- WHITE PAPERS
A look at Frank Carney today reveals the picture of success: a Papa John's franchisee of 133 stores in four states; a 63 year old who runs and lifts weights regularly; a trailblazer to whom retirement seems as distant now as the day in 1958, when he and brother, Dan, founded Pizza Hut and changed the foodservice industry forever.
His first 30 years in business were marked by achievements followed by accomplishments; even after leaving Pizza Hut in 1980, his second career as a venture capital investor nearly doubled his net worth.
And then came 1989, the year Carney's Midas touch went cold. Over the next four years, his American dream became a living nightmare.
"It's very stressful when you find out that you're not as smart as thought as you were," said Carney, 63, from his office in Wichita, Kan., the city where Pizza Hut was founded. "If you think you can't make a mistake, you've just made the biggest."
Carney blamed his VC downfall on trying to manage too much at once, saying that when managing a few things, he does well, "but when I've got lots to keep track of a lot, I get in trouble."
The lessons he learned from those failures, however, ultimately drove him back to his forte: pizza.
Alpha and Omega
Frank and Dan Carney borrowed $600 from their mother to start Pizza Hut in a 600-square foot former bar, but the pair's humble beginnings didn't last long. The company's growth was rapid, mushrooming to 310 stores in its first decade.
The brothers positioned it for a public offering in 1969, but as the IPO drew near, Dan began planning his exit. Family, he said, came before running a pizza empire, and he handed the president's post to his brother in 1973.
"I didn't want to spend 18 hours a day from now on heading the company up, but Frank was chomping at the bit to do it," said Dan Carney, 70. Dan also served on Pizza Hut's board of directors for many years before becoming a successful venture capitalist, which he continues doing today.
Faced with running the country's fastest-growing pizza company, Frank set out on a crash course in executive management. Through the Young Presidents Association, he learned how to set long-range strategic plans, which he called crucial to Pizza Hut's astonishing growth rate in the '70s.
Former Pizza Hut associate, Bob Cressler, told the Wichita Business Journal in July that following Carney through the company's boom years of 1970-'75 was "like hanging onto a comet going skyward." Carney called that period "the best of my career there."
By 1977 Pizza Hut was 3,400 domestic and international stores strong, and that caught the interest of PepsiCo. In 1977, the soda giant placed the largest carryout order in history, buying the pizza powerhouse for $300 million.
In 1980, the same year he led the rollout of Pan Pizza, the company's most successful menu addition ever, Carney left the company to try his hand as a venture capital investor. Just as with pizza, Carney's efforts in projects as diverse as ski resorts and restaurant companies made him even wealthier.
His achievements weren't limited to board rooms, either, as he earned a respectable reputation as sports car racer. In 1977, he and two other drivers drove their Porsche 911 to victory in its class and fourth overall at the 24 Hours of Daytona.
By 1989, however, his good luck was running out. Companies in which he'd invested heavily began failing miserably, and by 1993, Carney's millions were memories.
"I never thought it would turn out as disastrous as it did," said Carney, looking back. The worst part of those failures, he said, was forcing his wife to eat an unjust dessert. "If it had been her fault, then I would have been OK with eating humble pie together. But it was my fault, and I caused her eat it."
Back to the Future
In 1994, Carney got a call from Martin Hart, a former Pizza Hut board member who had become Papa John's franchisee in Houston. Hart encouraged him to visit a Papa John's store because it was Carney's kind of chain: fast growing and focused on quality.
"When I finally got around to seeing (a store) and tasting the pizza, I understood what he meant," said Carney. "I realized then that (becoming a franchisee) was going to be a pretty easy decision."
The tough part, he said, was telling his wife that mortgaging their home for the funds to get started was their only option.
"When you're in that position, you have to make some lifestyle changes," said Carney. "But when I told her that's what I'd have to do, she just said, 'OK, let's go.' "
Interestingly, the person most difficult to convince that Carney was serious about franchising was John Schnatter, founder and CEO of Papa John's. When Hart called to tell him the founder of Pizza Hut wanted in, Schnatter thought he was joking.
"Even when (Hart) said (Carney) was coming here to talk about it, I still thought he was kidding," said Schnatter, whose Louisville, Ky.-based company also broke the 1,000 store mark in 1994, just one year after it went public. Papa John's stores now number about 2,650.
In 1997, Papa John's, seeking to capitalize on Carney's pizza comeback as a Pizza Hut competitor, filmed a TV commercial in which Carney announced to a mock assembly of Pizza Hut's board that he'd found a pizza better than theirs. Spurned by the commercial's message, plus that of others done by Papa John's, Pizza Hut filed suit, claiming Papa John's advertisements were false. The U.S. Supreme Court ultimately ruled in favor of Papa John's in 2000.
Carney's pizza peers, however, weren't quite as convinced as the court. At the 1999 Pizza Expo in Las Vegas, where Carney was a featured speaker, he told a crowd of about 900 pizzeria operators he had no regrets about speaking out against the company he founded. When a man from the audience questioned the value of taking that message public, Carney responded that he believed he was free to do so because the pies Pizza Hut was selling were below the quality of the products it delivered when he led the company.
"They had become an assembly line product company," said Carney. "With PepsiCo, the drive for growth at almost all cost caused them to denigrate the product."
Still, Carney said his old company is making progress to set things aright. "I will say that in last three years, Pizza Hut's done a nice job in bringing the quality back," he said. "It's not quite there yet, but they're doing a much better job."
Today Carney travels weekly to monitor his stores in Houston, Sacramento (Hart is his partner in both markets), Hawaii, Wichita and Kansas City. He's content not to expand beyond those five, but he believes he and his partners could grow those markets by 50 more stores overall.
Carney's work overseeing one of the largest franchisee groups in Papa John's system, said Hart, makes for a schedule that would exhaust men half Carney's age.
"Frank's got a lot of drive; he works like hell," said Hart, from his Houston office. "He's a fine businessman, too, a great partner."
And when Carney's not working on his own stores, Schnatter said Carney has given him advice.
"The truth is that Frank has forgotten more about pizza than I'll ever know," said Schnatter, adding that Carney worked closely with PJ's R&D to develop its thin-crust pizza, rolled-out in 2000. "He's taught me ... to trust my instincts, and never to let the tail of bureaucracy wag the dog of good solid operations and store-level profit."
Asked to compare his success at Pizza Hut to that he's having now, Carney said he can't because that was a different situation, day and time in the pizza business. What he knows for sure is that this time around, he's not taking his achievements for granted.
"Right now I'm having a ball, a lot of fun," said Carney. "But I've learned that the tough times made me a better manager and person. It's in those times that you really learn who you are, and that builds character."
And then he added with a laugh: "But if I could have ducked those bad times, I would have."
Topics: Public Companies