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December 16, 1988|Jane Applegate and Jane Applegate

Sybil Ferguson's eyes become misty when she relates how a Boston investment company recently paid $160 million for the company she started 18 years ago in a spare bedroom of her rural Idaho home.

It is pretty heady stuff for Ferguson, a former overweight homemaker who was astonished to learn that although she weighed 185 pounds, she was too malnourished to have needed surgery.

By eating sensibly and with the daily encouragement of her family doctor, Ferguson eventually lost 50 pounds. Impressed by Ferguson's success, the doctor began sending his obese patients to her for counseling, and Diet Center was born.

Ferguson's recipe for success is simple: a strict, high-water, low-calorie diet coupled with daily visits to a Diet Center counselor. And she believes that it is the personal hand-holding that sets the company apart today from other weight-loss programs.

"We are changing lives mentally and physically as well," Ferguson said during a recent visit to Los Angeles.

As the company grew, she said, it was important to stick to the basics that first made it a success: in this case, individual nutritional counseling at a moderate price. Holding to the same unshakable format was a major factor in turning Ferguson's company into one of the most successful franchised companies in the nation, according to franchise industry analysts.

"The strength of the Diet Center concept is that it is tailored to be a turnkey operation," said John Reynolds, editor of Franchise Investment Newsletter. He said that apart from renting office space, Diet Center provides virtually everything needed to start the business. Investors who spend about $24,000 for a franchise receive a complete package of training, products and literature. Earlier this year, Entrepreneur magazine ranked Diet Center 13th in sales in its annual review of franchises.

Ferguson said she has never advertised to sell a Diet Center franchise. Today, there are about 2,300 Diet Centers in the United States, and the company is expanding to Quebec, Canada, the British Isles and Australia. In fiscal 1988, before Diet Center became a private company, it posted net income of $8.9 million on sales of $45.2 million.

In 1985, the American European Assn., a New York investment firm, paid $50 million for Diet Center. Three years later, in October, Thomas H. Lee Co. of Boston paid more than three times that amount for the company.

Ferguson, like other entrepreneurs, said she and her husband, Roger, initially sold the company to bring in more professional management and "move away from the mom-and-pop image."

"We felt it was very important for the franchisees to know we had brought in the expertise to run the company," said Ferguson.

Now, the new owners are bringing in their own stable of experts in the fields of advertising, marketing and international franchising.

"We are going to put together a program that inspires people to pull together," said Thomas Shepherd, managing director of Thomas H. Lee and the new chairman of Diet Center. "We believe Diet Center is the class-act leader in generally available diet services," Shepherd said, adding that his personal plan is to help the company "grow like crazy" and then get out of the way.

Reynolds, editor of Franchise Investment Newsletter, said Diet Center is growing quickly because companies selling diet plans, maid services, business, health-care and child-care services are leading the list of franchise opportunities in 1988. (The Commerce Department estimates sales of goods and services by franchises, excluding gas stations and car dealers, will reach about $190 billion in 1988, up 72% from five years ago.)

Other diet and exercise franchises, including Jazzercize and Nutri/System Weight Loss Centers, are also growing quickly, Reynolds said. Entrepreneur ranked Jazzercize as the No. 1 new franchise in 1988.

Ferguson, who is the president and spiritual leader of the company, said that since the recent sale of the company, her primary job is reassuring franchisees that the basic "service first" concept of Diet Center will not change.

"We are going to hire new area representatives to help the franchise owners," Ferguson said. "And we have some wonderful new programs on the way."

Franchise owners and analysts said that in past years, some Diet Center owners had complained that they were not getting the service they needed from the regional franchise holders they purchased their stores from.

They said that some regional officials, who control from one to 60 local stores, sometimes would fail to respond quickly to requests for supplies, literature and other support material.

Ferguson said she is aware of the conflicts caused by some regional "mavericks" but added that the new area representatives will help solve the problem.

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