The two were part owners of a small chain of Mexican fast-food restaurants in the Upper Midwest and it was falling apart.

Lee Engler was trying to pay thousands of dollars in bills each month with just hundreds of dollars in cash. He had humbled himself by meeting with each vendor, driving to their places of business to ask for a reprieve on bills. The brothers were defaulting on some of their leases. Their company didn’t have money to pay their salaries but the two printed checks, anyway, because “we just liked looking at them,” Lee Engler says.

They had just been told that their rescue plan was dying, too. The brothers had an agreement in place to become Taco Bell franchisees, a deal that would stabilize the company and get them back on their feet. But the corporation balked after it saw the company’s financial numbers.
As they walked into the grocery store, Lee Engler looked at Jeff. “What are we going to do?” he asked.

Jeff, six years Lee’s senior, gave a simple answer. “We’re going to tough it out.” The next day their company filed for bankruptcy.

Today, that company, Border Foods, is one of the largest multi-unit franchisees in the country—and one that could be larger if the pair had much desire to expand beyond Minnesota’s borders. They own 90 Taco Bells, 77 Pizza Huts, a handful of Long John Silvers, Wing Streets and Au Bon Pains. They also have a deal to bring the Sonic drive-in franchise into the Land of 10,000 Lakes.

The route between bankruptcy and the helm of a growing, $170 million business was filled with challenges and setbacks, and navigating it took smarts, perseverance and, yes, a little luck. Along the way the brothers learned many valuable lessons about the business world and about running a multi-unit, multi-concept franchise.

Lesson: “No matter how big the company gets, we’re going to tough it out.”

Jeff Engler, now 56, is the brother with the vision, the marketing savvy and the intense focus on profits. It was he who started Los Primos, the Mexican chain, with a cousin in 1978 after working in his father’s Minneapolis area theater business.

Lee Engler, now 50, has the operations know-how and the experience running restaurants—he worked in one every day between 1979, when he went to work for his brother, and 1996, when his franchise company had grown too big. He also has an attention to detail and a patience to see long-term plans carried out.

Those who work with the brothers say their talents complement one another, and make for a better-run business. “Their skill sets work really well together,” said Barry Zelickson, Border Foods’ senior vice president of administration.

It didn’t seem that way in the mid-1980s. Their chain expanded to 20 stores between Minneapolis and Michigan, but it was a “disaster,” as Jeff Engler puts it. They had turned down an offer to become Taco Bell franchisees in the early ‘80s, only to go back to Taco Bell when it looked as if their business would falter.

After they declared bankruptcy, they talked Taco Bell management into allowing them to convert six of their stores into franchises. The rest were closed. But then they found themselves in danger again. This time they needed to come up with $20,000 to keep their leases and preserve the Taco Bell deal. They didn’t have the money. “I didn’t have two nickels to rub together,” Lee Engler says. “The ‘80s weren’t good at all.”

Then Jeff almost literally walked into a $150-a-hour consulting job with a direct marketing firm. The $12,000 he made was used to repay the leases. Lee paid for the rest on a credit card that didn’t get paid off until the early 1990s.

Jeff then went to work in the direct marketing business but kept a share of ownership. Lee stayed behind to the run the franchises. Their cousin left, not confident in their ability to run the business. 

Lesson: “We were too smart for our own good. We should have thrown a number out there to capture the deal.”

Lee managed Border Foods into a 16-unit franchise by 1994 while his brother worked in California. Both wanted the business to grow. So they approached Taco Bell and asked to buy the franchises outside the Twin Cities.

Taco Bell wouldn’t sell just those franchises. They wanted to sell all of them, more than 60—a far bigger number than the Englers envisioned, and one that would propel them into major franchisee status. Lee asked Jeff how they would pay for it. “Don’t let a little detail like financing get in the way,” Jeff said in response.

They bid—and lost. “We should have thrown a number out there to capture the deal,” Lee says. Yet the winning bid faltered, and the Englers got another chance. This time they did get the deal.

Then the problem became financing. In what Lee Engler describes as his toughest days in business, the Englers struggled to find banks willing to lend the company money to buy the stores. “I can’t tell you how many times the door was slammed in my face when we were trying to do the Taco Bell transaction,” he says.

Yet he got a timely phone call from an upstart private equity firm that heard of the Taco Bell deal and wanted to invest. A skeptical Lee Engler invited them to Minnesota the next weekend, then to a franchisee convention in Las Vegas the following Monday.

Surprisingly, to Lee, the group complied with the request. Within 10 days of that phone call the Englers had the financing. And Lee Engler found himself running an 80-unit company.

Lesson: “Size doesn’t drive complexity. Brands do.”

Border Foods’ growth has mostly come from two events: the first Taco Bell deal and another equally large deal for Minnesota’s Pizza Hut locations in 2000. “When we first started running Pizza Hut, we were dumb and happy for 12 months,” Lee Engler says. Then they realized the difficulty of running multiple brands—even within the same company.

While both Pizza Hut and Taco Bell are owned by the same, Kentucky-based franchisor, Yum Brands, each has its own distinct identity. The challenge is melding separate identities into one company. Lee Engler says it’s important for a franchisee with multiple brands to recognize differences that should be eliminated, and those to leave alone.

For instance, he said, one brand may be more lenient in its oversight of stores, while one may require specific documentation of every process. Those differences in a franchisee’s system should be abolished.

By contrast, each brand has distinct names for its staff. People “work the line” at Taco Bell making tacos. Pizza Hut has employees who work “make table” topping pizzas. Sonic employees make French fries at the “swamp.”

At first, Lee says, the company tried to change these cultures. Then the brothers realized their folly. These cultures are celebrated, he says, and “to try and change that is an insurmountable task.”

Lesson: “It seems simplistic to run a restaurant from the outside-in. But that perception is very different when you’re looking at it from the inside out.”

This is a tough year for many restaurant owners, including Border Foods. High cheese prices are hurting Pizza Hut in particular, causing the company to consider reducing the use of coupons. At Taco Bell, especially, rising labor costs—including the growing minimum wage—are shrinking margins.

Raising prices at fast food restaurants is difficult because customers have little brand loyalty. As a result, the Englers are relentless in their search for efficiencies that will improve their operation, and its profitability. “This is a pennies business,” Lee says.

For instance, Border Foods studied its processes and learned that its store managers spend 1,300 hours per year counting cash. While important, it adds no value. So the company purchased, for $5,000 a store, a system to count the cash, freeing up 800 of those hours so managers can serve customers.

Another costly item is paper, like writing checks and paying bills. So the company is working with its vendors to increase the number of bills paid electronically. “Adding the brands adds complexity,” Lee Engler says. “As we grow, we want to streamline our processes and minimize how many things we touch so we can focus on the execution of our core businesses.”

The Englers for years collected store performance information in their drive to improve their operations. That led to the creation of a software program to collect the information for them.

The software gathers a wide range of store-level information, such as earnings, food costs and labor efficiency, and sends it to district managers and company executives. Stores are compared with similar stores that have similar revenues—Taco Bells making $1 million a year are only compared with other $1 million Taco Bells. “Redroof” Pizza Huts, or full-service Pizza Huts, would only be compared to one another, while “Delco” Pizza Huts with only delivery will be compared with other Delco Pizza Huts.

The daily figures are usually ready by 5 a.m. “I have an office off my bedroom,” Jeff says. “The first thing I do every morning—in my underwear—is to go check how our 176 restaurants did yesterday, exactly. My wife, when she gets up, knows how the stores did based on whether I’m in a good mood or not.”

The software was so successful Border started selling it to other multi-unit franchisees. The spin-off company, b-50.com, is now operating in 5,000 restaurants, said Bruce Clark, b-50’s CEO. Prices for the service vary widely depending on the information gathered, but Clark said it generally costs $75 per month, per store. “They’re classic entrepreneurs,” Clark said of the Englers.

Lesson: “The worst thing you can do is manage by averages.” 

For the most part, nationwide franchisors drive sales success. Many events can drive a sales decline, like increased competition or, in the case of Taco Bell, an E-coli outbreak on the East Coast. And new products and other initiatives may also boost sales for a time. As such, the company doesn’t take much stock in comparisons with the previous year. Nor does the company consider comparisons with its budget plan, because as Jeff Engler says “it’s just a number.”

Instead, the company examines controllable and uncontrollable costs, then compares stores based on a comparison of controllable costs versus what expenses should have been based on sales for a particular day, or the ideal. In other words, the company determines performance based on what stores did with what they were given.

For instance, one month this fall 70 of the company’s Taco Bells were found to be $38,000 off the ideal for food and labor costs. The restaurants made up for that difference in part because other controllable costs like electricity were lower, “but we’re still focused on why we were off $38,000 on food and labor,” Jeff says. “It’s not about scolding or penalizing. It’s just about discovering why.”

In addition, the company has developed another data point, known as “opportunity profit,” that calculates how much a store, or a group of stores could have made in additional profit if each store performed up to the average for its peer group. “The purpose of this is so managers have the tools to see what other managers are doing, and hopefully learn something,” Jeff said.

Lesson: You’ve got to be able to let go and delegate.

During a three-hour conversation in a room connected with both their offices, Lee and Jeff received a single phone call—and that one was about Jeff’s car. Their executives and district managers do all the day-to-day heavy lifting. “If we weren’t growing, Lee and I wouldn’t have anything to do,” Jeff says. “Lee and I aren’t that busy.”

The company’s managers each credit Englers for allowing them to do their jobs. “It’s a blast,” said Fred Burmer, vice president of operations for Border’s Pizza Huts. “It’s more of a partnership. It’s not like really having a direct boss.”

“They look for people and let them do what they hire them for,” Zelickson said. “It’s rare out there, and they’re very good at it. They define what they want you to do and then they let you go out and do it.”

Perhaps this is why Border Foods has had a stable management team—one that had to adjust some after Jeff returned after the Pizza Hut acquisition. His more aggressive, bottom-line-focused management style was difficult for some workers who were accustomed to Lee’s laid-back style.

The Englers like promoting from within, rather than luring executives from outside the company. Some executives, in fact, started on the ground floor in the restaurants. Carol Williams started out as a crewmember for a St. Paul Taco Bell 25 years ago. She’s now vice president of operations at Border overseeing all the company’s Taco Bells. “They let you know what the vision is, and then let you figure it out,” Williams said. “They don’t give you the detail. It allows you to grow more.”

Lesson: “Be passionate about the business, but don’t get emotionally attached.”

With large stakes in both Taco Bell and Pizza Hut, the brothers in recent years have been looking for a “third leg of the growth stool.” In 2004, the brothers set out to have a 250-unit business by 2010. They initially thought that KFC, another Yum brand, would be that third leg.

They approached Yum and convinced the company to sell its Minnesota stores. But they didn’t get the deal. The loss stung. “They gave it to a much smaller franchisee who was not in Minneapolis,” Jeff says. “We were one of Yum’s largest franchisees. We were going to make a commitment to the company. And we lost to a smaller operator on the West Coast.”

Still, both brothers said that despite their drive to succeed, they’ve learned not to get overly emotional about the business, and about setbacks. They quickly recovered from the failure to get KFCs and began looking for another idea. They at first thought they found it in the Massachusetts-based sandwich chain Au Bon Pain. They opened three stores, but then stopped because it didn’t have a model that would allow it to effectively move outside of downtown areas and into the suburbs, which is necessary for the chain’s expansion.

Then Sonic called. The hot, Oklahoma-based drive-in chain called Lee Engler out of the blue to ask if they wanted to be the Minnesota franchisee. The brothers had never even given the chain much thought, mostly out of concern of its ability to move into northern climates.

But the more they looked at the chain, the more they liked it—Sonic has had same-store sales growth for 21 straight years; its stores do consistent business all day long, and it has a national advertising platform that has made Sonic a household name even in markets where it has no units. “We’re bullish on Sonic,” Lee says.

The brothers will open the first Sonic in Minnesota on May 15, 2008, then the second in August, then another unit every 60 days for six years. The restaurants will add as much as $70 million in revenue to Border’s business.

Even so, that kind of expansion may not take them to their revised goal of 300 units by 2015. But, Jeff says, with Sonic’s higher per-store sales average they may take in $300 million in revenues by then.

That’s still a level they could have hardly imagined 20 years ago as they walked into that grocery store wondering if they had a business. Despite their growth, they say they will never forget those early days, or the setbacks and struggles they’ve endured since.  “We’re never outgrown it,” Jeff says. “We’re dirt farmers. No matter how big the company is, we’re going to tough it out. We’ve never lost sight of that.”