If you’re a fan of Domino’s Pizza, you can thank the moderate-sized small business loan its co-founders used to start the world’s second-largest pizza franchise. That’s right, Domino’s Pizza, currently valued at several billion dollars, may never have come into existence if Tom and James Monaghan weren’t able to borrow funding to purchase a small, struggling pizzeria.
Tom was studying architecture at the University of Michigan in 1960 when he and his brother secured a $900 loan, which had the same buying power as roughly $7,240 in 2016. The loan allowed them to purchase DomiNick’s in Ypsilanti, Michigan, an investment intended to help Tom pay his tuition. Tom and James had to cover the $500 down payment on the store as well as the purchase of a Volkswagen Beetle, their first delivery car.
The source of the loan is not clear but it seems that the down payment and car purchase assured the provider that the borrowers were committed to the venture since so much of their own money was already involved. Another likely factor in the decision to approve the loan was James’ full-time job as a postman. New business owners are often encouraged to keep working another job during the first few months in business so they don’t have to dig into the business’s revenue to cover personal expenses.
James reportedly had no desire to quit his job, even after agreeing with Tom to split work hours down the middle. If the loan provider wasn’t already convinced, the deal was sealed by the store’s close proximity to Eastern Michigan University.
BITING OFF MORE THAN YOU CAN CHEW
The brothers anticipated a massive amount of demand, but the business they received actually exceeded their expectations. James was having so much trouble balancing the demand and his day job that he traded his half of the business to Tom for their delivery car just eight months after opening the store.
“The pizza business was losing so much money I never got back into architecture,” Tom said in 2012. He couldn’t cover monthly expenses and his employees were so tired of dealing with thieving college students that on Sunday nights, their busiest nights of the week, some of them wouldn’t even show up.
But Tom had a loan to pay off, so that meant dedicating himself to making the best pizza in town and preventing his drivers from being shorted. He found the formula for the best sauce, purchased high-grade toppings, flour and cheese, and guaranteed speedy delivery.
A REPUTATION THAT WAS NOT TO BE MESSED WITH
College kids sometimes refused to pay drivers and even stole pizzas from parked vehicles while drivers were busy with customers. In his 1986 autobiography, “Pizza Tiger,” Tom wrote that if someone didn’t pay up, he wouldn’t call the police. “I just went and demanded the money,” he said, noting that he “didn’t hesitate to swing a punch” if his request was not granted.
As for those that stole from parked cars?
“I’d hide in the back of the car the next time it went to that neighborhood and wait for them to try it again. I’d carry a meat-tenderizing mallet or a pop bottle as a persuader, and that approach always solved the problem.”
THE BIRTH OF A WINNING STRATEGY
After perfecting his menu, Tom realized that the quickest way to make money was to open as many locations as possible. His plan was to have stores in multiple neighborhoods of a single county so that nobody would have to wait more than thirty minutes for a delivery. As Tom proved, this strategy works best when those neighborhoods are occupied by college campuses and military bases. He purchased locations right outside the University of Michigan and Michigan State that would soon become the busiest pizza delivery services in the country by 1965. Four years later, Tom had 44 stores, 32 of which opened in the first ten months of the year.
Tom’s rapid success proves how vital it is for restaurants to purchase additional property if they wish to cement a new reputation and increase business. Restaurant business loan companies are well-aware of how lucrative this investment can be and would gladly provide necessary funding if the desired space is conveniently situated near your target demographic. Once your restaurant develops a solid customer base, there’s a good chance opening a second location in a similar neighborhood will perform well enough for you to take ownership of this particular market.
FROM BORROWER TO LENDER
Tom isn’t the only Domino’s executive who understands the value of loans. In 2006, Domino’s unveiled its “Delivering the Dream” program, which supplies business loans to minority managers looking to open their own stores. Borrowers can receive up to $250,000 with terms up to ten years, depending on the age of the location.
The program’s success is guaranteed by not only the experience of the managers, but also the reputation they have within their hometowns. Shortly after the program was announced, Domino’s director of Franchise Recruitment and Sales Mike Mettler revealed that many successful Domino’s stores are “owned and operated by franchisees living the communities we serve.” This finding supports the concept of adding property in or around areas containing your target demographic, or increasing supply to increase demand.
Three new Domino’s stores were opened within the program’s first year.
Alternative business financing companies can help you secure additional space before your competitors by approving funding in as little as 24-48 hours and distributing funds in a matter of days. Once you have built a following in a particular area or demographic, you should waste no time taking advantage of every opportunity to expand that influence.