Wednesday is tasting day at Jimmy John’s headquarters, and founder Jimmy John Liautaud is the taster-in-chief. He struts into the test kitchen, dressed in an untucked shirt and jeans, ready to inspect the food: ten kinds of sandwiches, six types of deli meats, potato chips and cookies. Up first is the bread. Liautaud presses his nose into a wheat baguette and inhales. It passes the smell test. He takes a bite and chews the bread into a paste, then spits it into the trash. “I don’t want all these calories,” he says. “Look at me—I work hard, and I’m already 300 pounds.” The baguette passes the taste test as well, and Liautaud moves on to a possible new white chocolate chip for his cookies. The verdict? “That chip sucks.” He spits it out, too.
Liautaud, 54, opened his first Jimmy John’s sandwich store 35 years ago. Today the company has over $2 billion in sales from 2,802 locations, but he no longer runs the show: Jimmy John’s has outgrown Jimmy John Liautaud. Now he answers to Roark Capital, a private equity firm based in Atlanta that bought the majority of the business in 2016 in a deal that valued the chain at approximately $3 billion. Liautaud retains an estimated 35% of the company, and he’s worth $1.7 billion, thanks to that deal and to other investments, like farmland in Illinois and a stake in the e-cigarette producer Juul.
While Liautaud used to make all the decisions, he is now in charge of food and culture. He kept the title of chairman but admits that “[Roark] can choose to listen to me or choose not to listen to me. They can do whatever they want.” In selling to Roark, which also owns majority stakes in Arby’s and Buffalo Wild Wings, among other restaurant companies, he handed power to a firm that seems in many ways his opposite. “I wear my heart on my shirtsleeve,” says Liautaud, who had to sign a nondisclosure agreement as part of the deal but is used to speaking his mind. He swears profusely and likes to adorn himself with hokey titles like Sandwich Savant.
Roark, meanwhile, is named after the protagonist in Ayn Rand’s The Fountainhead, the kind of reference normally made by people who demand to be taken seriously. And while Liautaud loves the limelight, the private equity firm is notoriously reserved, rarely speaking to the media. Its founder, Neal Aronson, did respond to an emailed question about his experience working with Liautaud. His answer: “Fun . . . exciting.”
Time will reveal how Liautaud handles his diminished role and whether he can gel with Roark’s buttoned-up demeanor. The partnership will surely be tested, especially given Liautaud’s in-your-face personality. Jimmy John’s same-store sales have slipped in each of the last three years, signaling the need for changes. For the moment, Liautaud seems at peace. “I feel very blessed. I don’t think there are words for it,” he says.
Liautaud has dealt with turbulence for much of his life. As a kid, money was tight. His mother, Gina, who immigrated from Lithuania at age 12, taught elementary school in Illinois. His father, James, was an army veteran turned striving entrepreneur who twice filed for bankruptcy, when Liautaud was 8 and 12 years old. “I remember drinking powdered milk. Powdered milk sucks,” Liautaud says in a near-yell, the way he says just about everything.
To increase his customer base, Liautaud targeted college students and personally delivered to their dorms, charging 25 cents a sandwich. (Virtually all Jimmy John’s stores still deliver, typically for a flat fee of $2.) He worked 18-hour days and learned basic finance on the fly. “I watched what makes the bank balance go up and what makes it go down,” he says. “Well, when I wrote the payroll checks, the bank balance went down.” Within months of his grand opening, he began to stagger the arrival times of employees in 15-minute increments rather than have them all arrive at once, saving a few dollars each shift. In his first 12 months, Liautaud pulled in $154,000 in sales, netting $40,000, which he split with his dad. He generated slightly higher figures the following year, then bought his father out for the initial $25,000 loan plus interest.“My early years in life were an utter failure,” he says. “I graduated second-to-last in my class in high school, and I was a fat kid.” By the time he graduated, Liautaud’s father had found success with a plastics-molding firm. He gave his son $25,000 as seed money to start a business, on the condition that he would join the Army if it didn’t take off within a year. At first Liautaud considered a hot dog stand, but the equipment was too expensive, so he opted for a sub shop set up in a converted garage. The first Jimmy John’s store opened among a cluster of bars near Eastern Illinois University in 1983, the day after Liautaud’s 19th birthday. He and his dad split ownership, 52% and 48%, respectively.
Liautaud opened his second shop, near Western Illinois University, in 1986, then expanded to Champaign, Illinois, where Jimmy John’s is headquartered. To create buzz he printed ads with headlines like “PARTY” and, strangely, “NO ZITS.” By 1994 Liautaud’s ten stores were making $1 million a year in gross profit, he recalls, on roughly $4 million in revenue. Jimmy John’s started selling franchises that same year, mostly in the heartland states, in order to expand even faster.
In 2005 Liautaud decided to diversify his fortune by selling off a piece of the company. “I knew that if I could make $2 million a year, no matter what happened to Jimmy John’s, I could live my entire life,” he says. He selected Weston Presidio, a private equity firm in Boston, after one of its partners came to visit him at home in Champaign. Without lawyers, they forged an initial agreement, and in 2007 Liautaud sold 28% of the business, netting $130 million after taxes. He wrote checks for $250,000 each to his first three employees and poured much of the remaining cash into farmland and municipal bonds, planning to live off the interest.As the business grew, the menu stayed simple—today’s has six meats, three breads and provolone cheese—which set Jimmy John’s apart from the competition and kept food costs down. Meanwhile, Liautaud implemented systems that ensured consistency at every restaurant. Store layouts were strictly standardized, from the size of the walk-in refrigerators to the placement of the sinks. “Pilots that use checklists typically live longer than pilots that don’t,” he says.
For another half-dozen or so years, business boomed, but at some point things became less fun. Liautaud struggled to keep up with his company’s growth. By 2014 Jimmy John’s had expanded to over 2,000 locations, and he could no longer control all the parts. “I felt like I was running out of bandwidth,” he says. “It was getting so big and so complex. In the marketing department I had a $100 million ad fund, and I’m like, ‘How do I effectively execute a $100 million ad fund?’ ” Liautaud made president James North, a longtime employee he had met on a hunting trip in Alaska in 1998, the chain’s first CEO.
Instead, Liautaud sought an investment from another private equity firm, which would not only allow Weston to cash out but also provide him with an experienced partner. He hired an investment banker to solicit bids from the country’s top private equity shops, including TPG, KKR and Roark Capital. They all wanted in, Liautaud claims, but Aronson, Roark’s founder, stood out by asking him questions about his family rather than just focusing on numbers. “I knew I needed a big brother,” Liautaud says. Around the same time, Weston Presidio was looking to off-load its Jimmy John’s stake. Liautaud considered a public offering but then reversed course. “I pulled the IPO because I didn’t want to be a public company,” he says. “I just couldn’t manage serving Wall Street.”
Liautaud invited his new pal to spend a night at his “crappy old farmhouse” 20 miles outside Champaign in the summer of 2016. Over cheeseburgers and “an amazing bottle of white Burgundy,” he says, they and their wives talked about life and kids and dogs. “[Aronson] is this big, clumsy, kind, beautiful soul.”
The overnight paid off for both men. That October, Roark bought out Weston, which reportedly made 16 times its initial investment. Liautaud sold more than half his stake. Thanks to an options pool, the deal turned 14 Jimmy John’s employees into millionaires, including Liautaud’s secretary.
oark Capital is based in a 41-story skyscraper in midtown Atlanta, just across the street from the Four Seasons Hotel. From here, Aronson manages an empire that includes not just Arby’s and Buffalo Wild Wings but also Carvel Ice Cream, Cinnabon, Carl’s Jr., Hardee’s, Jamba Juice and more. The firm has over $10 billion in assets under management.
“The last couple of years they’ve slowed, I think, as these challenges in saturation have continued to grow,” says David Henkes, a senior principal at Technomic, a food-service research firm. Still, he expects Roark’s management team to spark a turnaround. Much as it did with Arby’s: Since it invested in the roast-beef-sandwich chain in 2011, Arby’s has gone from one of the worst performers in the industry to one of the best, posting seven straight years of rising same-store sales. Jimmy John’s is among Roark’s larger investments and likely demands outsize attention. Business has been rough lately; same-store sales have dropped each year since 2014, including 3% in 2017, according to Liautaud. One cause of the decline: Jimmy John’s was once unique for its delivery service. Now online delivery services like Seamless, Postmates and Grubhub allow customers to get subs delivered from many of Jimmy John’s competitors. The sandwich industry is also becoming increasingly concentrated and competitive: with Subway (24,812 U.S. locations), Jersey Mike’s (1,482), Firehouse Subs (1,115) and others.
This article originally appeared on Forbes