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From Southern California Entrepreneurs

Investors Add Needed Twist to Pretzel Chain

September 23, 1998

Rick Wetzel and Bill Phelps worked in the marketing department at Nestle USA when they decided to open a fresh-baked pretzel shop in the South Bay Galleria. After a year, they had expanded to five Wetzel's Pretzels stores but faced a serious cash flow crunch. Last year, the partners decided to take on outside investors--but only after a prolonged courtship. Wetzel was interviewed by freelance writer Karen E. Klein.

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Early on, we saw that the opportunity for us to grow was enormous. In 1996, we started franchising and added 10 stores, but we still felt like we weren't getting in front of the growth curve.

We didn't have the infrastructure to grow. The way we handled finances was to open the checkbook, see how much money we had and then decide what we could afford--kind of like you run your budget at home.

We were approached by potential investors but always resisted, because we didn't want to lose control.

Then in 1997, film producer John Davis called us and said he liked our Century City store and wanted to meet with us. We had heard horror stories about investors making life uncomfortable for entrepreneurs, but we decided to meet with him.

Right away, we felt like the personality fit was there and that he would be willing to allow us to maintain control of Wetzel's Pretzels.

We started talking to him and a group of investors he brought together in January 1997. We went back and forth and talked through lots of ideas. It was good to get to know the investors and get comfortable with them before we made any final decisions.

In July 1997, we signed the agreement and structured the company so that Bill and I still own two-thirds. Two of the investors joined our board of directors, one with experience in finances and the other a strategic planner. They have helped to guide us a lot, which is another plus.

We did three main things with the investors' capital.

The first was to build our infrastructure. Before, the only people on staff were Bill and I, an office manager and an operations guy. We added more operations people, a real estate department, a franchise sales department, a marketing department and a finance department, going from four to 11 employees in the corporate office.

Then we also did an overhaul of our presentation. We basically had no positioning, the marketing we were doing was ill-defined, and each of the 15 stores we had looked a little different. So we hired the ad agency of Kalis & Savage, who had worked for Noah's Bagels and Starbucks, and we went through focus groups and developed an ad campaign that was very distinctive, fun and quirky. We also hired a new architect, Feola & Archuleta, who took a really creative approach to the design of the stores.

The third thing we did was to add a second leg to the business by producing a wholesale product that we call Wetzel's Pretzels Express. It's a hand-rolled, par-baked product that is shipped frozen to wholesale accounts. This gets us into venues where they don't have the room to set up a whole store but they still want to sell a fresh-baked pretzel. Customer acceptance of this product has been huge, and we have already opened 40 of these locations at airports, movie theaters, theme parks and universities.

MORE SMALL BUSINESS NEWS: D6, 8

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