sparkling?
Dogs big and little run on the concrete floor. Shoeless, Platt pads around in his bright orange Sky Zone socks, the same kind they hand out to jumpers at his soon-to-be 100 indoor trampoline parks around the country. Inspiring words in huge capital letters shout AWESOME or HEALTHY on colorful columns throughout the office.
Behind the fun and games are some serious growth numbers. Sky Zone ranks second on the Franchise Times Fast and Serious list, which identifies brands growing quickly and also, according to our proprietary formula, sustainably over the last three years.
Platt, now 30, became CEO of his father’s company in 2006, and it took five long years to find his rhythm. In 2010 they had just a half-dozen locations. In 2011, there were 19. In 2012, there were 28. Last year ended with 97 operating locations, and Sky Zone’s 100th will open in March or April this year. Revenue should hit $260 million this year, up from $168 million last year and $88 million the year before.
“It’s very crazy,” Platt says, and he relates a story about his uncle, an early investor, who’s both surprised and delighted by the franchise’s emerging success. “My uncle said, ‘I never envisioned I would get the money back. I was just helping my brother.’” Platt attributes the growth to his team, which he has diligently rebuilt mostly from scratch after his approach in his first few years as CEO fell flat.
“When I was young, I felt like I had to control everything,” says Sky Zone CEO Jeff Platt. “That slowed down the growth.”
“When I was young—well, I’m still young, but younger—I felt like I had to control everything, which led to me micro-managing and that slowed others down, that slowed down the growth of the company,” Platt says. “In those early days of running a business, you haven’t learned yet how to lead. There was a level of arrogance that shouldn’t be there, and you learn why it doesn’t work.”
Rather than dictating hours or duties, today he requires all staff members to agree on their objectives with their manager. “How they get it done, I don’t care. If they want to get it done at 3 a.m. and play Ping-Pong all day, that’s fine.”
He also hires more carefully, requiring each prospective employee to meet with many current staffers, who are charged with assessing the cultural fit. “You don’t want them to just fit in the culture, you want them to add to the culture,” he says.
He agrees the open workspaces, without any offices, and the general chaos aren’t for everyone, but those who fit, thrive. “Our CFO is the only guy who wears a tie,” Platt says, referring to Steve Yeffa, the lone gray-haired employee in sight.
“We had to massage him” to let him know it wasn’t necessary. “Now he just wears a tie to piss us off.”
(Not necessarily so, says the CFO later, and points out his tie is in the Sky Zone colors, orange and blue.)
The effort is paying off in the form of those rising numbers. “It takes a qualified team to execute,” Platt says. “It’s getting that team to mesh well and work for each other. That takes a little bit of time.”
His father, Rick Platt, originally started Sky Zone as a sport in 2004 in Las Vegas, envisioning teams pelting each other with dodgeballs while jumping on trampolines. He raised $2 million from family and friends, but the sport didn’t take off, and pretty soon there were just a couple months to go before the money would be gone.
But all the skateboarders in the neighborhood kept knocking on the door. “We had an R&D center for the teams to train, and every day the kids would say we want to jump,” Jeff recalls. “One day he said, you can jump but it’s 8 dollars, and a few months from there and it was cash-flowing.”
Platt was in college at the time, bored in his junior year, and wanted to open a second Sky Zone in St. Louis. So he again tapped family and friends. “We opened our second location and it was more successful than the first, and I got to see what it was like to be a franchisee.” Today, he says it’s typical for franchises to become cash-flow-positive in just 90 days.
By 2008 they started franchising, with Platt going back one more time to ask for $200,000, and his hard lessons as a CEO—and a son—truly began. His mother died of cancer near the end of 2009.
“She saw the business struggle. She saw it get to three operating locations. She never got to see what it became,” Platt says, but figures she’s there in spirit.
“I guess she’s seeing it now.”
Platt credits his father, who had owned a scrap-metal business, for “having the guts” to invent the sport in the first place, and his board of directors, including two outside directors, for keeping the company on track.
One board member in particular, Dick Rothkopf, has served as his mentor. “When people say what should you do as an entrepreneur, I say get a mentor,” Platt says. “He’s a master of simplification. You have to say what’s the easiest way to accomplish this. Don’t overcomplicate things.”
He sums up Sky Zone’s appeal simply, too. “It’s a good business. It’s a fun business. People like jumping,” Platt says, and a half-hour later he proves it, jumping up and down on a mini-trampoline for the camera, every once in a while dodging those Nerf bullets.
The photo shoot over, Platt takes his revenge, chasing down J.J. and hurling a dodgeball—BAM!—but it hits just shy of his target’s right ear.
Smashburger is still a growth leader in the better-burger category, while Five Guys, No. 4 on last year’s list, fell off the list to No. 43 this year.
“Growth is very tricky,” believes Scott Crane, CEO of Smashburger, which ranked second on our list last year and edged down to third this year, displaced by newcomer Sky Zone. He cites a commitment to growth from the entire company, and a significant increase in franchise support resources, leading to a systemwide sales increase.
Crane details his whole-company approach: A larger sales team to find and bring on franchisees; operations, accounting, human resources and marketing teams to support those functions; and a development and real estate team “with people who do what it takes to get things done with integrity and style.”
“We are never dependent on a single site to grow. We have a constant flow of sites in multiple markets constantly being developed and vetted,” he says. “It takes a large team effort.”
Crane became CEO in November 2013, so results of his first full year in the top job will show up in our Franchise Times Top 200 ranking later this year.
“We started it as three gym guys,” says Chris Rondeau, CEO of Planet Fitness. The chain began in New Hampshire in 1992 as a typical big-box health club at the time, with daycare, pool, juice bar and the works. But they surveyed their customers and found a mere 15 percent were actively using all of those goodies.
Meanwhile, the vast majority of people didn’t belong to a health club. By 2003 they started franchising their model, a stripped-down facility with cardio and weight equipment only, with monthly fees as low as $10. “We decided to let the others fight over the 15 percent, and we’d go after the 85 percent,” Rondeau recalls.
The average store is 20,000 square feet, and Rondeau figures they’ll find lots of real estate this year as big-box retailers continue to struggle. Each requires 15 to 20 employees, rather than the typical 40 to 50 at a fancy health club. Planet Fitness finished 2013 with $891 million in sales and 749 units, and added another 171 clubs in 2014.
He credits TSG Consumer Partners, a private equity firm that bought a majority stake in 2012, with helping to refine the brand, and providing money to beef up support. “A lot of it is just support, support, support,” he says. “In the early days we were running too lean.” Two years ago there were 50 people in the corporate office; now there are 150, for example.
Rondeau believes getting the brand promise correct is not as easy as it seems. “A lot of people would say, ‘10 bucks a month; that’s why it works.’ But it takes a lot to get the right atmosphere.”
The beer is cold and the servers’ red-plaid outfits are skimpy at Twin Peaks, same as last year, but the pace of growth is picking up. From just 18 units in 2011, Twin Peaks posted 46 units by the end of 2013 and revenue topping $165 million.
“There are certain times of the week when I’m thinking micro over macro,” says CEO Chuck Runyon of Anytime Fitness.
CEO Chuck Runyon’s Anytime Fitness chain makes many fast-growing lists in franchising, with more than 2,400 units and systemwide sales north of $634 million in 2013. (That number moved even higher by the end of 2014, to 2,750 globally.) But he calls his approach an “inside-out strategy. We worry or focus on taking care of our current stakeholders,” including club members, employees and franchisees, spending time each week drilling down to the micro level.
“How can we make this brand better for the member, and how can we make it better for the franchise owner in Omaha? We do think at a high level, but there are also certain times during the week when I’m thinking micro over macro,” Runyon says.
“The larger franchises get, the more disconnected they get from the average member or franchisee, and that’s where the acrimony fosters,” Runyon adds.
He’ll have to keep working on the balance, as Anytime Fitness is set to open club 3,000 by the end of 2015.
Two tools help keep growth going at Freddy’s Frozen Custard & Steakburgers, with 104 units and $145 million in sales at the end of 2013.
First, Freddy’s has developed an in-house, proprietary real estate analysis tool to aid franchisees in figuring out which sites will work for the concept. Second, the brand has developed an in-house Learning Management System that can be accessed at a training station in each kitchen.
The system rapidly educates new employees, but is also available to staff members who need a refresher, and cuts down the time to master the learning curve.
The tools are an example of CEO Bill Simon’s growth philosophy: navigating carefully, especially to keep infrastructure ahead of the expansion.
Marco’s Pizza topped the 500-unit mark last year and is setting its sights on a much more ambitious target: 1,000 stores by 2016. Growth already in the books—to $246 million in annual sales in 2013 and 437 units—places it No. 8 on our Fast and Serious list, its same rank as last year.
Jimmy John’s ranks No. 9 on this year’s Fast and Serious list, down from No. 3 last year but remarkable because its system sales are nearing $2 billion—and it’s not easy for a chain so large to continue a fast growth rate. Official unit count at the end of 2013 was 1,802, with $1.47 billion in revenue.
Founder Jimmy John Liautaud told a Franchise Times audience last spring he relies on a team of business coaches to visit every unit every 42 days. “The visit goes like this: They arrive at 8 in the morning and they stay all day. At lunch, they look around the restaurant and see what they can fix. After lunch they fix it,” he said. “Any store that scores less than 85 percent, by 8 that night I have a corrective action in place that goes to five people.”