Saturday,
July 29, 2006
"Subway" Founder
Fred DeLuca, the Ultimate Bootstrapper
The
ANNOTICO Report
Fred DeLuca started a "bare bones" sandwich shop as a
high school grad with a borrowed $1000 in 1965.
40
years later (The article says three decades. That must be New Math) there are
25,818 stores, and Subway, is one of the largest privately held businesses in
the world and DeLuca is worth at least $1
billion, and the 512th wealthiest person in the world.
Thanks
to Pat Gabriel
FRED
DELUCA: FOUNDER OF "SUBWAY"
The
Inc.
com
By
Tom Nawrocki
July
28 2006
A
$550 sink nearly prevented Fred DeLuca from amassing
a billion-dollar fortune.
Fred DeLuca was a recent
high school grad looking for a way to pay for college when he founded a
sandwich store in
In
1965 Pete Buck, a friend of your familys, gave you $1,000 and suggested
you open a sandwich shop. Why sandwiches?
When Pete was a kid up in
How
quickly were you able to open your first store?
I talked to Pete on Sunday. I borrowed my dads car on Monday and drove
around a little bit and found a vacant store. Pete came over on Saturday, and
we rented it, with no leaseyou probably couldnt
do that today. Then, I built a counter and a partition, using eight-foot studs.
I didnt even carry it to the ceiling or put
Sheetrock on the back.
I
put ads in the newspaper saying something like, Student needs
refrigerator, and Id buy old household refrigerators for 10 bucks
apiece. Never had plans drawn, never went to the city
for building permits.
Really? You opened without
official approval?
Somewhere in the middle of construction, somebody came by and said, What are you doing here? I said, Im building
a sandwich store. They said, You know, you
cant just build a sandwich store without getting some approvals. I
walked to town hall and said, I have to get some kind of license for the
store Im gonna open. The lady behind the
counter said, We need some kind of plans for your
store. I said, Well, I dont have any plans. She said, If you could draw something out, that would be great.
So I drew a sketch, gave it to her, she stamped it, and that was it.
The
city didnt require
anything else of you?
This was almost a backbreaker: We learned that we had to install a special sink
that cost $550, so Pete had to give me a second
thousand dollars.
And
operating capital?
Youd sell the sandwiches for cash today, and youd pay the employees
and the food bill tomorrow. So we had the float.
How
were your vendors?
Every Friday, my mother and I would pay a visit to the people who sold us meat,
vegetables, bread, and paper. It was a little social call. Wed come with a
check and theyd say, Hows business? and
wed say a little something. They knew we were always there to pay the
bills, even though we never paid as much as we bought and balances always built
up. If we didnt drive around to deliver checks,
which is a totally inefficient thing to do, I am positive that we would not
have built the kind of relationship that allowed them to be as comfortable with
us.
Subway
had its struggles, but I know opening day was busy. What happened?
On the first day that we opened, I had to go to the university to take an
English exam. I make the first sandwich to show my buddy how to make a
sandwich, then I go to take the test. I come back, and
theres a line of customers out the door. And Pete is walking across the
parking lot holding this paper bag. He said, I
had to go buy some knives. I worked in a hardware store, so I knew that
knives could be expensive or cheap, so I looked in the bag and said, Oh,
Jesus, there goes the budget.
Was
it hard being a 17-year-old who didnt know anything about business?
I had a lot to learn. One time, my car broke down. This kid picked me up, we
get to talking, and we passed by my store. He says to me, That is a great place to eat. They make terrific sandwiches,
and you get all the soda you want for free. I said, How does it work? He said, You order some
sandwiches, and when the kidhe was referring to mewhen the kid turns
around to make them, you just take a case of soda out of the cooler and sneak
it out to your car. So, you see, the lessons I learned back thenthey were
so simple.
After
that first day, your sales dropped pretty much continuously for a long time.
How did you make it through that period?
Number one, I didnt have big family expenses.
Number two, I didnt have high expectations. I
was willing to try solutions that other people may not even have thought of --
Im not saying they were all smart solutions, but I tried them. I didnt know enough about business to realize how bad we
were doing. And I didnt have the concept that
you should quit at something. I can think of so many reasons why we shouldnt have made it. We were on the edge
continuously.
What
happened when you opened the second store?
The business in that second store was good from the day we opened it -- and the
business in the first store picked up also.
Could
the same kind of success happen today?
Today, it just doesnt work
like that. There is so much bureaucracy that it would have broken our
backs. We would not have gotten it open.
On
that first day, you spent part of the afternoon sitting in the back, chopping
up vegetables with a three-dollar knife, using an old sheet of plywood for a
cutting board. I dont think that would pass muster with the health
department today.
Theres nothing in that store that would pass muster today.
Since
It was an extremely serious goal in that it never changed. We never had a
discussion about changing the goal, we always talked about the goal, we always kept it in mind. We thought it was achievable
because the other guy had done it. We would have not franchised if we didnt have this plan.
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