Subway

In 1965, Fred DeLuca was 17 and broke. His business partner, Peter Buck, lent him $1,000 on condition he had 10 college. He opened a submarine sandwich shop instead. DeLuca worked 16 hours daily, slicing meat, toasting bread, cleaning floors, daily revenue was $50, daily profit was $10, rent stayed the same, whether he sold 50 sandwiches or 500, labor scaled with revenue. Opening a second store meant duplicate rent and labor costs. Capital was the bottleneck. DeLuca had none. Instead of borrowing to expand, he sold the right to open subway restaurants. A franchisee paid a fee and percentage of sales in exchange for the subway system, brand, and supply relationships. A franchisee paid 15,000 initial fee, low compared to traditional fast food. Royalties were 8% of sales. Advertising was 4.5%. Total fees were 12.5% of every dollar sold.