5 Billionaire Franchisors and How They Did It
Following up our article on the Top 10 Most Famous Franchise Founders of All Time, the FranchiseHelp.com team turns its attention to a more contemporary subject: today's billionaire franchisors. Scouring the ranks of living billionaires, we worked to identify which masters of megabucks amassed their tremendous wealth through franchising (that is, as a franchisor). While not an exhaustive list, the rundown below profiles five titans of industry with franchise roots and net worth levels between $1.3 and $6.5 billion.
Check out our list of Billionaire Franchisors and be inspired (or at least amused) by their stories...
Michael Ilitch -- Little Caesars Pizza
Net Worth: $1.5 Billion
Detroit native Michael Ilitch, founder of the pizza-pizza famous Little Caesars Pizza franchise, had a three-year run in minor league baseball but was forced to retire with a knee injury (ah, we've heard that one before). With his baseball career finished, Ilitch and his wife Marian started Little Caesars Pizza Treat in Garden City, Michigan. An entrepreneur with an eye for innovation, Ilitch created a carry-out pizza concept with no tables and chairs. This cost-saving wrinkle -- along with operational touches like a conveyor belt to warm pizza and keep up with customer demand -- allowed Little Caesars to locate franchises where quick-serve pizza had never been served before (pizza lovers in sports arenas, dormitories, and military bases, you have Little Caesars to thank!). Of course, it helped that Ilitch knew how to market with the best of them -- who could forget the famous "Pizza! Pizza!" two-for-one deal?
Ilitch is now the big man in his hometown, enjoying life as the billionaire founder of an iconic food concept, the owner of both the Detroit Tigers and Detroit Red Wings, and the rumored potential buyer of the Detroit Pistons. Despite the rough economic climate in the city, the Tigers made Forbes' list of most valuable sports teams and Ilitch turned the 2005 MLB All-Star game into the most profitable All-Star game to date. TheLittle Caesars Pizza franchise, meanwhile, is succeeding during tough times because of a continued focus on operational efficiency and ingenious marketing programs like their $5 Hot-N-Ready pizza deal.
Jack C. Taylor -- Enterprise Rent-A-Car
Net Worth: $6.5 Billion
This college dropout and World War II Veteran was working for St. Louis Cadillac when he had his billion dollar idea. Taking the leap into entrepreneurship, Taylor started a company that provided replacement cars to people who had suffered stolen or damaged vehicles. The idea was born out of necessity, as Taylor recognized the need for such a service from his vantage point at the Cadillac dealership, but the venture also benefited immeasurably from a fortunate change in law: in the 1970s, courts ordered insurance companies to provide replacement cars and Taylor's business skyrocketed. Enterprise's strategic focus on replacement vehicles vs. vacation rentals, meanwhile, proved a competitive advantage over industry rivals as the most recent recession took hold: regardless of the economy, insurance companies must cover replacement cars after accidents and thefts; in the case of consumers lacking sufficient or quality insurance, replacement cars are still paid for (out-of-pocket), as few people can afford to take time off from work due to car troubles in a bad economy.
This self made-billionaire started out with just seven cars and a single employee, and grew his company -- which is amazingly still privately held by the family -- into the largest rental car provider in North America (and one of the largest private concerns in the world), employing some 68,000 people and capturing nearly $13 billion in annual revenue. The organization today, formally named Enterprise Holdings, Inc., encompasses the flagship Enterprise brand as well as the National Car Rental franchise and Alamo Car Rental. Taylor built his empire by the motto, “Take care of your customers and your employees first, and the profits will follow." True to this vision, the company has been recognized on multiple occasions for its analytical approach to customer service, highly ranked management training program, and dedication to employee advancement. In recent years Taylor has turned his attention to philanthropic causes, donating over $200 million to local communities, including $50 million to the 50 Million Tree Pledge, $40 million to the St. Louis Symphony Orchestra, $30 million to the Missouri Botanical Garden, $25 million to renewable energy research and $25 million to the Enterprise Rent-A-Car Scholars Program.
William Barron Hilton -- Hilton Hotels
Net Worth: $2.5 Billion
Son of hospitality legend Conrad Hilton, this hotel heir and World War II Navy veteran is the former Chairman of Hilton Hotels and the currently embarrassed grandfather of Paris. Initially refusing a job in his father's hotel business, William Barron Hilton tried his hand at a number of occupations and businesses, but -- in what will no doubt come as a dramatic shock to you, dear reader -- he was ultimately persuaded to follow in his Conrad's footsteps. By 1966 William Barron had ascended to the presidency of Hilton Hotels and had dedicated his career to the expansion of the empire.
If that sounds like fun, you don't know how to do fun the Hilton way! While working for the family hotel chain, Barron did a little moonlighting as the founding owner of the San Diego Chargers (playing back then in Los Angeles) and as a key player in the merger of the AFL and NFL. If this weren't exciting enough, in 1979 Barron was thrust even more fully in the public spotlight as his father's will called for the vast majority of the hotel tycoon's fortune to go to his charitable vehicle, the Conrad N. Hilton Foundation. Barron contested his father's will, eventually securing his inheritance.
The Hilton Worldwide group today features multiple hotel franchise concepts, including as Hilton Garden Inn, Hilton Homewood Suites, and over 500 Hilton Hotels and Resorts. Oh, and not to worry -- all is well today with the Conrad N. Hilton Foundation: after watching granddaughter Paris' entitled antics for over a decade, Barron threw in the ancestral towel, announcing in 2007 that he would be leaving all but a tiny portion of his fortune to the foundation his father had established.
Fred DeLuca -- Subway Sandwich Shops
Net Worth: $1.8 Billion
The ambitious Fred DeLuca opened his first sandwich shop in 1965 with $1,000 from family friend and now-billionaire Dr. Peter Buck. Originally called Pete's Super Submarines, Subway was born out of necessity, as a vehicle to pay for the 17-year-old DeLuca's college tuition (and as an outlet for Buck's hunch that subs were going to be... big). As the famous tale goes, the duo sold 315 sandwiches on day one, opened their second store a year later, and never really looked back.
Shooting for dramatic expansion from the start (a goal of 32 stores in under ten years), DeLuca and Buck turned to franchising as their engine for growth. You might say it worked, as Subway has grown to become the largest restaurant chain in North American (and, soon, the world). Boasting over 34,000 locations across 96 countries, Subway Franchises continues to expand at a dramatic clip, bolstered by growing consumer desire for healthy food and slam-dunk marketing campaigns like the $5 footlong and weight-loss phenom Jared Fogle.
Unlike most of the other billionaires on this list, DeLuca is not yet a senior citizen and does not like celebrity attention. "People on the street would recognize me, but I don’t think I’d want that." Great sentiment, but how often is your local billionaire just walking down the street?
John W. Marriott, Jr. -- Marriott Hotels
Net Worth: $1.3 Billion
J.W. Marriott Jr. serves as Chairman and CEO of Marriott International -- a global hospitality chain with over 3,000 properties and 300,000 employees. While he did inherit his father's name, J.W. Marriott Jr. was instrumental in making that name representative of the global brand it stands for today, transforming Marriott into one of the world's most successful hotel franchises in the process.
Shortly after joining Marriott in 1956 (a time when the company was best known for its Hot Shoppes restaurants), J.W. Jr. was tasked with running the business's very first hotel property. Turns out he had a knack for this hotel thing: by the late 1970s, J.W. Jr. had achieved outstanding success in the hotel market and, seeing the potential to grow the company's footprint, he turned to franchising to fuel Marriott's expansion. Of course, Marriott never fully abandoned the company's restaurant roots, hitting some home runs with side ventures like the Roy Rogers franchise (founded by Marriott in 1968 and sold to Hardees in 1990 for $365 million).
Today the Marriott Hotel chain of franchises includes Courtyard by Marriott, Fairfield Inn, Marriott Execustay, Residence Inn, SpringHill Suites, and TownePlace Suites. Other famous hotel brands managed under the Marriott banner include Bulgari and the Ritz-Carlton. Yeah, fair enough: famous father or not, this guy earned his billion.
A Break Down of Franchise Royalty Fees
When you first start your franchise you typically pay a franchise fee upfront. This will cover a variety of things that depend on the franchise you're dealing with, but often it will go towards initial training, marketing, and the rights to use the franchises logos, names, systems, and products. But that's not the only fee that franchisees will pay to a franchise. In addition to the initial franchise fees, the vast majority of franchises will charge their franchisees royalties that can come in one form or another. These royalties will often go towards ongoing training, sales of goods directly from franchisor to franchisee, and advertising and marketing efforts. The exact terms for these royalties are set out in your franchise agreement, but they come in a few common forms.
Running a Franchise from Home - Is it Right for You?
The U.S. Labor Department's Bureau of Labor Statistics recently conducted a survey of home-based businesses and estimated that there are just over four million self-employed, home-based workers. (The number of franchised businesses in this total was not calculated.) However, the National Association of Home-Based Businesses, in Owings Mills, MD, puts the number at closer to 50 million people. Whatever the accurate number is, it is a number that everyone agrees will only continue to rise.
Three Keys to Franchise Success
The first is to understand the key drivers of success in your business -- that is to say, the three or four major strategies or operational processes that make up the engine of profitability and success for your organization. As an example, for a restaurant these factors may include things such as speed, consistency, freshness, cleanliness and friendliness. For an auto parts store the key drivers will probably include inventory availability, customer service, expertise and pricing/margins. Once you understand the key drivers, it is critical that you focus on them incessantly and help everyone in your organization understand that it is their responsibility to make sure those drivers are the top priority for them every day at work.