From the outside, watching Saladworks disintegrate in a nuclear feud between its founder and a major investor was both horrible and fascinating at the same time, like a train wreck in slow motion. From the inside, it was just weird, as chief executive Paul Steck, then president, described in our interview published in Sunday's Philadelphia Inquirer.
Saladworks, founded in 1986 in Cherry Hill by John Scardapane, declared bankruptcy in February in the middle of the ongoing battle between Scardapane and major investor Vernon Hill, founder of Commerce Bank. An investment firm bought it in July, removing the company from the bankruptcy.
"For the last several years, prior to the sale of the company, it was dysfunctional to the point of not functioning," Steck said, describing months of time when he was unable to do anything to build the company.
"Here we had two owners, one a millionaire, and one a billionaire, locking horns," he said, elaborating on his image of the two men as majestic bull elks, their horns locked in a death dual. "What typically happens is those two animals die."
Now, from afar, Steck said, he is watching the continuing legal battle, which persists, even though Saladworks, the company at the heart of it, is now no longer involved. He says he finds himself strangely fascinated by it, almost voyeuristically so. "But I don't want to get involved in it. I’m thankful to be out of it. So now I can look for a distance and think these guys are just flushing… There’s been millions spent on attorneys between these two guys, millions. And to think that someone would flush away that kind of money is unfathomable to me.
Question: How did you get in? Did Scardapane bring you in?
Answer: Yes. Scardapane did. He was passionate about the brand. Yet, over the last two years I saw that passion wane to the point where I don’t think it’s there at all now. Vernon Hill, you asked if I liked him. He was the smartest man I ever met. There have been volumes written in the Philadelphia Inquirer about Vernon Hill. So I don’t need to go into the details of that. Other than, he was the smartest guy I ever met. But there are no social graces there. He’s not hello, Jane. He’s not goodbye, it was pleasant meeting with you. That’s just not his thing. He walks in, business. He walks out, done.
Q: Would they call you up and give you conflicting orders?
A: No, I can’t say that ever happened. Vernon Hill, as he got more and more embattled, he lost interest with this brand. I think his interest was battling with Scardapane. He interest wasn’t in selling franchises or selling salads.
Q: Did you like them?
A: You asked me if I like them. I think the better question is, `Do I like the brand?'
Q: Those are two different questions.
A: But that’s why I was here. It wasn’t because of Scardapane. It wasn’t because of Vernon Hill. I collected a paycheck from them. I was here because of the brand. That’s why I came here.
Q: You've been successful. You are wealthy and you’ve started and run a lot of different businesses. You like the food business. You’ve been both an employee and an owner. There’s no reason why you had to put up with these battling dudes.
A: Every one asks me. Everybody asks me the question. Why did you stick it out?
Q: Right. Why did you?
A: This brand is special. My job here is to think on how to make my franchisees as successful as possible. We’re a franchisor and while we’re going to sell thousands of salads today in 106 restaurants, my true customer is the franchisee. I wake up in the morning. What can I do to benefit the franchisee? Why am I sitting here talking to you in my office today?
Q: I have no idea.
A: For the benefit of my franchisees. I’m going to expand the brand, the name Saladworks. That’s what I’m passionate about. That’s what kept me here. This brand was either going to get flushed down the toilet or it was going to get sold. Those were the only two options.
Q: Were you actively working back channels to sell it?
A: Very much so.
Q: So while they were fighting, you just turned around and were shopping.
A: Over two years, I met with 30 different private equity firms, because that’s where the money was going to come from. I didn’t have the money to buy the business myself. Had I, I would have. This is a great brand.
Q: Maybe you were really lucky you didn’t buy the business yourself. You know why? Because you would have had to deal with those guys. You’d be much better off now buying it from the current owners.
A: So back to your directional question. The company sells. What do you do with this mess? I had two years to think of what you do with the mess. Over those two years I would go meet with franchisees and ask them what’s wrong. Here’s your magic wand. Wave it. What needs to change? And I listened.
Q: What were some of the views?
A: The brand is tired. The menu hasn’t been changed. It costs too much to develop a franchise. You’re not doing any marketing. The last one was the industry is changing and ours isn’t changing with it. So I and two peers, my chief financial officer and my vice president of brand services, we spent, you won’t believe me, months and months, taking those five things and crafting a strategy that fixes those things.
Q: It must have been bizarre, because at the point when you were crafting it, you had no hope of being actually able to do any of it. No hope, no power, no money, no nothing.
A: Yes, you’re a hundred percent right. So when we’re talking to private equity firms, I’m presenting my strategy to them. This is what we need to do. The firm that, ultimately, ended up buying us is called Centre Lane. Centre Lane, so far they’ve been fabulous.
Q: Where are they from?
A: New York, a classic private equity firm , out of the Time Square area, Mid Town. They did exactly what private equity firms do best. They wrote a check, not to buy the business, because that didn’t really benefit the brand. It benefitted the prior owners. `Paul, how much do you need to implement your strategy?' They wrote that check. Now they’re holding my feet to the fire. Are you doing your strategy? Of course I am. It was my strategy.
Q: Are Scardapane and Hill out?
Q: So how did they get rid of them?
A: Centre Lane bought the company. Those two guys are gone. They’re off in the sunset.
Q: Because it was a bankruptcy. Thank God for bankruptcy, in this case.
A: That was the strategy. These guys couldn’t agree on how to sell a company. So if a company is going to be sold, there's a little known fact about bankruptcy -- the positive, if there’s any positive to it. Everyone assumes bankruptcy is because you can’t pay your bills. That was not at all the case. The creditors are going to get 100% of their money. The problem was the two guys were dysfunctional. They weren’t running the company.
Q: How could you even convince them to file for bankruptcy?
A: I didn’t have a choice. The company was going to slide off into oblivion. So let’s get this company sold. A little known fact about Chapter 11 filing is that the judge can tell the company what to do. So it was a woman judge in Delaware. She said we’ll auction off the company. The highest bidder gets it. That’s what happened. I mean from my perspective, from the brand’s perspective, from our franchisees, from our customer’s perspective, it was the best thing that could happen.
Q: So are the creditors all paid off?
A: Not yet, because the two guys are still fighting. There’s about $2 million worth of debt. There’s $15 million in the debtors’ checking account. So they’re going to get paid their $2 million. It’s what happens to the rest of the money that the fight still goes on. It’s all public record. It’s crazy. It’s just nuts.
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