Reference no: EM132298411

Cousins Maine Lobster Sabin Lomac and Jim Tselikis launched Cousins Maine Lobster as a food truck in southern California. Would you purchase a franchise from this fast-growing franchisor? Some of the fondest memories that cousins Jim Tselikis and Sabin Lomac have of their childhood days near Port-land, Maine, are family picnics that featured fresh, locally caught lobster and lobster rolls. Eventually, both Tselikis and Lomac moved away, Tselikis to Boston and Lomac to Los Angeles. In 2011, Tselikis flew to the West Coast to visit his cousin, and over drinks one evening, the two began reminiscing about the wonderful fresh lobster meals they had enjoyed as kids. They also noted the popularity of food trucks and decided to pool their resources to launch a side business, Cousins Maine Lobster, that would serve lobster flown in from Maine in the form of lobster rolls (chunks of lobster meat served on splittop rolls topped with butter), lobster tacos, lobster bisque, and clam chowder. They in-vested $20,000 of their own money, bought a food truck, and began outfitting it as a rolling lobster wagon. In April 2012, on their first day in business, Tselikis and Lomac saw a line of customers that wrapped around the block. Business was so brisk that they ran out of food, and they knew that they were on to a business with real potential. Within six months, they quit their jobs to run the business as a full-time venture. Local media coverage led to an appearance on ABC’s Shark Tank, where the cousins pitched their idea to the sharks and endured intense questioning. During the eight weeks leading up to the show, Tselikis and Lomac practiced their elevator pitch, reviewed their company’s financials to come up with a value for the business, and rehearsed answers to the questions they thought the sharks might ask. At the end of their segment, Barbara Corcoran agreed to invest $55,000 in return for 15 percent of the company (which established a value of $367,667 for Cousins Maine Lobster). Corcoran proved to be a valuable investor, helping Tselikis and Lomac land appearances on national television shows, including The Today Show, Good Morning America, Master Chef, and others, and helping them realize that franchising would be the ideal way to expand their business. Although Tselikis and Lomac had never envisioned franchising when they started Cousins Maine Lobster, they began working with the Franchise Development Group to create the Franchise Disclosure Document that the Federal Trade Commission requires every franchisor to provide to prospective franchisees. Because they had been operating their food trucks, which now numbered four, for only a year, they spent many long days developing training manuals and courses for franchisees. They were still learning about pay-roll, insurance, and maintaining quality control and were busy opening an e-commerce division focused on shipping lobster and other seafood products directly to customers across the country. Once their Franchise Disclosure Document was completed, Tselikis and Lomac made a follow-up appearance on Shark Tank, where they announced that they were selling Cousins Maine Lobster franchises. Their appearance garnered more than 1,000 inquiries from would-be franchisees, and the flood of applications continues. Franchise Development Group conducts the initial screening of the applications, before Tselikis and Lomac interview the remaining applicants either by phone or Skype. They make the final decision about awarding franchises only after meeting candidates in person at one of the company’s discovery days in Los Angeles. Every potential franchisee spends time in one of the company-owned food trucks, and Tselikis and Lomac have learned to include the chef’s opinions in their final decisions about awarding franchises, pointing out that they are almost always right about which candidates will be successful. Currently, the company, which generates $20 million in annual sales, has 20 food trucks in 13 cities across the United States, with more on the way, including some in international markets. Cousins Maine Lobster estimates that franchisees’ total investment ranges from $143,000 to $345,000. Franchisees pay an upfront franchise fee of $38,500, an ongoing royalty fee of 8 percent of their gross sales, and a 2 percent advertising fee. Looking back, Tselikis and Lomac say that although their journey into franchising has presented a steep learning curve and that relinquishing control to franchisees can be disconcerting, they are extremely satisfied with the path they have taken and the results so far.

1. Suppose that your best friend is considering purchasing a franchise such as Cousins Maine Lobster. What advice would you give him or her about the right way to go about purchasing a franchise?

2. What advantages do entrepreneurs who purchase a franchise get? What disadvantages do they encounter?

3. What is the Franchise Disclosure Document? How can it help prospective franchisees evaluate the various franchise operations in which they are considering investing?

4. Cousins Maine Lobster wants to expand its franchise internationally. How popular is franchising as an “ex-port” to other nations? What steps should Tselikis and Lomac take to cultivate a successful international franchise operation?