Reference no: EM131051760

SONIC

With more than 3,500 locations in 44 states, Sonic is the largest chain of drive-in fast-food restaurants in the United States. Unlike other chains, many of Sonic's locations are individually owned and operated. That's because Sonic knows the value of motivated entrepreneurs who are willing to put everything they've got into their businesses. Sonic has stuck to this go-getter attitude thanks to the leadership of founder Troy Smith. After coming back from World War II, Smith took a job as a milkman until he realized that he wanted to run a business of his own.

Over the next few years he opened several restaurants in his hometown of Shawnee, Oklahoma, ranging from a diner to his own fried chicken chain to see what worked best for him. Since he ran these businesses by himself as sole proprietorships, that meant he could make all the major decisions himself, but he had no one to help him make the restaurants great. As a result, most of Smith's early ventures failed. He didn't let those initial disappointments set him back, however. Eventually Smith bought a fiveacre gravel lot that contained a little root beer stand and a big log cabin. While he planned to turn the latter into a steakhouse, Smith nearly tore down the root beer stand to make room for more parking.

As time went by, though, he realized that the soda stand was actually doing better business than the steakhouse. After visiting a drive-in burger place in Louisiana, Smith thought that was just the thing his small soda shop needed to become a big success. He commissioned a speaker system, added a canopy to the parking lot, and hired servers to bring food directly to customers' cars. Soon enough, revenue at the Top Hat Drive-In had tripled. As Smith's burger-and-soda stand continued to grow, a local grocer named Charles Pappe approached him about investing in the business. The two ended up forming a partnership where Pappe would concentrate on sales while Smith improved the business. Things continued to run smoothly until the pair found out that the Top Hat name had already been trademarked by another company.

Although Smith and Pappe's personal assets were protected by their limited partnership agreement, they stood to lose their entire business if they were successfully sued over the Top Hat name. So, deciding that it was better to be safe than sorry, they agreed to change the name of the business to Sonic Drive-In. Business continued to boom as the years went by, leading Smith and Pappe to think bigger. More people expressed interest in becoming involved in the business, but Smith didn't want to take on any more partners. Instead, they decided to expand the Sonic brand by franchising. This allowed other entrepreneurs to open up their own locations throughout the country with the help of the Sonic home office. Today, Sonic has thousands of franchisees from all walks of life operating in every corner of America. The flexibility of their ownership system allows franchisees to focus on building their business, rather than on the brand itself. Maybe that's why Sonic continues growing at the speed of sound.

1. Like many entrepreneurs, Troy Smith started Sonic as a sole proprietorship, then took on a partner, and eventually offered franchises. What advantages did he enjoy at each stage of Sonic's development? What disadvantages did he face?

2. How is a franchise different from a partnership?

3. What important questions should you ask before becoming a franchisee in a company like Sonic?