A surprising life in franchising
He always meant to quit working at Jack-in-the-Box and pursue his goal of becoming a doctor in the United States. Instead, he found success beyond his wildest dreams...in franchising.
Growing up in Bombay, India, Harshad Dharod learned early to work hard. He was very young when his father died and at five years old was pedaling a bike 10 to 15 miles a day to deliver milk to 30 families. He earned about $5 to $7 a month to help support his family.
In school, Dharod was always a top student, number one in his class. In 1979, at 17, he left Bombay to live in the United States. He'd come with his mother and his older brother, after years of urging by his uncle, his mother's older brother, who had moved to the U.S. in the 1960s.
When he arrived in Los Angeles, Dharod planned to continue his studies and become a doctor. But the first task for him and his older brother, Sunil, was to earn enough money so they and their mother could move out of his uncle's house into an apartment of their own.
He walked the streets of Los Angeles for eight hours every day, filling out all the job applications he could. After 22 days, he got a call from a Jack-in-the-Box in Culver City. He went in for an interview and started work the same day.
He planned to stay there for six months, while his family settled into their new life in Los Angeles. Then he'd enroll in a college and pursue his dream of becoming a doctor. But when Dharod told his boss he was quitting, something happened--and kept happening: he was offered a promotion. "Every time I was going to go back to college, they promoted me. So I said, 'Okay. I'll go after six more months.'"
Dharod moved from crew member to shift leader to assistant manager to manager to training supervisor. Years passed. "I was doing so well, I never wanted to go back to become a doctor. I really liked working with Jack-in-the-Box."
Seven years later, Dharod had an opportunity to buy his own Jack-in-the-Box in Norwalk, 17 miles southeast of Los Angeles. It was 1986 and he needed $140,000. "I had no fear. I didn't know what fear was at that time. I wanted the store. I didn't have any other thought in my mind except getting the store, whichever way I could get into it."
He scraped together every penny he could, from savings, credit cards, and overdrafts, and managed to come up with the required amount. "I was so excited, because I knew that once I had one store I could do a lot more with it."
He was right: In the next few months, sales at the former corporate store rose almost 40 percent, which produced a visit from a top company executive. As Dharod recalls, "He looked at my P&L and said, 'We made a mistake franchising this store!'"
After about six months, Dharod bought another store. In five years, he had amassed 19. En route, he partnered with a former Jack-in-the-Box area manager who had overseen 80 to 90 stores in the San Francisco area. They were a good team.
As they continued to buy new units, Dharod says he was the most aggressive, fastest-growing franchisee in the system. "Every single time we bought a store, we increased the sales anywhere from 30 to 40 percent the first year."
Success in fast food is no secret, says Dharod. Guests come to your restaurant without high expectations. "As long as you give them quality food, a friendly environment, a clean store, and provide proper service," he says, they'll come back.
The other critical factor for Dharod, always, is his people--and his focus on building a team through personal connections. "I was very committed, dedicated, and I created a good team in every single store," he says. "The goal was taking care of the customer. Once I was connected [with his employees], sales and all that was pretty much automatic."
And there's the other obvious factor: most of those stores were purchased from corporate. "A district manager would come in once a month. When I had one store, I was there every single day, 10, 12, 15 hours a day," says Dharod.
Letting go for success
When he bought that first store, Dharod worked 7 a.m. to 10 p.m., 7 days a week. "I didn't know how not to work hard," he says. And it was the only way he knew to operate the store. Came the dawn.
One Sunday morning, he had a house full of relatives preparing for a trip at Disneyland. They wanted Dharod to join them. "I said 'No, I can't. I have my baby to take care of. Who's going to take care of my customers?' But they forced me so much--and they wouldn't leave."
He finally agreed that if they left, he would meet them later. He went to his store and stayed until after lunch. During the four or five hours he was there, he met with his people and provided them with specific instructions for any foreseeable situation: "If this happens, do this; if that happens, do that."
When he left the store at 1 o'clock, says Dharod, something happened in his mind, and he found himself thinking, "You know what? You could leave the store and trust your people and teach them how to run the business. Then you can do some other things," he says. "I learned to delegate authority, teach them how to run the business. And once you teach them, then you can trust them, and then you just guide them."
For Dharod, that significant. "That was the break. After that, I learned to take some time off on Sunday," he says.
Instead of coming in all day, he learned to visit the store on a daily basis and build a team with managers, assistant managers, and shift leaders--a model he would follow as he bought new stores over the next six or seven years. "If that day hadn't come I don't know when I ever would have learned that you could take the time off."
Do the right thing
"I never ran the business to make money," says Dharod. "I ran the business to have fun, and have other people have fun--my employees and my customers." Making money is not an object, he says. Instead, "I try to become the best out there."
Dharod says there's only one thing he's worried about: making sure all the customers are taken care of. In retail, things can be viewed in pretty simple terms: "Who's giving you the money?' he asks. "Customers. At the end of the day, you have to take care of them."
But that requires great employees, so he worries about that, too, but more like a parent than a boss. He thinks a lot about taking care of the people working for him. "How can I make them better? What can I do for them?" he says. "This employee's doing well, how can I reward him? What can I do to keep them? What can I do to build a solid team? What can I do to build a good structure for the next five years? Everything else just follows."
What followed was winning the company's #1 Award, Overall year after year. That earned him two Rolexes and two diamond rings. "They had this award program for four or five years, and every time I won it. After that, they didn't have that reward system any more," he says.
"Most of my planning goes with the people and building teams," he says. "I never, even now, know how much money I have in the bank," he says. "Of course I review the numbers and everything else every month to make sure we are going in the right direction. But in a whole month I do that two to three hours, and then I forget about it and focus on customers and employees." When it comes to producing top results, he says of this approach, "It never fails."
But there are some things you cannot plan for. In January 1993, E. coli associated with Jack-in-the-Box stores in Washington state killed four children and infected a reported 700 others in the region. Sales of the brand immediately plummeted nationwide; his own were off about 40 percent.
"When that happened we were scared," he says. "The first year was very tough. We didn't know if we were going to survive or not," he says. It was more a matter of holding on, working hard, and hoping for the best. Any expansion, of course, was dead in the water. "No one would do any financing. So all our expansion on hold. We didn't do anything for until '96-'97."
After a year, things had begun to improve. His year-end sales were down about 11 to 12 percent, and it took almost two years to return to pre-crisis sales numbers. But Dharod had weathered the storm without closing a store.
III. Good-bye Jack, Hello John
In 1999, Dharod and his partner sold their Jack-in-the-Box stores back to the company. It was time for something new. Dharod had purchased a Papa John's franchise the year before, after a friend suggested he visit a restaurant and try it out. He liked the pizza and the brand enough to buy a store.
A couple of months later, he signed an agreement to build 25 Papa John's stores in Los Angeles County over 5 years. But when he'd built 14, he put a hold on growth. He is still on hold today. "Nobody's building stores here in the last three to five years," he says.
As Dharod saw it, the market for Papa John's had slowed. The other franchisees in the Los Angeles area had stopped expanding, and while he was building new stores they were closing some of theirs. Dharod says he saw some 10 or 20 stores close in that market. His stores continued to perform relatively well, he says. "We run about 25 percent better than our market in Papa John's."
Papa John's, he says, has not had as strong a presence on the West Coast as it has elsewhere. After witnessing a steep decline in the brand's San Francisco, Sacramento, and Fresno markets and a slowdown in his own, Dharod chose to work on maintenance, not growth. "Instead of putting a lot of focus on building, I said 'Let's just focus on operations in those 14 stores we have.'"
Missing for Dharod in the LA market was the regional boost of a regional corporate media campaign. "There's no reason to build if you're not going to go on TV and you're not sure about how the other franchisees are going to do around you."
He says the four or five franchisees in his market were pretty much all on their own. "If you're bringing in a new brand, you need a lot more corporate support. They have to have some kind of strategy how they're going to penetrate the whole market." He says Papa John's did pretty well at that his first two years (and that their pizza is still better than at Domino's and Pizza Hut), but he doesn't feel the company has succeeded at getting its message out to customers.
Despite all this, he still believes in the brand. In the last five to seven years, says Dharod, "I did not close even one store. I kept at 14. If I close a store, it's a pretty negative advertisement. So I don't believe in closing the restaurants. I said, 'Let's hold onto it and let's see what happens in the future with corporate.'"
Today, with new CEO Nigel Travis (former president and COO of Blockbuster) on board as of April 2005, he says, "It looks like they're going to start doing a lot better.
IV. "All in" (again!)
In 1999, six months after he sold Jack-in-the-Box, Dharod signed a deal to become a Carl's Jr. franchisee. "That was probably the biggest and the best move I made in my life--becoming a part of the Carl's Jr. system," he says.
Instead of buying just one, he jumped in with both feet, signing on to buy almost 70 stores in Los Angeles County. "It's kind of a dream come true," he says. "They're right next to each other, and so easy to manage and operate." The only remaining challenge was to secure the financing. That took some doing, and included a family adventure (see below).
After agreeing to acquire the 67 stores, Dharod says he had only 45 days to close--and needed a loan of about $70 million to $80 million. "I never had thought in my mind we would not be able to close it. There was not even a question. I was very confident."
But in his first week speaking with banks, he did not get a good response. He contacted an old friend in the banking industry who had helped him finance his first store. Soon his prospects began to improve.
Dharod had several things going for him: his track record with store sales at his 19 Jack-in-the-Box stores was good; so was the price he'd gotten for selling them. Also, he had gotten to know several bankers during the previous decade as he was buying new stores. "I had a pretty good reputation. I met with them personally and spoke to them, building some kind of relationship and getting connected, and giving them assurances that they would make a lot of money with me."
But the biggest factor in clinching the deal, he says, was his plan to put everything he had from selling his Jack-in-the-Box stores into the deal. "It's not like I was going to keep some. All the money I got from the sale I was going to use as a down payment." This he said, along with everything else, gave the lenders the comfort they needed to move ahead.
Soon, with help from his banker friend, a loan was syndicated from three or four lenders. "Luckily, they trusted me," says Dharod, and yes, they are making a lot of money with him. Sales at his 66 Carl's Jr. stores (he closed one) arose bout 20 percent over the next two years.
And that family adventure? One day he received a phone call from his attorney, telling him they'd be meeting in two days to close the deal. But, Dharod protested, he hadn't seen all the stores yet. "Why don't you just get in a car and do it?" his attorney said.
Dharod quickly had someone in his office print a list of all the restaurant addresses and set him up with a map. He put his 9-year-old daughter, Neha, in the car with him and just started driving. "It took us about 14 hours, and we visited every single store. In one day we visited 67 stores," he says. "When we came home, my wife asked my daughter, 'Where did you go?' She said, 'Mom, I went to Carl's Jr., Carl's Jr., Carl's Jr., Carl's Jr....'"
During that sojourn, he went inside each one to see for himself what he was buying. "Being in the restaurant industry, you could walk in and in five to seven minutes look at the whole store. If anything's wrong you could tell," he says. "I was so pleased when I finished. Carl's Jr. kept all the stores in very good condition. Sometimes franchisors, when they try to sell stores, suck everything out of them. These restaurants were so well managed, I was so impressed."
It was a great way to start a relationship, he says. "I've been very pleased with corporate. They've been smart, and extremely nice people to deal with." Today, he's putting his sales and marketing savvy and success to work for the corporation (Carl Karcher Enterprises) as a consultant for company-wide marketing and new product proposals.
"Right now we have a more than $120 million company," says Dharod. "I think I'm the largest franchisee of Carl's Jr.
And health-wise (EBIDTA), we might be in the top five to seven franchisees in the country." Carl's Jr., Carl's Jr., indeed.
And he's not done yet. "If they sell them, I would buy more stores. The brand is very good, and customers are very loyal," says Dharod. In fact, customers are so loyal that he says his product mix is almost exactly the same. "I sell about 2,000 charbroiled chickens or 1,500 barbecue chickens. Sales sometime don't fluctuate more than four or five weekly, he says. "The food is so good, it's like a craving, and you've got to have it." So customers come back like clockwork, himself included. His own favorite craving? Santa Fe Chicken, "I have to have it at least once every two or three days."
V. A helping hand
At 44, with 4,000 people working for him, Dharod is far from ready to cash in his chips and retire. Quite the opposite, in fact.
"I still want to work, meet my people, and make my team bigger," he says. His goal now is to "become a billionaire and have the people working for me become millionaires." Specifics are still in the early stage, but his intentions are clear. "I have a lot of equity plans going on that could be worth millions in five to seven years."
He's also looking to start a program for general managers and district managers. And if a future district manager wants to become a franchisee, Dharod is willing to consider becoming their financial partner. "They would buy one store, and I would show them how to go to 20 or 50 stores," he says. "I went that route, so I know what it takes. I want other people to experience that."
Helping others is a big part of Dharod's focus in building the business. "The goal is not to make money, but to teach people how to get to the next level." People stuck in doing the same things have other options, he says. "Life is a lot more fun if you set the goals higher, and keep going for those goals."
He's open to new opportunities in the restaurant industry and says he's capable today of buying 500 restaurants, whether a franchise store or a chain. And he's preparing the money, resource, and structure to do that if the right opportunity comes his way., and is already talking to some banks to prepare a line of credit of up to $70 million. "A lot of people want to give me the money," he says. "Any acquisition for $300 to 400 million, we could acquire in 60 to 90 days and close it."
Dharod also donates money to both individuals and institutions. He and his family are Jain Hindu, and he has made significant donations to support the construction of a temple in Anaheim. He also has many relatives in India, and helps to support some families when they need it. "One of my cousins, just passed away about two months ago. I'm supporting the whole family so they don't have to go through what I did when I was five years old and had to go to work. I tell them to go finish their education."
Locally, he participates in helping the Red Cross and has done fund-raising at his Carl's Jr. stores for tsunami victims. "We helped a lot of kids. Any opportunity we get, we try to do whatever we can do in the community," he says. "With that part, I'd like to do more in my future, in the later part of my life."
Franchising has worked out well for Dharod, and he's passed the bug on to his family. His brother Sunil owns 40 to 50 stores in Dallas (Burger Kings and Blockbusters). And, adds Dharod, his older brother played a key role in his success. "He helped me a lot. He was pretty much like a right hand. He was just there to tell me, go ahead, go ahead, and go ahead. Just go do it, and whatever it takes we'll be fine, we'll figure it out."
His uncle, who came to the U.S. in the 1960s and worked for IBM, now owns Jack-in-the-Box and Applebee's stores. In all, the family now owns about 250 restaurants-his cousins and uncle own about 25 to 30 stores. "They were all working for IBM, etc. I showed them what Jack-in-the-Box does, so they bought a store and got out of that business and are now are franchisees. They pretty much followed my footsteps."
And what does his uncle say about Dharod today? "He's very proud. He always meets me and tells me, 'Good thing you didn't become a doctor!'" laughs Dharod. "He's the one who used to tell me: 'Why are you working at Jack in the Box? You need to quit and go finish your school.' And I'd keep saying 'Yeah, I'm gonna do it after six months."
And his mother? She still lives in Culver City. "She's the one who taught us. A lot of stuff you asked me, How did I learn this and this? She taught us to work since we were five years old. She worked herself very hard also.
Dharod tells his children not to become a doctor. While the work they do is valuable and commendable, "they work so hard, sometimes 72 hours. I just can't imagine how they do that. I think it's a lot more hard work than what I do right now."
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