IT'S ALL ABOUT THE DOUGH

Written on the 11 August 2010

IT'S ALL ABOUT THE DOUGH

WHEN Eagle Boys founder Tom Potter withdrew from the pizza chain three years ago, he left behind 200 stores and annual revenue of around $100 million. Starting fresh with a new bakery business, he tells Brisbane Business News about managing franchisees, changing strategies and the best advisors.

Tom Potter's approach to his new business Crusty Devil Bakehouse speaks volumes about the hard yards he put into Eagle Boys and the challenges of franchising.

“I only work three days a week, I do speeches sometimes and I just got back from three weeks playing golf in China – there’s no use going back into business to thrash yourself again,” he says.

“The thing was that back at Eagle Boys sometimes I had franchisees making a lot more money than me the franchisor, and the bit I made would be spent reinvesting.

“The important thing is that the business would need to be franchise-able and I don’t think Crusty Devil Bakehouse is but I certainly would consider partnership.”

After 20 years building the Eagle Boys empire, Potter made a checklist of goals for his next business and that careful planning has paid off – after less than a year in operation he now has 5800 customers every week across two outlets.

“I wanted to go into business on my own terms so before even thinking about what the business would be, I worked out what I wanted to achieve in a checklist that included lifestyle, percentage of my personal wealth to risk, the percentage of hours that were hands-on and mentally engaging, and the level of competition and opportunities,” he says.

“After I’d made the checklist I then had to decide what the business would be and I had no doubt it would be in food because that’s what I know, so I decided on a bakery. It’s something that’s gone backwards in Queensland in the last 20 years, it’s recession-proof and there’s a lot of opportunity.”

Crusty Devil makes all of its pies, pastries, bread and cakes on-site in its Carina and Cannon Hill stores, with a big screen that shows the daily production to its customers. He isn’t planning to open a third Crusty Devil Bakehouse but when it does expand it will likely follow a drive-through model.

Potter won’t reveal how much he received for the sale of Eagle Boys, but it’s fair to say his capital backing now would be in stark contrast to the $12,000 cash he used to open a pizza delivery service in 1987.

“I saw a niche market in country Australia right through New South Wales, Queensland and Victoria because home delivery pizza services didn’t exist, so that’s why I did it and opened the first Eagle Boys in Albury in 1987,” he says.

“I started the business with $12,000 in cash and my mother in partnership and she helped underwrite the funding of the first one. Over the next 12 months we opened two more in Wagga Wagga and Dubbo, and then we revised how we wanted to grow and decided it would be best to franchise.”

He attributes part of Eagle Boys’ success to a transparent and interactive relationship with franchisees, with a focus on financial backing for those who struggled.

“We ran very much an open book policy with our franchisees, discussing their opinions of the franchise and documenting the outcomes assessable to the points raised,” he says.

“You hear a lot of franchises these days where franchisees will tell you, ‘we never meet with our franchisor and when we do meet with them to raise our concerns they never do anything about it’.

“We’d have meetings and we were quite frank with them, saying ‘no’ then and there if something wasn’t going to happen.

“If a franchisee was going backwards and was struggling for cash, either due to competitive activity or they weren’t able to fill their bank positions, we did a means
test to supply franchisees with assistance.”

The support was either given by waiving franchising fees for franchisees that weren’t making profit, or through funding assistance that would focus on marketing to boost activity.

“It creates two things – a great deal of loyalty between parties and you don’t have people opening up franchises and 12 months later going broke,” he says.

“There will always be problems but it’s a matter of how you deal with them, whether it is a glitch in the economy, going through swings and roundabouts, but we had the systems in place that could keep the franchisees going.”

The real test for the business model came during the pizza industry price war of 1993-94, when around half of the Eagle Boys franchisees refused to take Potter’s strategic advice but would still ask for help.

“We had to remodel the business to have lower prices, increase volume and change the way we ran the business,” he says.

“About half the franchisees got on board with the strategy and were doing very well, but the other half sat back and waited until their stores went backwards.

“We couldn’t legally get franchisees to change their prices. In that situation we had to support them because even if they went under we’d still have to support them, whether we liked it or not.”

Potter points to four major changes he undertook at Eagle Boys as shifting from a delivery to takeaway-based business, store design changes, the two-minute pizza model and expansion into drive-through services.

“When I left the business it had just ticked over 20 years, had strong turnover, double digit growth and stores all over Australia, in New Zealand and opportunities in Asia. But because I had 100 per cent ownership of the company the banks were watching me, thinking what happens if I get hit by a bus?”

He had to consider how Eagle Boys would acquire the funding it needed to expand and whether he would stay on as an executive or leave.

“My original decision was to stay as chairman but it became apparent that if we got venture capitalists in we might see things differently and there could be clashes,” he says.

“Venture capitalists in general have a history of looking at the short-term, whereas for me if the business is having an off year, I know that if the model is right then in the long term it will do well, but these guys would be off the wall having seizures if that happened.”

Potter says he is not on speaking terms with the new board who were instructed by their lawyers not to talk to him, but he maintains strong friendships with a ‘substantial amount’ of franchisees, as well as ex-franchisees and the old board.

“I don’t miss it anymore because it was my time to go. Too many leaders or entrepreneurs stay too long or they don’t know when it’s time to step aside or step back. The main reason leaders don’t leave are control, power, ego or not having people to advise them to step back. I was lucky because the board I had was very honest and safe,” he says.

“Surround yourself with people who are unemotional, financially uninvolved with the business and only have your best interests at heart. I had a board of individuals who didn’t have shares in the company, who were already wealthy, very experienced and weren’t licking their lips with greed over the business.”


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