Master of Diversification: A Business Built on Passion, Focus, and Determination

Master of Diversification: A Business Built on Passion, Focus, and Determination

Bob Middleton heard or read something years ago that stuck with him: Wealth is built by focusing on one thing and doing it well; wealth is preserved by diversifying. He considers that the best piece of advice he's ever received. "I came around to diversifying so that one brand didn't determine my success," he says.

That philosophy led him to where he is today, a successful franchisee for Jersey Mike's Subs, Little Caesars Pizza, Sonic Drive-In, and Del Taco. With properties in Michigan and Canada, he's even diversified out of the country. After 25 years in franchising and 35 years in the food business, Middleton has not slowed down.

A self-made millionaire, he credits Richard Mueller with teaching him operations. Hired early on by Mueller's RPM Pizza (Domino's Pizza's larges franchisee), Middleton discovered his skill for turning around unprofitable stores and soon found himself overseeing RPM's restaurants in Canada and making a success of them. Then things changed.

"There was a time when Domino's Pizza could do no wrong. Then it fell out of favor and the company just couldn't do anything right. I saw a lot of successful people forced to sell," he recalls. RPM decided to get out of the Canadian market and offered Middleton first shot at its nine stores there. He bought five. Seven years later, he sold those units with the goal of building Domino's in Michigan. "Then Little Caesars contacted me and wanted me to buy a bunch in Toronto. I figured it was easier and faster to take over and fix these than to build one at a time," he says.

Middleton, who lives in Rochester, Mich., says his brand and unit acquisitions have followed something of a pattern. "I only became a Domino's franchisee as a result of it crashing and burning. I only became a Little Caesars franchisee eight years later because they were going through a difficult time," he says. "When I'm making money, I diversify and build something else. I began with Del Taco in Michigan with the idea of putting it together with Sonic to get the best real estate deals. It's worked for me."

Other business strategies have played a role in his success as a multi-brand franchisee. "I stick with food because that's what I know. I was impressed by Warren Buffet when, even in the late '90s, he didn't get involved in technology because he said he didn't understand it. I, too, only get involved in things I understand."

Middleton, who with partners has launched 15 employees as franchisees, also has structured his four brands as separate entities with four different equity/operating partners. He also doesn't move employees across brands. "Each brand has a different culture and I want to keep those pure," he says.

He has an interesting approach to risk, owing partly to his modest upbringing and to his experiences with brand fluctuations. "When I go into a business venture, I don't ask how much money I can make. I ask, 'If doesn't work out, how bad can it hurt me?'"

Honored as Jersey Mike's 2016 Franchisee of the Year, he says his next challenge with the brand is exciting. "We'll open the first Jersey Mike's store in Canada on April 19 in Kitchener, Ontario. It's a joint venture with the founder and CEO of Jersey Mike's, Peter Cancro. We'll do the first six, and then I'll become the area director, helping to oversee and grow Jersey Mike's in Ontario. My goal is to have 100 stores there in 10 years with mostly franchisees."

Also ahead, Middleton and his partner and brother-in-law Bill Biga III, are committed to growing their Jersey Mike's in Michigan to a total of 28 over the next five years.

Middleton, who describes his recent honors and awards as humbling, insists that these belong to "everyone I work with," he says. "We're always looking to make sure we're protecting the people in our company, that we're doing things right. In today's world, if you have more than a couple of units, you really do need to understand the rules of the game, so we're very sensitive to doing our best to run a great company."

His older son Ryan, with a finance degree from Michigan State and an MBA from Wayne State University already is part of the company as manager of business processes--and as a franchisee in Middleton's Jersey Mike's Grand Rapids company and also in one of his Little Caesars companies.

His other son, Zach, who currently attends Central Michigan University, will soon come on board. "Both of my sons have always wanted to work in the business. I didn't go to college so they're both going to be more educated than I am," he says with a characteristic grin.

Q&A

Name: Bob Middleton
Title: Multi-unit franchisee
Company: OTB Pizza Company (Little Caesars Pizza); Sharing the Bread (Jersey Mike's Subs); PRG-SD (Sonic Drive-In); Providential Restaurant Group (Del Taco)
No. of units: 19 Little Caesars Pizza; 15 Jersey Mike's Subs; 3 Sonic Drive-In; 2 Del Taco
Age: 56
Family: Wife Dawn and sons Ryan and Zach
Years in franchising: 25
Years in current position: 25

Personal

First job:
Dishwasher.

Formative influences/events:
Having so many wonderful influences early on in my restaurant career--people who believed in me and in my potential and eventually guided me toward the franchising business model.

Key accomplishments:
Being invited to sit on several National Advisory Councils and President's Councils for different brands I operate in. Earning awards at multiple brands for sales, marketing, and service and being named Franchisee of the Year for Jersey Mike's Subs in 2016.

Biggest current challenge:
Recruiting and building the bench strength of middle management. This is an incredible industry with unlimited opportunity, but our society seems to deem this as a job of last resort. Nothing could be further from the truth. Fighting that perception is our industry challenge.

Next big goal:
Bringing Jersey Mike's Subs to the Canadian market and growing that brand in Canada with the parent company.

First turning point in your career:
Becoming a manager in training for RPM Pizza, the largest franchisee of Domino's Pizza. They were a great company to work for and I owe them a lot for my success. They were my introduction into franchising.

Best business decision:
To buy 22 existing Little Caesars Pizza stores in Canada.

Hardest lesson learned:
Most franchisors want you to think and feel that you are part of a big family, and even though they do their best to foster that environment, at the end of the day it is a business. It is always a business, and you cannot take it personally.

Work week:
When you love what you do, it is not work. When you are an owner, there is no such thing as a normal work week. You need to make sure you balance your work week, spend quality time with your family, and take care of your health. Having a balance is very important.

Exercise/workout:
My wife and I have a personal trainer we work out with two to three times a week.

Best advice you ever got:
Wealth is built by focusing on one thing and doing it well; wealth is preserved by diversifying.

What's your passion in business?
Seeing people in my company develop and grow. I am passionate about giving back and giving my general managers the opportunity that I had, which was to become a franchisee.

How do you balance life and work?
I owe it to my wife. She is the only reason I have any balance at all.

Guilty pleasure:
Eating. I love food.

Favorite book:
"Good to Great" by Jim Collins.

Favorite movie:
"Remember the Titans."

What do most people not know about you?
I like rap music from all the years of listening to it from my kids.

Pet peeve:
Negative people.

What did you want to be when you grew up?
An airline pilot.

Last vacation:
In January, an all-inclusive resort in the Riviera Maya in Mexico, with all the GMs of my Little Caesars Pizza stores.

Person I'd most like to have lunch with:
Warren Buffet.

Management

Business philosophy:
Spend a lot of time up front researching the franchise you want to go into business with. Once you go into business, focus on executing the business model, not changing it.

Management method or style:
Focus on the culture: mentor, train, communicate the expectation, and get out of the way. Let managers manage.

Greatest challenge:
Not trying to control everything.

How do others describe you?
Passionate, focused, energetic, and determined.

One thing I'm looking to do better:
Be more patient.

How I give my team room to innovate and experiment:
I try to ask a lot of questions, ask for a lot of feedback from my team members, especially those closest to the customer. We try things based on the feedback, implement, and measure the results. We also search for the best practices from other franchisees who are doing a better job than we are.

How close are you to operations?
The bigger we grow, the harder it is. I make sure I stay close to my partners, my GMs, and my operational leadership team, and visit as many stores as I can, as often as I can.

What are the two most important things you rely on from your franchisor?
The continuous sharing on operational improvements, and the testing and implementation of marketing strategies.

What I need from vendors:
Reliability with a commitment to a long-term relationship that gives us both a competitive advantage.

Have you changed your marketing strategy in response to the economy? How?
Each brand I operate has a different marketing strategy for economic challenges. I cannot control the direction they take, so I focus on what I have more control over: operations inside the four walls.

How is social media affecting your business?
There has been a paradigm shift in marketing and, not surprisingly, social media is becoming a much bigger piece of the marketing budget in every brand I operate in. Mobile is huge today and it is very exciting to me.

How do you hire and fire?
We are always looking for talent and we use all of the usual vehicles for recruiting. Our most successful approach has been to develop organically when possible. We try to hire right so that we keep firing to a minimum. But when the fit is not right, or someone does something to be fired, we try to be honest, fair, quick, and move on.

How do you train and retain?
Each brand has its own training program. We work on executing the programs. I have found that the better you train, the longer they stay. Better training gives your team members more opportunity for advancement. We are always looking for ways to get better at training and retaining. It is one of the things we track closely, especially in the brands that are growing.

How do you deal with problem employees?
We look first to see if we dropped the ball at our end and did not train them right. Then we sit down and talk with them, try to understand what the issue is. We set the expectations, give the feedback, and if it is still not working out, we document and move on. No one wins if both parties are unhappy.

Fastest way into my doghouse:
Not caring about our customers and the people you work with.

Bottom Line

Annual revenue:
$29.8 million.

2017 goals:
Open 7 to 8 new restaurants.

Growth meter: How do you measure your growth?
By same store sales comps, same store transaction comps, same store income comps, EBITDA (cash flow valuations), and unit counts.

Vision meter: Where do you want to be in 5 years? 10 years?
My vision is a leadership team that continuously develops our people, with a focus on growing our brands profitably to create more opportunities for our best GMs to become franchisee partners with us. During the next 5 years, I would like to keep growing all the brands we operate, adding units when it makes financial sense. My biggest focus will be bringing Jersey Mike's to Canada in a joint venture with the parent company. In the next 10 years I hope to have helped grow the brand to over 100 units in Canada, operated by franchisees.

How is the economy in your regions affecting you, your employees, your customers?
I have been doing this for a very long time. What I have observed is that it is a hard business to be in, and it has always been hard. But the political environment over the last decade has made things so much harder for all the people who work in this industry--the owners, the managers, and the hourly employees. The best way I know how to get through difficult times is to focus on the customers, the team members, and the company. Be as financially responsible as you can and try not to get too distracted by all the noise.

Are you experiencing economic growth in your market?
In Michigan yes, mainly because of the auto industry. However, in Ontario it is flat.

How do changes in the economy affect the way you do business?
It is a double-edged sword. When the economy is hot, it is harder to attract talent to this industry. When the economy is cold, the top line is challenging and it increases discounting. How you manage both of those scenarios can determine how well you do long-term.

How do you forecast for your business?
We use internal financial models we have created, based on what the unit economics look like for each brand. We look at the sales and customer count trend lines, project the estimated inflationary pressure we believe is coming, and consider what price increases we would consider taking, if any, and then input all this information into our financial model and plan our budget accordingly. We make adjustments to the forecasts as needed.

What are the best sources for capital expansion?
I have a great partner, Carl Chandler, who is our CFO and a CPA. He has been very successful at working with our local banks to secure our financing needs.

Experience with private equity, local banks, national banks, other institutions? Why/why not?
We like having long-term relationships with all of our business partners, including banks. So we have a track record of sticking with the ones we started with. We keep them honest by bidding out the business periodically, but our partners value us as much as we value them. So far that approach has served us well.

What are you doing take care of your employees?
We take care of employees the most by being financially strong and growing. Because we grow most of our talent organically, it creates a lot of advancement. We take the best care of our GMs. We have a unique profit-sharing program designed to give them deferred compensation that they can use one day to get into business for themselves. Carl and I are proud to have helped at least 15 of our past general managers become franchisees.

How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)?
All of this is a challenge. We are paying close attention to what everyone is doing and relying a lot on what others are doing in the brands we operate in. There is no simple answer. The rules are changing and things are very inconsistent in the industry right now.

How do you reward/recognize top-performing employees?
We celebrate success at every opportunity we can. Our monthly manager meetings and our year-end celebrations are the most obvious way.

What kind of exit strategy do you have in place?
I am working hard on succession planning. I have family in the business and do not plan to exit for a very long time. I love what I do, and I am focused on developing the current leadership team to carry on long after I'm gone.

Published: May 19th, 2017

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