How Howard Schultz's Other Chain Avoided Starbucks' Over-Expansion

Nearly a decade ago, Starbucks (SBUX) founder Howard Schultz invested in a little Chicago sandwich chain called Potbelly Sandwich Works through his venture-capital arm, Maveron. Potbelly's management team seem to have learned from the overexpansion problems at Starbucks, and have slowly laid the groundwork for a smash-hit chain.

Getting a high-flying investor like Schultz might have made many chains go nuts and expand liked mad. But since Maveron's 2001 investment, Potbelly has taken it slow, growing gradually to about 200 stores. Here's why Potbelly is poised to be the next great national sandwich chain:

1. Atmosphere. Instead of the typical, institutional-plastic look of so many fast feeders, Potbelly provides a funky, antique-filled interior with an old-fashioned feel, centered around each store's potbelly stove. You'd never get confused and think you were in Subway or Quiznos.
2. Manageable growth. A lot of companies might have gone on an expansion binge after getting $11 million from Maveron. But Potbelly just kept plugging along, mostly adding about 20 restaurants a year to hit 200 units this year. That deliberate growth pace allowed the company to keep control of the concept.
3. Smart geographic expansion. Many chains run into trouble when they start growing. Their managers get excited and start throwing up stores here, there, and everywhere, ending up with a mishmash of far-flung locations that are hard to supply and harder to market cost-effectively. Instead, at Potbelly about one-third of all the chain's stores are still in the Chicago area, and Potbelly is still only in 13 states, mostly in the Midwest and Northeast.
4. Top-notch team. In 2008, Potbelly landed former Sears Holdings Corp. (SHLD) chief executive Alywin Lewis as Potbelly's CEO, when founder Bryant Keil was ready to bring in a pro.
5. Franchising when appropriate. Starbucks has always resisted franchising, using it only overseas and in special situations such as airports. But Potbelly just signaled it's finally ready for faster growth by signing its first franchisee. That's a smart move, as with the homey, handcrafted feel of this chain, store owner-operators are probably going to keep the company culture alive better than would hundreds of corporate units owned by employee-managers. At a time when many companies seem to open a single store and then start looking for franchise owners, Potbelly is remarkable for its restraint here. The company's been expanding since 1977, but just now decided its concept and systems are ready to hand off to franchise owners. Refreshing.
6. Great food quality. The chain has won raving fans for its hand-sliced meats, toasted sandwiches and handmade shakes. The photo above was accompanied by the caption "We ate there three times this trip!"

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