Growth | April 2011 | By Sam Oches

A New Kind of Mom and Pop

Family operated quick-serve businesses could be just the thing to help the industry move past the recession. But such businesses aren’t always a walk in the park.

David Rutkauskas was fresh out of college when he decided to help his father fulfill his dream of opening a deli in Tulsa, Oklahoma. The Health Deli, which opened on the base floor of an office building in 1987, became a family affair, with Rutkauskas and his parents all pitching in to shop sandwiches, wraps, frozen yogurt, and smoothies to the office tenants.

“We became hugely successful, we had a cult following, and we expanded to a couple more locations,” Rutkauskas says. Through one of the additional Health Deli units, Rutkauskas met his future wife, Camille, and, having caught the restaurant-industry bug, the two spun their success with Health Deli into another fast-casual concept, Camille’s Sidewalk Café, which debuted in 1996.

The rest, of course, is history; David and Camille Rutkauskas turned their family formed operation into Beautiful Brands International (BBI), a global franchisor of 12 limited-service and casual-dining brands, including Camille’s, FreshBerry Frozen Yogurt Café, and Blazing Onion Burger Company.

The success of BBI reflects the power that a family run business can possess in the restaurant industry. Whether it’s a husband-wife team or a multigenerational operation, family businesses are helping to redefine the industry. And in an age when Americans are fed up with a corporate world that helped drive the nation into a recession, an innovative, refreshing take on business is just what folks are looking for.

“The last 36 months, particularly in the restaurant industry, have been brutal,” Rutkauskas says. “[But] we’ve been able to thrive in this market, and 2010 was our biggest revenue year we’ve ever had.

“The reason we were able to do that is we are so close, we know each other, we can talk freely, we don’t have to have a ton of meetings to discuss something. … That’s because we’re family—we think the same way, we want the same things.”

I Know the Kind of People They Are’

Rutkauskas describes his business attire as “jeans and a J. Crew shirt untucked,” and says the BBI environment is laid back, fostering creativity and innovation. BBI, he says, is in the “relationship-building business,” and that that’s the reason “we’re getting good quality deals done and we’re building great restaurants around the world.”

“We’re having a lot of fun along the way,” he says. “You see a bunch of smiling faces around here all day; people like this environment, we genuinely love each other, and we have great respect for each other.”

Although not all of BBI’s staff is related, Rutkauskas says several family members do populate the company, including his sister-in-law, Carolyn Archer, who is vice president of operations for BBI. Rutkauskas points to Archer as the biggest risk he’s taken for the sake of family business, noting that he hired her when she was just 16 and “had been working at Sonic for two weeks.”

Twenty years later, though, Archer, who is also a FreshBerry franchisee, is a critical part of the business, Rutkauskas says, responsible for much of the company’s marketing and social media success.

“If Camille and I had looked at 100 resumes and brought people in that we hadn’t known, there would have been a time that we had to get to know them and get to know what their strengths are,” Rutkauskas says. “The learning curve would have been much longer. Having worked with my family for 20 years … I know the kind of people they are. I know what their core strengths are. Ramping up our business has been so much easier because there’s not a lot of red tape here. It’s helped us achieve our goals much quicker than we would have if we had a bunch of folks that we hired that we didn’t know.”

Larry Colin is a principal at Faminomics LLC and the co-author of Family, Inc. with his wife, Laura. He says family managed companies like BBI will “outperform non-family businesses time and time again” because of the opportunities provided to employees and the ability to communicate with the top level of management.

“You have an opportunity to have a vision and a blueprint in your hands in making a difference,” Colin says. “Today, very few people are satisfied because they don’t get to set a vision, implement anything, and get rewarded both emotionally and financially.”

While Rutkauskas touts the fact that the family ties of BBI don’t get in the way of doing business, Colin’s experience paints a cautionary tale of how families must maintain certain safeguards when operating a family owned company. Once the CEO of Colin Service Systems Inc., an office-cleaning service that was founded by his grandfather in the early 1900s, Colin says the last seven of his 30-plus years with the company were awful, marred by painful disagreements with his brother, the co-owner of the company.

Colin Service Systems, which became a nearly $200 million business, was sold in 2004.

“The good part about family business is you bleed money and power,” Colin says. “The bad part of the family business is that you bleed money and power.”

The safeguards Colin recommends family businesses adhere to in order to protect the longevity of their own organizations include keeping up regular communications with family members, holding retreats at least once a year to get some rest from the business, and seeking outside help that can propel the business forward.

“What happens with most family businesses is, because you’re working with family, you have tunnel vision,” Colin says. “You have no new thoughts. You don’t move forward. So you need to go to trade shows together, bring in an outside speaker to talk to you, [or] go to a family business expert.”

Of course, assuring a family business will succeed starts with the foundation of the company. Colin warns anybody interested in starting a family business to think twice about the family members they plan to invest their time and money with.

“You have to like them. If you don’t like them, don’t work with them,” he says. “The worst part about family business is if it goes bad, you’ll never know your children’s children. … And what you do, besides hurting family relationships, is you ruin the value of the business without knowing it, because everybody is watching your soap opera, and the ones that are laughing and smiling about it are your competitors.”

Ron and Michelle Rye are two quick-serve franchisees who know that the strength of a family business relies heavily on the strength of the family’s personal ties. The husband-wife duo own two TCBY and one Stevi B’s units in Arkansas.

Ron says he and Michelle balance each other in the business; he takes care of big-picture, “beyond-the-four-walls” matters, while Michelle takes care of “the daily operations and grind.” Despite their divided tasks, Ron says he and his wife always make sure to be the cohesive core at the center of their business.

“If you go into a business without a strong marriage, it could kill it—not just the business, but the marriage, too,” he says. “I think it’s very important that if husband-and-wife teams get involved, they need to have a check on how strong their marriage is. There are times when I completely disagree with what she’s saying, and there are times when she’s got that with me.”

The Ryes say there are two factors of business that are especially important for family members to be on the same page with when going into business together: money and time. All participants in the family business must understand “what a lot of money is,” Ron says, and just how much time they’re willing to commit to the business.

“Sometimes you have that rough day and things are going kind of odd, and he could say, ‘I don’t want to talk about business, I’m going to watch football,’ and I still need to talk about it because there are things that need to be resolved before a certain time period,” Michelle says. “That’s the only bad thing; it doesn’t leave you, it’s always with you. You can’t really escape from it. It becomes like a child to you, like another member of your family.”

Other members of the family, especially those who are younger, are certainly something to consider when running a family business, Colin says. He says all children should be involved in the company from a young age, but that each should earn his keep.

“Any kid with an entitlement mentality—if any relative has an entitlement mentality—pass on them,” he says. “An entitlement mentality is not fixable. The only way you can fix the entitlement mentality is if the person goes into the real world and gets beaten up in the real world.”

‘From the Time He Got Up Until the Time He Went to Bed’

In an industry as old as quick service, successful businesses that have been passed down through several generations are common. In fact, that’s how Tommy Haddock, the second-largest Bojangles’ franchisee, became a critical part of the chicken-and-biscuit concept’s success—kind of. Haddock married into the Bojangles’ business, wedding the daughter of Jack Fulk, one of the brand’s founders. He and his wife, Donna, own 44 Bojangles’ units in North Carolina and Virginia through their company Tri-Arc Food Systems.

And the family’s Bojangles’ blood continues: Tommy and Donna’s son, Justin Haddock, has been a Bojangles’ franchisee for five years, introducing the brand into the Alabama market.

Tommy says he and his wife never forced their kids to participate in the family business, allowing them instead to “blaze their own trail rather than have to follow in our footsteps.”

“The biggest thing is growing up in the household, since my wife and I both work in the company, he heard Bojangles’ [news] from the time he got up in the morning until the time he went to bed at night,” he says.

Indeed, a life of constant Bojangles’ talk made an impression on Justin; when the youngest of the Haddocks’ two sons went to business school at Appalachian State University in Boone, North Carolina, he learned business principles in class and then “naturally related in my mind how they apply to the restaurant business,” Justin says.

After running a sub shop in Boone for three years, Justin decided to work odd jobs in Bojangles’ units his dad did not own before becoming a franchisee for the brand. Although Tommy offers support to Justin whenever necessary, he says he works hard to make sure everyone in the system knows Justin’s company is not an extension of his own.

Justin, meanwhile, takes advantage of the wealth of knowledge only a phone call away.

“The biggest advantage is having a direct line to him, being able to pick up the phone and say, ‘Hey, this is an issue I’m having,’ or get his opinion, and always have that 30 years of experience to draw from,” Justin says. “There weren’t many things that came up that they had not dealt with in the past.”

Justin’s following in his parent’s footsteps to become a Bojangles’ franchisee is something one expert says the franchise industry will see much less of in the coming years. Karen Spencer, CEO of franchise consultant Fran Systems LLC, says more franchise units are being sold off today than ever before as “franchise kids” trade in units they inherited from their parents.

“The reason why there’s the biggest change ever that’s about to occur is because the second generation followed what their parents did,” Spencer says. “This generation coming along is not going to follow their families.”

Spencer says many “franchise kids” are choosing to get involved with newer, more fashionable franchise brands than the stalwarts their parents and grandparents worked in. And the experience and knowledge they possess from growing up within a quick-serve system, Spencer says, is something brands shouldn’t overlook.

“I believe that the … franchise kids are shining stars, and there are other college kids that I truly believe these franchise companies and the franchise industry are underestimating,” she says.

Colin says family ties in quick-service businesses could be just the thing to drive the industry out of the downturn that’s been plaguing it for the last few years. According to the NPD Group, the U.S. had 5,551 fewer restaurants in fall 2010 than in fall 2009, including 2,122 fewer quick serves.

“I think there will be more family businesses than less family businesses because people know they can’t count on corporate America,” Colin says. “The only way to do it is to let the family join, sweat together, and work together toward the goal of building a business and a salary.”