Question: Finagle A Bagel: A Fast-Growing Small Business

Finagle A Bagel, a fast-growing small business co-owned by Alan Litchman and Laura Trust, is at the forefront of one of the freshest concepts in the food-service business: fresh food. Each of the twenty stores bakes a new batch of bagels every hour, and each receives new deliveries of cheeses, vegetables, fruits, and other ingredients every day. Rather than prepackage menu items, store employees make everything to order so that they can satisfy the specific needs of each guest (Finagle A Bagel's term for a customer). As a result, customers get fresh food prepared to their exact preferences-whether it's extra cheese on a bagel pizza or no onions in a salad-along with prompt, friendly service.

"Every sandwich, every salad is built to order, so there's a lot of communication between the customers and the cashiers, the customers and the sandwich makers, the customers and the managers," explains Trust. This allows Finagle A Bagel's store employees ample opportunity to build customer relationships and encourage repeat business. Many, like Mirna Hernandez of the Tremont Street store in downtown Boston, are so familiar with what certain customers order that they spring into action when regulars enter the store. "We know what they want, and we just ring it in and take care of them," she says. Some employees even know their customers by name and make conversation as they create a sandwich or fill a coffee container.

BUYING AND BUILDING THE BUSINESS AND BRAND

The combination of a strong local following and favorable brand image is what attracted the entrepreneurs to Finagle A Bagel. Looking back, Litchman says that he and his wife recognized that building a small business would require more than good business sense. "It has a lot to do with having a great brand and having great food and reinforcing the brand every day," he remembers. "That's one of the key things that we brought." To further reinforce the brand and reward customer loyalty, Finagle A Bagel created the Frequent Finagler card. Cardholders receive one point for every dollar spent in a Finagle A Bagel store and can redeem accumulated points for coffee, juice, sandwiches, or other rewards. To join, customers visit the company's website (www.finagleabagel.com) and complete a registration form asking for name, address, and other demographics. Once the account is set up, says Litchman, "It's a web-based program where customers can log on, check their points, and receive free gifts by mail. The Frequent Finagler is our big push right now to use technology as a means of generating store traffic."

BAGELS ONLINE?

Soon Litchman plans to expand the website so that customers can order food and catering services directly online. Although some competitors already invite online orders, Finagle A Bagel has a more extensive menu, and its fresh-food concept is not as easily adapted to e-commerce. "In our stores, all the food is prepared fresh, and it is very customized," Litchman notes. "This entails a fair amount of interaction between employees and customers: ‘What kind of croutons do you want? What kind of dressing? What kind of mustard?' When we're ready to go in that direction, it is going to be a fairly sizable technology venture for us to undertake." Finagle A Bagel occasionally receives Web or phone orders from customers hundreds or thousands of miles away.

Still, the copresidents have no immediate plans to expand outside the Boston metropolitan area. Pointing to regional food-service firms that have profited by opening more stores in a wider geographic domain, Trust says, "We see that the most successful companies have really dominated their area first. Cheesecake Factory is an example of a company that's wildly successful right now, but they were a concept in California for decades before they moved beyond that area. In-and-Out Burger is an outstanding example of a food-service company in the west that's done what we're trying to do. They had seventeen stores at one time, and now they have hundreds of stores. They're very successful, but they never left their backyard. That's kind of why we're staying where we are."

FINANCING A SMALL BUSINESS

Some small businesses achieve rapid growth through franchising. The entrepreneurs running Finagle A Bagel resisted franchising for a long time. "When you franchise, you gain a large influx of capital," says Trust, "but you begin to lose control over the people, the place, and the product." Since the beginning, the owners and their senior managers routinely popped into different Finagle A Bagel stores every day to check quality and service. Now the company says that it will begin granting franchises in the near future and institute a stringent quality-control regimen to maintain the highest standards wherever the brand name appears. As a corporation, Finagle a Bagel could, as some other small businesses do, raise money for growth through an initial public offering (IPO) of corporate stock. The copresidents prefer not to transform their company into an open corporation at this time. "Going public is very tricky in the food-service business," Trust observes. "Some people have done it very successfully; others have not." The copresidents want to maintain total control over the pace and direction of growth rather than feeling pressured to meet the growth expectations of securities analysts and shareholders. Running a fast-growing small business is their major challenge for now.

1. Why would Finagle A Bagel maintain a business-to-customer (B2C) website even though it is not yet set up to process online orders from individuals?

2. Do you agree with Finagle A Bagel's plan to franchise its freshfood concept and brand name? Support your answer.

3. Although opening new stores is costly, the copresidents have chosen not to raise money through an IPO. Do you agree with this decision? Discuss the advantages and disadvantages.

4. If you were writing the executive summary of Finagle A Bagel's business plan to show to lenders, what key points would you stress?