Franchise Whisperer: Perpetually on the Prowl for the Next New Thing

Lloyd Sugarman--Sugie, to his friends--is something of a "franchise whisperer."

He sniffed out Coldstone Creamery as a concept with great franchise potential years before the couple who started it were ready to grow. And he had a special feeling in his gut the first time he visited a tiny coffee shop in Chicago called Starbucks, but he listened to friends who insisted coffee shops had limited growth potential, and didn't make a move.

But all systems were go in the late 1980s when the self-made businessman who'd battled ADHD as a youth, got a tip from a 9-year-old girl on a flight to California. When he asked her father about new restaurants in the LA area, she piped up, "There's that new place in Melrose--Johnny Rockets. It's a little hamburger and malt shop."

Sugarman liked the name so much that he rented a car and drove to Melrose Avenue in Los Angeles, near West Hollywood. "There were long lines outside, including some familiar faces, like Kiefer Sutherland, whom I ended up sitting next to at the counter once we got our chance at the 20 stools. I ordered everything on the menu except the egg salad--I don't like egg salad. I loved all the food and the place with its red-and-chrome décor," he says. "I was off the charts with excitement."

He learned from the duty manager that Ronn Teitelbaum, an award-wining clothier, conceptualized and opened the Americana-type diner and asked for Teitelbaum's phone number. "She said, 'I'm sorry I can't give it to you. So many people have been trying to get in touch with him about this place, but I'll give him your name and number. Sometimes he comes by,'" Sugarman recalls.

Sugarman said he'd wait. "But I don't know for sure if and when he's coming," the manager protested. Sugarman said, "That's all right. I'll just wait, if you don't mind. I'm enjoying myself." Seeing that he had no intention of leaving, she promised Sugarman that she would make sure Teitelbaum called him first thing the next morning.

The next morning Teitelbaum did call, and Sugarman impressed him with his detailed comments and understanding of the Johnny Rockets concept. "I said, 'I'm not good enough to copy what you've done, but I want to be part of what you do.'"

Teitelbaum looked into Sugarman's financial situation and told him, "You don't have enough money to build your own Johnny Rockets, but you've got half the money. Go to the Bay Area and build Johnny Rockets on Chestnut Street with us as your partner." So Sugarman, without hesitation, moved to San Francisco to be Teitelbaum's partner in a new Johnny Rockets restaurant.

In 1987, Sugarman became Johnny Rockets' first franchisee, building five top-revenue locations in San Francisco. In 1989, he traded his stores for 10 percent of Johnny Rockets and worked as vice president of operations and franchise development with his new mentor, Teitelbaum.

By 1991, Sugarman wanted to be back in the stores, so he kept his ownership in the company and bought back his restaurants in San Francisco. He also built other Johnny Rockets, including one in Santa Monica with a partner. In 1995, Johnny Rockets was sold, and he traded in his stores and moved to corporate as senior vice president of development.

Selling his restaurants this time was probably a mistake, he says in retrospect. "I no longer had control of my destiny," he says. With the revolving-door CEOs not taking Johnny Rockets in the direction of a public offering, he decided again to start over as a franchisee. In 1998, he and his family moved to Providence, R.I., where he grew up, to open more Johnny Rockets and consider other concepts.

When Teitelbaum died in 2000 at the age of 61, Sugarman was bereft. "Ronn was an amazing influence in my life. He was a great guy, an influential partner and mentor. The most intelligent people you meet in life have the ability to simplify things--even in franchising. Ronn had that," he says.

Throughout his association with Johnny Rockets, Sugarman has continued to be an innovator, using his own money a couple of years ago to create a new, updated design prototype for the chain, the first change in 25 years. Early resistance from corporate and other franchisees abated when the company tested the prototype in a couple of company stores, along with Sugarman's stores. The experiment was a success, and many Johnny Rockets are adopting elements of the new design.

Today, Sugarman, with his son Jason, owns 17 Johnny Rockets in Rhode Island, Minnesota, California, New York, Connecticut, Pennsylvania, and Massachusetts, as well as 3 Original Soupman locations, and 2 Yeh! Yogourt Glace and Café units in Montreal. He also has a couple of new concepts brewing that he's not yet ready to talk about yet.

is favorite activity remains searching out the newest, most exciting trends and concepts, wherever that takes him. "There's a saying: You go, you get. You don't go, you don't get," he says. "I've always gone after things whether it was to the New York Trade Show to do rock'n'roll T-shirts, to Massachusetts where I got my real estate license at 18, or to California where I found Johnny Rockets."

Sugarman acknowledges that his way of doing things may appear a little quirky to those who don't know him well. One of his favorite sayings is, "Don't ever chase others--you'll always be looking at their butts."

Name: Lloyd Sugarman
Title: I never think of myself in terms of a title.
Company: I have different companies for different groups of stores. My headquarters is in Providence, R.I.
No. of units: Johnny Rockets, 17; Original Soupman, 3; Yeh! Yogourt Glace and Café, 2
Age: Over 50
Family: Wife Rhonda, son Jason (who works in the business), and daughter, Dana Sugarman Johnson
Years in franchising: More than 25
Years in current position: Hard to say. I am the only person ever exposed to Johnny Rockets as its first original franchise partner in 1986, then as its first franchisee in 1987, then as a member of the corporate team, then as a franchisee again and back with the company, and now back as a franchisee.

Personal

First job:
I was an ADHD person before anybody understood what that meant, so school was difficult for me. I started working at an early age, first at a little roast beef place, Walt's Roast Beef, and then at Sax's Steak Sandwich, a chain of 20 stores my father founded.

Formative influences/events:
I was influenced by the work ethic and entrepreneurial spirit of my father, who died when I was a kid. I'd been watching QSRs in operation for years, and also became fascinated by franchising while watching the original Burger King franchisee in Rhode Island get started.

Key accomplishments:
After having a hard time in school, those early career successes gave me the confidence I needed to show that ADHD has nothing to do with creativity and intelligence. At age 18, I got my real estate broker's license and started successfully selling houses in Mansfield, Mass. Then I read in Rolling Stone about two kids silk screening rock'n'roll images on T-shirts. I contacted artist Charles White III, who'd actually designed album covers for rock stars, and wound up, with his permission, putting his photos onto the back of T-shirts through a process called sublimation (unique at the time). I had the hottest T-shirt line in the country for a year, but when everybody else began to produce shirts at lower prices, I used the money I'd made to buy an old car wash that I turned into a successful car wash for vans and trucks--and this was before we heard much about SUVs.

Biggest mistake:
Probably when I sold my five Johnny Rockets California stores--the five highest-volume stores in the company--to venture capitalists in 1995. I was so excited about growing Johnny Rockets and ultimately going public and having stock in the company. The mistake I made was in not understanding the influence on direction that a CEO would have when he became involved in the company. There were a few great leaders that I learned a lot from--like Johnny Rockets founder Ronn Teitelbaum and board member Mickey Drexler--but there was a revolving door of CEOs that, in my opinion, didn't "get" Johnny Rockets. Because of that, we never achieved going public while I was there.

Smartest mistake:
In our business, we're always taking risks and making a lot of small mistakes along the way. I think more in terms of missed opportunities and life lessons, rather than in mistakes.

Decision I wish I could do over:
Keeping my five Johnny Rockets stores in 1995 as opposed to selling them back to the company, or at least keeping some of them. That would have been better for me and my family. I still would have had control over my destiny instead of being an employee. I redesigned and reworked the Johnny Rockets look and I'm proud of that, but ultimately, I had to start all over when I repurchased my stores in San Francisco.

Work week:
I don't have a "work week." I don't have hours. I just have a lot of stuff to do.

How do you spend a typical day?
The one or two things I absolutely do every day would be talking to our comptroller and checking all the balances to see what came in and what didn't. Everything else is about the unexpected things that constantly come up.

Favorite fun activities:
I have a small speedboat and I like driving European sports cars.

Exercise/workout:
I do 40 pushups every few days. I walk quickly and I walk a lot.

Favorite tech toys:
iPads, iPhones, smartphones.

What are you reading?
Since I am ADHD, I prefer audio books and publications.

Do you have a favorite quote?
"You go, you get. You don't go, you don't get."

Best advice you ever got:
I've been told to "stay focused," which for someone like me is always good advice. I've also been told to go with my gut and my intuition.

What gets you out of bed in the morning?
I'm hungry--and I have stuff to do.

What's your passion in business?
I really do like searching for new concepts and I never stop doing that. This is also a most challenging time for Johnny Rockets and companies like us because we have to identify our core values and where we fit in the market.

How do you balance life and work?
My wife and kids and their kids are always most important, but life and work are always entwined.

Last vacation:
When I go on trips I'm always looking forward to seeing and finding things I haven't seen. It's about my passion for emerging concepts. I'm not sure my family would consider this exactly a vacation. We relax most when we go down to Florida.

Person I'd most like to have lunch with:
Starbucks Chairman and CEO Howard Schultz.

Management

Business philosophy:
We're only as good as the people we have around us. I always try to allow the managers to run the business as if it's their own, and then we sit down and talk about it. If they don't make decisions, they can't make a mistake or a win. If a person doesn't care, you're in trouble. I don't worry so much about intelligence, I just highly value trust and honesty. Trust takes years to develop.

Management method or style:
When I go into any of our places, I find things that need to be corrected. Before I meet with the manager, I like to talk to servers and cooks first since they're in front of the guests every day. I value their honest feedback as much as the manager's since a manager might tend to say what he knows I'd like to hear.

Greatest challenge:
Right now, business is challenged in general. We're trying to stay relevant and change what needs to be changed while still going into different concepts.

How do others describe you?
I'm not sure. I think I empower people who are qualified. My Mall of America general manager has been with me for 10 years and I trust him to make the right decisions.

One thing I'm looking to do better:
I like to remember everyone's name, and I'd like to know our people better.

How I give my team room to innovate and experiment:
I'm open to all ideas and concepts and I encourage discussion.

How close are you to operations?
Pretty close. I'm aware of most things going on all the time.

What are the two most important things you rely on from your franchisor?
I always hope they're making their best efforts in purchasing and getting us the highest-quality products at the best price. I'd also like to rely on them more for PR and marketing support.

What I need from vendors:
Honesty and a constant striving.

Have you changed your marketing strategy in response to the economy? How?
You have to be careful in changing strategy. For example, discounting and couponing is a difficult road to travel because you don't want to become reliant on coupons to drive the business. However, it does work from time to time.

How is social media affecting your business?
I don't think we see the effect on a daily basis. Some companies know how to push and strive in that world, and they're the ones who captivate. A great social media company that understands how it works can create cult followings. I think it's difficult for older brands, like Johnny Rockets, and that we'll have more luck with the Original Soupman.

How do you hire and fire?
We hire by looking for what any good operator looks for: smiles and personality. We can teach and train, but you can't teach personality and positive energy. As for firing, we promote them to guest.

How do you train and retain?
We train on the store level, and training is part of every job, every day. In retention, acknowledgement and appreciation are important, and pay is important.

How do you deal with problem employees?
Put them on the user program: promote them to guest.

Fastest way into my doghouse:
Being disrespectful with those they work with, leaving their responsibilities to others, and not taking their jobs seriously.

Bottom Line

Annual revenue:
$40 million

2013 goals:
To refresh and go forward with the stores we have and to look for new opportunities. We're getting involved in several new brands and are excited about it. I can't announce it just yet.

Growth meter: How do you measure your growth?
We're driven by the opportunity for locations that become available and make sense. If you can tell me how many great locations I can get, I'll tell you how many stores I will open.

Vision meter: Where do you want to be in 5 years? 10 years?
I will be doing the same as I am now. I'm not looking to be anywhere different, except for growing more programs.

How is the economy affecting you, your employees, your customers?
The same way it affects everyone: costs go up, you have to maintain the same price structure in selling, and competition is more of a challenge. In general, we're more affected by price increases than the amount of business we're doing.

Are you experiencing economic growth or recovery in your market?
Every business has its own answer. Every location has its own answer. For example, a street that becomes more trendy with more bars and more night life may suddenly be a good location, even if the economy is still bad.

What did you change or do differently in this economy that you plan to continue doing?
We're still doing the same things.

Is capital getting easier to access? Why/why not?
Yes. The availability of good interest rates for those who can borrow is a great advantage. Depreciation has also helped.

Where do you find capital for expansion?
From private investors to banks to self-funding.

Have you used private equity, local banks, national banks, other institutions?
 Private equity, banks, self-funding.

What are you doing to take care of your employees?
In a good environment, employees do a great job taking care of themselves. We give them the opportunity, and they're taking care of business and doing a good job.

How are you handling rising employee costs (payroll, healthcare, etc.)?
Healthcare is going to be big for all in the industry. The cost will be a learning experience. I'm in several states, so it's difficult to find all the answers.

How do you reward/recognize top-performing employees?
Stores have Employee of the Month awards. The GM of their stores should be the one rewarding people. We haven't done annual events because our units are so spread out.

What kind of exit strategy do you have in place?
I don't know when my life will be over. When I do, I'll let you know.