(FORTUNE Small Business) – Tony Desio didn't set out to build the biggest nonfood franchise ever. As with many entrepreneurial ventures, it just sort of happened that way. Turn back the clock to 1980. DeSio, then 50 years old, was newly retired from 20 years in the aerospace industry, and his main priority was to hone his golf swing. Sure, he had always wanted to start his own business, but he had no ideas, and life at the 19th hole was much too comfortable.

Although DeSio spent about a year looking for a company to invest in, the next big idea found him. He was approached by the owners of U.S. Mail Boxes, a tiny California company whose only asset was a couple of mailboxes. They were raising capital that the company needed in order to survive. DeSio bought a 25% stake and was soon hooked. He loved the idea of creating an alternative to the U.S. post office's long lines and bad service. Also, as it turned out, the home-business boom was about to create a whole new market. After a few years the company, renamed Mail Boxes Etc. (MBE), became a serious business. It went public in 1986 and had a great ride on Wall Street, with initial investors earning a 30% average annual return during the first ten years, DeSio says. By 1992 it was launching a store a day; DeSio had managed to create a nation of small business operators who produced, on average, annual sales of more than $200,000 per store. DeSio retired from MBE in 1997. (Today the company's 4,200 franchisees are averaging approximately $300,000 in revenues per store annually, according to David Grossman, chairman of MBE's Franchise Advisory Council.)

FSB talked with DeSio about what every small business owner can learn from MBE, about squabbles with his old company, and about the prospects for his new franchise business. Here are some edited excerpts:

How did you go from aerospace engineer to mailbox king?

I've worked for large organizations all my life. I always had a feeling that I should do something entrepreneurial, but I was so comfortable that I never got around to it. Then I came across this little company in Carlsbad, Calif., that was just starting up. Its owners were having some difficulty and were trying to sell off their first store to raise capital. I became enamored at the prospect of taking this mailbox rental facility and making it into something more substantial. I bought in.

But mailboxes? What's exciting about that?

At the time there was a two-year wait to get a post office box in Southern California. I knew I could rent one box at the post office, subdivide it, put boxes in this little storefront, and rent those boxes out. Contract mail-receiving agencies already existed, but it had never been done in a retail format. Home-based businesses were just beginning to explode. Not only did they need a place to get their mail, but they also needed secretarial services, telephone answering services, fax services, and photocopies.

How did business go at first?

It was tough the first few years. Nobody was taking home any money. In 1980 I had three partners. They decided to go. They wouldn't take company stock; they wanted cash or hard assets. To buy them out, I mortgaged my house and put my wife's engagement ring up as collateral.

You couldn't get money to grow the business?

Nobody would give us any money. Nobody believed in the concept. They said, The post office does that, you are crazy. That pushed us into franchising. It turned out that that was the right decision.

We know now it was the right decision, but what gave you faith when everyone was dubious?

I saw our customer base growing rapidly. People were comparing the service they got at our facility to what they were getting at the post office. It was a shock to them. We also established a strategic relationship in 1984 with United Parcel Service, whereby they took a 10% equity position in our company. It helped us sell franchises and was instrumental in our growth.

How did you win the UPS deal?

We became a vehicle for UPS to increase its market share, and its officials recognized that. They would be able to tap into a package business that was ordinarily going to the post office. We put a private placement memorandum together. I took it to UPS and laid it on the CEO's desk and said, "You've got 30 days or we're going to Federal Express." They decided to go with us.

You built a very strong brand. How?

We convinced our franchisees to put a portion of their revenues into a national pool for advertising. We collected probably $4 million to $5 million for national media, which we used primarily for TV ads. That's what really built the brand. We showed 20% increases in same-store sales while we implemented those programs.

What about local ads? How can franchisees or any other small business afford such advertising?

They should go to all the local merchants in the shopping centers and propose joint marketing and joint distribution programs. Use a local marketing association to share the cost of placing ads. We require that every franchisee join a regional marketing association whose members contribute to common marketing. It's more cost-effective than doing it yourself.

What are the biggest mistakes you see franchisees make?

They underestimate what it's going to take to get the business started. They open the doors and expect customers to walk in. It doesn't work that way. You've got to identify your markets, identify your products, develop your marketing materials, and go out and spend a lot of time bringing customers into the facility. Commercial clients don't just come in. You must call on them and extend a free or introductory offer. That starts a relationship. Aggressive marketing and public relations are mandatory. Host a program for the grand open- ing, and send press releases promoting the business to local newspapers.

What about financing?

Often they are not appropriately capitalized, and they incur debt.

What do you do for franchisees that they can't do for themselves?

The franchisor keeps up with what's happening in the areas of technology, marketing, and developing new products and services, and tries to arrange national programs. All of that stuff is very, very difficult for an independent to find time to do. That's why most of the retail in this country is now through franchise outlets. When we first started back in 1980, only 10% of the retail sales in this country were being done through franchises. Today it's close to 50%. The independents are disappearing from the landscape.

What are some of the decisions it takes to succeed as a franchisee?

You've got to do a good job of selecting a location. Most independents make the mistake of going for low rent. They rent in second- or third-class centers where there's no anchor such as a major grocery store or drugstore to create lots of traffic. We know you'll pay more rent in a higher-trafficked area, but it's well worth it. A bad location can be devastating to a business. Adhering to a business plan is also important. Make sure you aren't overpaying your employees, and make sure you aren't underpaying them so that you won't have a lot of turnover.

How can any kind of business distinguish itself?

With superior customer service. When a customer walks through that door, you have to make that person feel as though he has been your friend for the past 20 years. If you don't like people and if you can't smile when the customer is telling you something you don't like, you shouldn't be in any retail business, especially a service business. With Mail Boxes, someone could always get what we sold at a lower rate elsewhere, so we were about convenience. People are very busy and can't afford long lines or limited hours. We emphasized "amazingly good service." We would walk out from behind the counter, go out to the car and pick up the packages, and allow people to call in to see if they had mail in their post office box. Those things set us apart.

MBE had legal problems with some franchisees. What was that about?

We had used some information in our marketing materials that measured the number of stores and their success rate. Franchisees said that just because the stores were open didn't mean they were successful. They said we used misleading terminology. I think it's a far stretch. But we were a public company and didn't want a lawsuit, so we settled. With thousands of franchisees, there are always a few who try to sue you. It's a way of life in this country.

Why did you finally leave your company and bring in new president and CEO James Amos [former CEO of Brice Foods, which owns I Can't Believe It's Yogurt]?

I had quadruple bypass surgery. I talked to my wife, and we decided that I needed to cut back and stop working incessantly. We decided to sell MBE to US Office Products. I had to have in place somebody who could run the company.

Are you still involved?

Not really. I'm chairman emeritus; it's an honorary title. I haven't been consulted on anything since I left. I get calls from some franchisees who are not particularly happy with some of the policies that have been implemented since I left. I feel as though I've abandoned my children.

Why are they upset?

There are some new policies that are not too popular with the network. One is that the new management implemented a whole new appearance of the facilities and changed the colors. It made 4,000 stores obsolete-looking. Franchisees didn't want to change the stores because it costs a lot of money. The corporation said it would lend them the money. [MBE says it launched its new design after two years of testing methods on focus groups and receiving overwhelming support. Don Higginson, MBE's senior vice president of franchise relations and an 18-year veteran of the company, says stores are not required to make the changes.]

Franchisees have said to me, "Mail Boxes was better under Tony," and that they want you back. Could you go back, and would you want to?

I understand that come early next year, US Office Products, which owns MBE today, is going to spin it off as a public company. If they ask me, I'll consider sitting on the board and trying to turn things around. But right now I'm in a very sensitive position: I'm the plaintiff in a lawsuit against US Office Products.

What's the dispute about?

The company made some representations when we sold them MBE relative to the value of US Office Products' stock and its projections for growth. After we traded our stock for theirs, US Office Products' stock went from an adjusted basis of about $60 per share to about ten cents per share now. It has been one of the worst-performing companies on NASDAQ for several years. Mail Boxes is the only thing left that has any value at all. [US Office Products declines to comment about pending litigation.]

You've started a new company, Image Arts Etc. Why?

I found that my body chemistry wasn't conducive to playing golf and gin rummy every day. I started to get involved with investors in some San Diego businesses that were involved in image processing.

What's the concept?

It combines a digital photography studio, a sign shop using the new wide-format printing devices, a frame shop, and an art gallery where you can take photographs of existing artwork and reproduce them on canvas. One of the things that I recognized in retailing is that if you add more services to an existing retail location you can increase the revenue per square foot of the facility. We have sold 25 stores, and five are open. We have a strategic alliance with Kodak. That gives us credibility.

You say it will be a bigger concept than MBE. How can that be?

Image Arts is more attuned to all levels of consumers. People in lower income brackets may not need a post office box or they may not send packages often, but everyone takes pictures of their babies. There are a lot of amateur photographers out there, and people who are involved in art. Folks come in with an old photograph, and we'll restore it, put it on canvas, and frame it. When they see the end product they actually cry. We never got anybody crying about anything at Mail Boxes.