I need this in 7 hours

just do part 3 ( management) and write about 200-250 words about that, I will provide the case and what is the part 3

© Copyright Dileep Rao 2010 (for additional profiles: www.uEntrepreneurs.com) 1

Ed Flaherty
Rapid Oil Change
Minneapolis, Minn

Jump on a trend to change oil and build a $200 million+
chain

This profile is excerpted from Bootstrap to Billions: Proven
Rules from Entrepreneurs who Built Great Companies from Scratch
by Dr. Dileep Rao. Copying or reproduction in any format or medium
without the prior express, written consent of the author is strictly
prohibited. For additional profiles or information: InterFinance Corp.
Phone: 763-588-6067; www.uEntrepreneurs.com; www.infinancing.
com

Summary: At the age of 11, Ed Flaherty started mowing lawns. His dad saw that Flaherty was
starting to make money and told him, “Congratulations, you are now grown up and can buy your own
clothes.” He was only half-joking. Flaherty continued to work at his dad’s auto body shop and his dad’s
friend’s auto junk yard, learning more and more about cars. When he finished high school and college,
he set out to be a school teacher. But before that came the Army. Flaherty worked at the Pentagon and
got an MBA in the evening. Then he joined a consulting firm that worked with the Pentagon, where he
drummed up so much business that he was offered a partnership. But he did not want to stay in the East
Coast, and went back to his native Montana to teach. After a year of teaching, the entrepreneurial bug bit
him and he started a company that sold software to high school coaches. The software helped coaches
to analyze team tendencies. To expand and get more resources, he moved the company to Minneapolis
from Montana. As he was selling his software and franchises around the country, he was introduced to a
computer service bureau that was unloading its assets. He bought the assets for $1 plus assumed $15,000
of debt, and grew the company from $0 in sales to $1.25 million. In the meantime, he found that service
stations expected him to leave his car there all day to get his oil changed, and he had seen a different
model where they did it faster and more conveniently. So he leased a gas station close to his house and
started his first Rapid Oil Change. While the name said Rapid, Flaherty knew that he was not that fast.
One day, the chief mechanic of an Indy-car racing team (whose name Flaherty never found) came to his
store and gave him detailed suggestions to become faster at oil changes. This is when Rapid truly became
rapid. The chain grew and Flaherty soon found himself courted by the major oil companies. He sold to
one of them, took the proceeds and bought the rights to grow Applebee’s restaurants and developed a
chain with sales in the hundreds of millions. It helps to be at the right place at the right time with the right
smarts. This is how he dit it.

Before the Startup

1. Cars, cars and more cars. Ed Flaherty’s dad was in the auto body shop business, where Flaherty
used to hang out and see what cars were all about. Around the age of 13, he started to work at one of his
dad’s friend’s junkyards, where he learned even more about cars. Flaherty wanted to own a car, and his
dad suggested that Flaherty buy a wrecked car and fix it. So Flaherty bought a two-door 1955 Chevy
hardtop that had been in an accident. Its left front was wrecked and it was sitting in his dad’s shop. Flaherty

© Copyright Dileep Rao 2010 (for additional profiles: www.uEntrepreneurs.com)2

bought it for $140, spent $200 for parts and fixed it with the help of his dad and his team. Flaherty did not
have a driver’s license yet so he could not drive the car. When it was fixed, his dad mentioned that there
was a new guy in town who wanted to buy a car, and suggested that Flaherty sell the car. So he agreed
and asked his dad to sell the car for $750. His dad came home the next day with $700 and told Flaherty,
“I think the price is pretty good.” By 20, Flaherty had fixed about 18 more cars. His goal was to buy them
cheap, fix them to “make them look good” and sell them. In the summer he worked at his dad’s shop for $1
an hour and fixed cars on weekends and evenings. He saved his money so he could invest in a business.

Lesson: When you see an opportunity, grab it. When you see a hurdle, overcome it. When you expect
to need money to start your business, save it.

2. The college years. Flaherty was also an athlete. The summer before his senior year of high
school, Flaherty decided that he wanted to be All-State, All-American and the captain of the football
team. Setting these goals, and writing them down, helped him set his priorities, and according to Flaherty,
it helped with his maturity. He was going to school, working forty hours a week at his father’s shop,
fixing cars and lifting weights to get into shape. As he puts it, he enjoyed every minute of it and none of it
seemed like “work.” He achieved all his goals. He became the captain of his high school football team. It
won the state football championship and he was named All-State and All-American (1962). As Flaherty
puts it, “setting goals and working toward them is a gift you can give yourself. Money is only a barometer.
Achievement is not about money.” When he graduated, he went to college on a football scholarship. There,
he got hurt and that ended his football career. He graduated from college with a degree in math and
education. He was planning on becoming a teacher and coach.

Lesson: Set achievable goals and work hard to reach them (sounds like a cliché, but unless you are
incredibly lucky, it isn’t).

3. Pentagon whiz kid. When Flaherty graduated, the Vietnam war was raging and he was drafted.
After eight months of training, he was assigned to the Pentagon to help one of Secretary of Defense Robert
McNamara’s whiz kids. This individual had been planning on becoming an astronaut, but he got hurt and
became a whiz kid. Flaherty learned the value of thoroughness from this job. Previously, as he puts it, he
tended to be a “short-cut artist” and got to “80 percent of the answer.” At the Pentagon, he had to get to
“110 percent of the answer”; otherwise, he would have the honor of redoing his work. He had to examine
under every stone and defend every assertion. His bosses were demanding and threw back bad work.
Flaherty found that he was capable of doing good work, although he had never challenged himself in the
past. Now he had to.

Lesson: Your returns depend on your investment. Talent without dedication is a waste of resources.

4. Part-time MBA. When Flaherty went to the Army, he had two choices. He could see it as a waste
of time and act accordingly, or he could make full use of it and take advantage of the resources available
to him. Since he was based in Washington, D.C., he decided to get something out of it. In addition to his
full-time job, he went to school four nights a week and studied on the weekends. He got his MBA degree
from George Washington University in two years.

Lesson: Time is precious. Don’t waste it.

5. Consulting sales. When Flaherty got out of the Army, he joined a small management-consulting
company that worked with the military. There were about forty very smart people in this consulting
company, with about half of them having Ph.D.s. The owner was the only rainmaker in the firm, getting
all the contracts. Flaherty knew he could get sales contracts because he knew the Department of Defense,
he knew the contract process, he knew the analysts, he knew their problems, and he knew they had the
budgets for consultants. He started calling on the analysts and talking to them about their problems,
which they would freely tell him when asked. He would then regurgitate their problems back to them in

© Copyright Dileep Rao 2010 (for additional profiles: www.uEntrepreneurs.com) 3

the form of a proposal that his firm and the high-IQ people could solve, and get the contracts. Flaherty
found the pain and solved it. According to Flaherty, the high-IQ people were mostly introverts and could
not find clients, but could solve problems. Soon Flaherty grew tired of the East Coast, so he decided to
go back to his native Montana and become a coach and teacher. When he gave his notice of resignation
to the owner of the firm, he was offered 10 percent of the firm if he stayed. Flaherty told him, “I want 90
percent. Ten percent does not work for me.” He exited, stage left.

Lesson: Hunt. Kill. Eat. In business, nothing happens until you get the sale. If you can sell, you have
a valuable talent. To sell, know the pain that your potential customers have, and understand how you
can solve it. When you know the terrain, you become a better hunter. So hunt in the terrain you know,
or get to know the terrain you want to hunt in.

From Startup to Profits

6. The first business. After returning to Montana, Flaherty found that he did not like teaching and
coaching. So he started his first business while he was a teacher, with his savings and a $15,000 loan from
his family. He developed a product that offered a computerized scouting system to football coaches. He
developed and wrote the software with some help and started to sell it, along with the service, to high
school and college football coaches in his area. This is when he began to realize as many other young
men and women before him that Montana was a “desert for opportunity.” So he moved his business
to Minneapolis. He needed a place to process the data and found two men who had a computer service
business. He bought their assets (hardware and software) because they wanted to upgrade, but he could
not buy the customers. He did not have the cash to make a down payment but offered them a five-year
note that he would pay out of cash flow. He then found other teachers like him around the country and
licensed them to sell the software and service in a franchise agreement. Why did he franchise? He did not
have the funding to expand himself, and he wanted to cover a wider territory. He knew that teachers did
not make much money, so many of them also became entrepreneurs and had a part-time business. The
key was finding them. He went to a new town, got dimes and started calling people involved in football,
including coaches, athletes, directors, state football association members, etc. He was looking for people
who were enterprising and liked sports. He occupied the phone booths in the lobby for hours because
the phones in the room were very expensive. The athletic business started to grow, but it was very travel
intensive and he was gone for two to three months at a time. He found that he could not spend enough
time on the athletic business and his service bureau and do justice to both. Flaherty was newly married,
and he and his wife had a new son, so he did not want to travel as much. He was also living on Diet Cokes
and popcorn for a few weeks at a time when money was tight, and the diet was getting tiresome. So he sold
off the athletic business. The athletic segment, however, had helped the growth of the computer service
bureau, and Flaherty had added regular business processing, such as accounts payable and accounts
receivable processing, and built it to annual sales of over $1 million.

Lesson: Although Flaherty attributes this early success to his flexibility (in moving to Minneapolis),
hard work, and perseverance, he did not fully assess the potential before entering the business. If he
had, he would have learned how complex a business it was. But if this had stopped him from starting
his business, he may not have moved to his next phase, which was a gold mine in the guise of used
oil.

7. Side business in real estate. Flaherty majored in architecture for the first two of years of college
before he switched to math. He was always interested in real estate, so every year he would design one
home in the winter, build it in the spring, and sell it in the summer or fall. They were all speculative
homes, and at first Flaherty borrowed their entire cost. Later, he would take all his profits and reinvest in
the next new home and continuously increased the size of the home and its cost. This worked very well,
until interest rates soared to 18 percent. The last home after that rate jump ate up all the profits in his

© Copyright Dileep Rao 2010 (for additional profiles: www.uEntrepreneurs.com)4

real estate projects.
Lesson: Buy right and you can make a fortune. Buy in a bubble and it can cost you one.

8. Future of the service business. Flaherty built the service business to an annual sales level
of $1.25 million, and he was always monitoring technology and trends, so he could decide his future
direction. This future became limited when the first Altair was introduced. The Altair was the first
personal computer. Previously, with the dominance of the mainframes, most small businesses could not
afford to buy a computer, so they used a service bureau that could allocate the time of a mainframe among
a variety of users. With the introduction of the PC, everyone could afford to buy a computer. Flaherty
became one of the first dealers of the Altair in the Twin Cities. When he installed the first PC at a client’s
office, the client laid off five people in the back office. Flaherty knew that the days of the service bureau
were numbered. He sold it.

Lesson: Track trends. When trends are favorable, take advantage before others do, i.e. before the others.
When unfavorable, jump off before others.

9. The oil-change business. To get his car’s oil changed, Flaherty used a gas station that was near
his office. The station’s customers had to leave their cars all day for an oil change. On one of his trips,
Flaherty had seen a 10-minute oil change store in Southern California and thought that the concept
was ripe for Minnesota. So he decided to exit the computer-service industry and enter the oil-change
industry. For his first location, Flaherty selected an empty gas station in one of the Twin Cities’ suburbs.
He leased this store, which had two bays, from a private school on a three-to-five-year lease term, the
renewal of which he would have to negotiate with a member of the school board. He cleaned up the
store, put up signs, bought inventory, and hired a manager. He had just entered his new business, which
was amazingly like his first business in the auto-repair industry. The key reason for his selection of this
particular location was that it was close to his home. As he puts it, “Divine providence was looking after
me.” This turned out to be his best store due to the large number of homes, businesses and heavy traffic
in the area. His initial success with it helped him rapidly expand to more stores in the metro area, and his
next six were among the best in his portfolio.

Lesson: Keep your eyes open. When you see an attractive business opportunity, see how you can
benefit in other markets. Flaherty realized that quick oil changes were the new thing to help people
save time and add convenience. He moved out of the shrinking service bureau business and entered
the new, hot thing.

10. Make the operation efficient and live up to its name. Although he was advertising a 10-minute
oil change, each one was actually taking him 30 minutes. One afternoon, in his store in the Minneapolis
suburb of Bloomington, a customer came in and began studying his operation intently. Being the friendly
sort, Flaherty started chatting with the man, who turned out to be an employee of Andy Granatelli, the
owner of a famous race-car team. This man knew how to change oil and how to do it fast. It turned out
that his wife was from Bloomington, he was in town to visit her parents and he was bored stiff. His
first comment to Flaherty was, “You don’t know what you’re doing, do you?” When Flaherty agreed, the
gentleman reorganized the store’s layout and helped Flaherty reduce the time to change oil from 30
minutes to 5 to 7. This man gave a tremendous gift to Flaherty, but he never gave his name.

Lesson: You need to be smart and hard working. But it helps to be lucky. What’s interesting is that the
ones who become lucky are among the ones who are smart and hardworking.

11. Cash flow and profits. Rapid Oil Change had positive cash flow from month one. Each store
had positive cash flow, and Flaherty made sure that he only went into locations where he knew he could
develop cash flow immediately. To achieve this, Flaherty first analyzed his competitors’ prices without
accounting for any temporary promotions and loss leaders. He realized that many customers were

© Copyright Dileep Rao 2010 (for additional profiles: www.uEntrepreneurs.com) 5

willing to pay up to twice as much as the “loss leader” prices that his competitors sometimes promoted.
He segmented his customers and used loss-leader pricing only to get the marginal customer who could
come in during slow periods when the store was not busy and be willing to wait for three to four hours.
Flaherty calculated his fixed and variable costs, estimated his sales, and determined that he needed 50
percent gross margins (after accounting for direct labor and direct materials) to be competitive and
profitable and reach 20 percent operating-income margins (operating income divided by revenues),
which was his goal. Some of his stores reached operating-income margins of 40 percent. He estimated
his corporate overhead at 5 percent of sales.

Lesson: Test your pricing to the find the right level. Pricing is often the most important decision,
especially for revolutionary products or services. Since quick oil changes were new in his markets,
Flaherty had to truly understand the amount of premium his customers were willing to pay to avoid
the long waits. He found through market testing that he did not need to discount that price. However,
he offered a program for his price-sensitive customers who could wait, thus allowing him to show a
marked differentiation between his two price levels. In addition to knowing the competitive value
of your product or service, you need to know your costs and be able to project revenues with a
reasonable level of confidence to achieve the desired level of profits.

12. Promotion. Initially, Flaherty did not know the right way to promote the quick oil-change services
to attract the type of customer he wanted. So he tested a variety of media to see what worked and what
did not. He realized that he needed two kinds of promotion. He needed to build his brand throughout the
metro area so that customers would learn of his business and feel comfortable using his services. Brand
building also attracted the higher-margin customer. He achieved this objective through mass media such
as TV and radio. However, to attract traffic to each store, he needed to conduct neighborhood-targeted
marketing, and this he did with direct mail, door-to-door coupons, and advertising in the local newspaper.
He measured his investment, and the sales and margin returns from each media investment, eliminating
ones that did not work and enhancing those that did.

Lesson: New businesses usually fail to project accurately in two key areas: The first is the level
and timing of revenues, where entreprenerus are too optimistic. The second is the cost, and the
right way, to get sales, i.e. your sales drivers. There is an old cliché in advertising that “half your
advertising works and the other half does not. The problem is knowing which half works.” Actually, if
you don’t know which half, you also don’t know if it is only half that is a waste. Test, test, test to know
what works and what does not.

From Profits to the Moon

13. Rapid’s growth. As the business started to grow, leases became a problem. If a lease ended, the
profits ended. This meant that Flaherty needed to own the real estate. However, two other trends were
coming together in his favor. The savings and loan associations had been deregulated; they were flush
with cash and had developed loose lending practices. In addition, due to the Arab oil embargo of the early
1970s, there were numerous gas stations that had closed, and the owners were ready to unload them at
fire-sale prices. Flaherty found that this was an ideal situation for him. He could buy the stations with
20 percent down, fix them up, get them reappraised at 120 percent of his total cost, borrow to recoup his
investment, and reuse the funds in a new site. The prices when he purchased were attractive because
oil companies wanted to unload the stations. His repairs and reuse as a Rapid Oil Change station added
value due to his attractive business model, and allowed him to borrow his entire investment. This was
the virtuous circle for Flaherty, and he rode it all the way to the late1980s when all the best sites had
been taken, resulting in higher prices for the stations. And the savings and loan industry’s poor lending
practices had destroyed the industry and resulted in the end of a cheap source of expansion capital.

Lesson: One of the key ingredients you need when you grow is the right financing. Normally, high

© Copyright Dileep Rao 2010 (for additional profiles: www.uEntrepreneurs.com)6

growth and high levels of debt are not compatible with each other because debt comes with debt
service, which means you need cash flow to make the payments. However, because Flaherty bought
stations at attractive locations at good prices, and was able to increase their value and increase cash
flow, he was able to borrow against his property and reuse his equity for more growth. The key to this
strategy was that each store started to show a positive cash flow immediately to repay the debt.

14. Find excellent store managers. As the chain grew, Flaherty needed to find excellent managers
for the stores so he could minimize any operational problems and focus on growth. At first, he looked
for people from the auto industry, but they did not last because the pace of his operations were fast and
Flaherty expected a high level of customer service. He studied the job requirements for his store managers
and realized that he needed people who liked fast-paced work. When he tried a few from the convenience
store industry, he found that they only liked to collect money behind the cash register and liked a slower
pace. However, one of his early successful managerial hires was from the fast-food industry. Flaherty
found that the fast-food industry trained its managers to manage people, equipment and operations to
provide a high quality of product (as much quality as fast food can deliver) and service. And they needed
to know “time compression,” i.e., how to deliver this high-level of service in a fast-paced environment.
Also, the fast-food industry paid its store managers well, but the industry was not as generous with its
assistant managers. Since the fast-food industry was starting to slow down from its torrid rate of growth,
the assistant store managers were no longer finding as many challenging opportunities for growth and
promotion – and were facing a dead end. Flaherty’s new store manager, who had been an assistant
manager at a fast-food store, pointed out to him that the pace at his new job was just as fast, challenging
and fun as his old job in fast food. But that it was more profitable. This manager also knew many fast-food
assistant managers who were anxious to make their mark and eager to jump into a hot new company
that valued their skills more. Flaherty started recruiting from the fast-food industry.

Lesson: First of all, know what you want. Otherwise, how will you know when you are not reaching
your goals? Flaherty claims he “lucked out” when he started finding fast-food assistant managers,
but he had developed standards and was measuring his managers against this standard. He was
analyzing the problem, constantly measuring to identify the best managers, and then seeking more
like them. That is why good luck seems to favor smart, hard-working people.

15. Motivate employees to offer great customer service. To make sure that everyone was working
toward the same goal, Flaherty set up an incentive system at Rapid. Everyone in the store received a
percentage of store profits. He split his operating income with managers, assistants and employees and
structured it so that they made more if Flaherty made more. Flaherty found that some managers turned
customers away before closing time to clean the store, so they could finish at the closing time. So Flaherty
added a $1 incentive per car after a certain number of cars were serviced during the day. He also offered
a share of sales from parts. However, to prevent his employees from selling parts that customers did not
need, the employees did not receive any percentage if the parts sales exceeded a certain percent of store
sales. He did not want greed to affect customer satisfaction. Flaherty also believed in giving his existing
employees first shot at any managerial positions, if they were outstanding employees and had the right
attitudes. This motivated them to work harder.

Lesson: Structure incentive packages intelligently. People work for themselves. If you are fair with
them and offer them a fair share of the profits, they will work harder for you. But make sure you
develop a fair system and don’t offer incentives that could short-change your customer.

16. Control the operation. Flaherty is a huge believer in controls and security. At the time that
Flaherty was building Rapid, there were no point-of-sale cash registers. So Flaherty used numerically
sequenced invoices to minimize the temptation and threat of employee theft. He had lots of internal
auditors, and managers needed to complete a variety of control sheets at the end of each day. He also had

© Copyright Dileep Rao 2010 (for additional profiles: www.uEntrepreneurs.com) 7

an area manager for every six to eight stores. Half of the area manager’s time was devoted to relieving
his store managers so that the area manager could audit the store. Early in the morning, on a random
basis, the area manager would inform the store manager that he was going to that store and that the
store manager could take the day off. This allowed the area manager to track all the variables at the store
and compare performance with other days to check for any discrepancies. Flaherty developed a system
of checks and balances. He got an accounting of physical inventory, such as oil and oil filters, every day.
Flaherty believed that a few will steal no matter how controlled the system, but he wanted a system that
kept the marginal person honest. He also wanted the employees to know that if they stole, they were only
putting a great job and benefits, including their career growth, in jeopardy.

Lesson: Companies grow to the limits of the entrepreneur’s capacity to delegate effectively. This
is especially true in a cash business.

17. Find great locations. In addition to seeking low-cost real estate and experienced store managers
for growth, Flaherty also attempted to understand what made a store’s location successful. He tried to
build a mathematical model of his store’s sales and profits as a function of the location, including variables
such as traffic counts, demographics, speed, competition, corners, turn lanes, signage, etc. He came to the
conclusion that site selection was half art and half science. One could never completely predict how well
the store would do, but he realized that performance was distributed along the normal (or bell-shaped)
curve. So he developed an average and standard deviation (which measures how much the sales could
vary from the mean according to a probabilistic distribution). If the proposed store location was likely to
be profitable at a 3-sigma (about 99 percent probability) level, Flaherty would buy. If not, he would not
buy it, unless the underlying real estate was much more valuable than the asking price. In such marginal
locations, he would buy the site and build a store for its marginal contribution toward overhead. He never
failed due to a location. But he could never find the perfect predictor.

Lesson: In retail, location is key. There may be no such thing as a perfect predictor, and Flaherty found
that out. Formulas are not perfect and the key is to develop human judgment (if only the geniuses of
Wall Street had figured that out). However, he did his best to analyze locations and to understand
the range of possibilities. And he never built on a site unless it was a “sure” winner or if the price was
too good to pass up. Where there is any doubt, negotiate a lower price to reduce your risk, negotiate
clauses that allow you to terminate the lease if the site does not do as well as you would like, or take a
walk. At the beginning of your operation it is far better to risk losing a good site than sign unfavorable
terms on a poor site. Even later, you can only afford so many lousy sites.

18. The right growth rate. Flaherty expanded Rapid Oil Change at the rate of six to eight stores
per year, with the highest being about 10 per year. His goal was not to grow at any random rate but to
grow with control and to be profitable from month one. This meant that he needed to spend the time to
find and select the right location and financing, find the best manager and use his scarce resources to
promote the store to reach immediate cash flows. Control was more important to him than just a rate of
growth, but he also wanted to grow fast enough to be able to capture the best sites that were available.

Lesson: Control your greed and the fear. There is no magic number for a growth rate. The key is
the market need and your resources — financial and managerial. Always expand under control and
build your infrastructure as you grow.

19. Grow organically or via franchising. In 10 years, Flaherty had reached annual sales levels of
about $37 million in 83 stores. All of the stores were company owned. Flaherty did not want to franchise
the concept, since the stores were very profitable, paid for themselves from the first month, and he
could take his money out and invest in a new store. He wanted to control his risk by allocating his scarce
resources to his own stores than to a franchising infrastructure in which he would have to give away a
lot of the profits to franchisees.

© Copyright Dileep Rao 2010 (for additional profiles: www.uEntrepreneurs.com)8

Lesson: If profits per store and return on investment are very high, grow organically. If they are
moderate, consider franchising.

20. The Exit. There were three giants in the oil-supply industry, Pennzoil, Quaker, and Valvoline.
Valvoline did not have an alliance with a retail chain, unlike Pennzoil and Quaker, and it was eager to
establish one to enhance its brand at the retail level. So Valvoline ardently courted Flaherty to sell to
it. Flaherty was also experiencing a tightening of the real estate market and a reduction in attractive
locations, which drove prices higher. He was also facing a restriction in financing that made it tougher
to secure attractive financing, and knew that his net worth was tied up in this one business. So when
Valvoline expressed its interest and willingness to buy, Flaherty did his homework. He found that one of
Ashland’s (Valvoline’s parent company) board members had sold his own company to Valvoline and did
not object to Ashland enriching entrepreneurs. He also got positive feedback about his firm at a Valvoline
reception. So when Valvoline made an initial low-ball offer, Flaherty countered with $50 million, which
was an attractive price for him (“like a medical company” according to Flaherty), and pointed out to
Ashland why it was still a bargain due to its expansion potential. In addition to his price, he also got a
very nice package to stay on and manage the business for the buyer. Over the next two years, Valvoline
invested $100 million to expand the chain to 240 stores with annual sales of nearly $200 million. At the
end of two years, he had his annual meeting with the CEO of Valvoline. Flaherty opened by saying that he
wanted more authority to run the division. Valvoline’s CEO opened by saying that he wanted to tighten
control. Obviously, they did not agree. Flaherty left the company. They parted amicably, and Flaherty
admired Valvoline’s integrity.

Lesson: Do your homework to get the right price. But realize that oil and water don’t mix just as
entrepreneurs and corporations usually don’t mix.

Post-Sale

21. Building new businesses. After selling Rapid Oil Change and building it to nearly $200 million
in sales, Flaherty had no business but plenty of cash. He invested in three businesses and land:

• Miller Milling, which Flaherty and his partners built from a startup to $250 million in sales. The
company produces bread flour and semolina, which is used in pasta.

• Applebee’s: Flaherty and his partners were the first franchisees of Applebee’s, and they built it to
170 stores in eight states and $300 million in sales at its peak.

• A sign company that Flaherty built to $35 million in sales, and
• Enough land to build 500,000 square feet of office and retail space around one of the top shopping

centers in the Twin Cities.
Lesson: Once you have money, you have more options.

Rules for Entrepreneurs from Ed Flaherty of Rapid Oil Change

• Have the right motivation. Fear of failure was a key motivator for Flaherty. Find yours.
• Find your passion. Flaherty ate popcorn for dinner on many days and worked long hours before

he succeeded. Don’t start your business for money. You may not make much. Do what you love.
• Never give up. There were many days when Flaherty was tempted to quit and get a job. Why did

he not do that? See ”passion” above.
• Pay attention to the details. That is where the devil resides.
• Don’t be dependent on a few customers. Diversify your customer base.
• Make sure you structure your costs and investment so that you are profitable. Flaherty

liked 10 to 20-percent operating-income margins.
• Build barriers to entry. Offer great service if you don’t have any other barriers.

© Copyright Dileep Rao 2010 (for additional profiles: www.uEntrepreneurs.com) 9

• The golden rule matters. Treat employees and customers the way you want to be treated.
• Be lucky. Working hard and smart seems to help in this regard.
• Save. Defer gratification so you have a nest egg to invest when the right opportunity comes.
• Business before employees. First take care of the business before taking care of the employees.

If you don’t survive, you will not be able to take care of them anyhow.
• Produce. In the end, we are all paid to produce.
• Time your acts. Flaherty sold the Applebee’s stores when the segment became very competitive.

Know when to enter. Know when to exit.