I spend a lot of time on the telephone these days. I’m constantly calling people who have indicated that they have an interest in changing their lives by investing in a franchise. It’s great most of the time even if it’s frustrating at the same time. The reason for that is something from which any of us in business can learn.
I think that a number of folks are now using some sort of auto-responder on their phones. I will very often dial someone and just as their voicemail kicks in I get a text from them. “I’ll call you back” is pretty common or even the more maddening “I’ll call you back in an hour.” The reality is that I rarely get that callback.
I pride myself on walkin’ the talk. If I tell you that I’m going to do something, I do it. People are trusting me with a lot of sensitive information – their financial situation, their unhappiness with their current work situation in many cases – and I need them to know that I’m worthy of that trust. Keeping commitments is part of building trust. If I tell you that I will call you at 10, you can be quite sure that your phone will ring at 10. That’s what several decades in the TV business do to you – 10 means 10, not 9:58 or 10:02.
Trust is foundational in business. Yes, there are contracts so that everyone knows what the deal is although I probably didn’t pay enough attention to contracts because I always felt that if I could trust the person I was dealing with, contractual issues would tend to take care of themselves. Making a commitment via autoresponder isn’t walkin’ the talk. It’s just talking to get someone off your back. I’m willing to bet most of the folks don’t even know that a text was sent.
I made a resolution this year. I’m not chasing after anyone. They can generate all the texts they want but if they don’t follow through and make the call, I’m done with them. There are lot of foks who are serious about changing their lives for the better and I’m going to be spending my time with them. That’s a commitment and you can bet it’s one I’ll be keeping.
Happy New Year and a new decade to boot! This post was the most-read screed I published in 2019. It’s fitting both to end and to begin the year with it since the topic involves change. This is the time of the year when many people stop and assess their lives which often leads to change. This piece, originally titled “Taking The Beaten Path” has to do with some issues involved in starting your own business. I published it last February and I hope you’ll give it a read and some thought if you’re thinking about starting fresh in 2020.
One of the questions that has come up often in my newish role as a franchise consultant has been why one should look to invest in a franchise to begin with rather than starting a business from scratch. After all, there are generally fairly substantial franchise fees associated with a franchise along with the other expenses one might expect when starting a business plus you usually have on-going royalties. You’ll still have to pay to incorporate, you still often need insurance, licenses, equipment, space, and people. Why incur the extra fees on top of the ordinary expenses? It’s a good question and I have what I think are some good answers. If you’re thinking of starting a business or maybe changing the nature of the business you’re running, here are my thoughts.
First, the biggest advantage of buying into a franchise is that it’s a business in a box. It’s a proven business model, one that comes with built-in support. Almost every franchise I work with has some form of training and on-going mentoring. I think about that in terms of the businesses that have hired me to consult in the past. Much of what I did would have been covered by that sort of support, negating the need for an outside consultant. The franchise will have research and the business results of all the other franchisees. That’s invaluable and beats the heck out of going it alone.
Another consequence of that is you’ll probably experience much faster growth. You won’t be spending time formulating a business plan. Instead, you’ll be getting trained and executing one that has been time-tested. Something as simple as logo design, which can take time and several iterations, is not really a concern. You’ll generally be presented with operations manuals and marketing materials. Your time to market is greatly decreased.
One thing that is much easier is financing your business. Franchises are less risky in lenders’ minds since they’re known brands and proven businesses. While banks aren’t the best source for franchise ending, there are many lenders who specialize in that (I work with 6 of them) and SBA loans are easier to come by as well. Finally, your potential customers will already know who you are. Most franchises have good brand recognition, and even those that don’t have a current local presence can often benefit from being seen as part of a bigger entity.
The Bureau of Labor Statistics says that roughly 1 in 5 of all businesses in the U.S. close after the first two years of operation and a little over a third shut their doors after four years. You can beat those odds by taking the beaten path and investing the franchise fee to gain the above benefits. In my mind, and why I added this to my consulting portfolio, that investment yields as good or better returns than blazing your own new trail. What do you think?
One question that often comes up as I’m discussing franchise opportunities with people is that of what businesses are “hot.” It’s interesting that “hot” comes up at least as often as “profitable”. I can answer the questions for them (and usually do), but I also add a couple of other thoughts. That’s our topic for today.
For those of you that are curious, what’s currently “hot” in the world of franchises falls into a few broad categories. Within the food sector, breakfast places, juice bars, Mexican food, and healthy bowls are doing well. Restoration services – businesses that clean up after accidents or disasters are hot as well. Some of the other categories that are in demand are childcare, pet services, fitness businesses, and some “alternative” health businesses (cryotherapy, etc.), and beauty/grooming. As an aside, I represent businesses in every one of these categories – let me know if you want to learn more!
I’ll review those categories with interested candidates but then I caution them and I’d like to do the same here. Many of the businesses in those categories are “sexy” but several are not particularly profitable. When you’re thinking about making a huge life change, which is what many of the folks I speak with are doing, you need to take a step back and look at the big picture. It’s not about what’s hot because what’s hot today may be gone tomorrow. Think about businesses that were all the rage a couple of years ago. Yogurt stores (yes, I have some of those too) seem to be fading away. Most of the “daily deal” sites have consolidated or gone away. Same with many of the subscription box services. The tanning bed business has transitioned into a spray-tan business.
My point to them, and to you, is that focusing on what’s hot isn’t a great criterion as you’re looking at new opportunities. Instead, ask yourself what makes you happy. What can you see yourself doing every day that will have you excited about getting out of bed? The odds are that there is a franchise that will allow you to do that. Some folks are equally concerned (or more concerned) with making money. Many of the businesses that do that aren’t “sexy.” They’re things like home repair or remodeling businesses or they’re businesses that might require a higher level of capital like a senior care business where you might need to “float” a payroll until cash flow grows.
Businesses ebb and flow. Categories run hot and cold, but what makes you happy probably doesn’t. Add profitability to the mix and you’re on the right track, whether it’s hot or not.
When you have over 500 different brands that you represent, the reality is that you can’t know each and every one of them to the same degree. As I’ve been speaking to people interested in changing their lives for the better, I’ve come to have a list of “go-to” brands in each of the major categories. How these brands got on this list is, I think, instructive for every business.
I was actually speaking about this topic to a development director at one of the brands who reached out. Her first question was about the commission structure. We consultants get paid by the franchisors based on people signing franchise agreements and not by the candidates. I gather that for some consultants that how much of a commission they can make influences their choice of which brands to put forward. Point number one: while it’s obvious that the brands are my customers since they pay me, it’s impossible to work in a situation where the candidate’s interests diverge from the brand’s. In my mind, therefore, the commission is a non-factor. I can’t expect to earn anything in a situation where I hand off an unqualified candidate to a brand. My point is that in any sales situation, every stakeholder’s interests must be considered and subordinating what’s right for one party to a potential higher commission isn’t going to work.
One thing that influences my choice of brands a lot is the amount and quality of information the brand provides. You would not believe how little information I have about some of these franchises, several of which are businesses I don’t quite understand. In some cases, all I have is bare-bones information about costs and royalties and a link to the consumer website – not even a “want a franchise?” page which I have to find on my own. Where some brands give us presentations, folders, one-sheets, and research, others give us nothing. You can guess which brands get pitched. Point number two: don’t send your troops into battle without arming them properly.
The next thing I consider is responsiveness. In many cases, getting the candidate engaged enough to want to speak to a franchisor is a time-consuming effort. Once they are ready to go, I want someone at the franchisor who will be as proactive as I have been to get the candidate this far. Once I’ve made an introduction, I expect the brand to reach out within a day, hopefully within an hour or two. Point number three: if you’re not going to work as hard on making a sale as others engaged in the process, you need to know that there are other businesses out there who will. Be responsive. Return phone calls and emails in a timely manner.
Finally, I also consider communication. Some brands tell me every time they have an interaction with my candidate. Others have been radio-silent. You can guess which type I prefer. It’s very hard to over-communicate in any business.
Those are things I consider when choosing partners. Anything I’ve missed that you think is critical?
Happy Foodie Friday! One thing I’ve learned in my franchise consulting is that people have a fascination with the food business. A significant percentage of the candidates I speak with want to invest in something food and beverage related. I’m generally fairly blunt with them, reminding them that it’s often a business where you’re open for 14 hours a day and are really busy for about 90 minutes. The margins aren’t great, the labor is often unskilled and sketchy, and there are liability issues hanging around everywhere.
Today it’s those 90 minutes I want to talk about. The really busy time. It’s incredibly stressful from what I remember of my days working in foodservice. The stress precipitates everything from accidents caused by rushing to fistfights. It’s not for the faint of heart! That’s why I was happy to read the following this week:
Chipotle Mexican Grill will be providing access to mental healthcare and financial wellness for more than 80,000 employees in 2020 through Employee Assistance Programs and enhanced benefits offerings. This is just one of the many ways that Chipotle continues to enable its workforce by offering world-class benefits.
By simplifying access to mental health benefits and identifying work-related risk factors, Chipotle is trying to minimize the effect of mental health in the workplace.
So many good things here. First, I’ve worked for bosses to whom employees were disposable cogs in the business machine. Someone burns out and isn’t getting it done? Replace them and move on. It’s frustrating as hell when you don’t share their attitude but your hands are tied with respect to offering a solution to the stressed-out team member. Having also worked in places with an Employee Assistance Program I can tell you that they can be literal lifesavers and well worth the cost.
Second, you probably haven’t forgotten that Chipotle had some issues with e.coli a couple of years ago. You know you have a problem on your hands when research showed that 22% of all respondents and 32% of those who don’t currently eat Chipotle said that “nothing” would make them want to visit more often. The food issues have been fixed but the bad taste lingers. Demonstrating concern for your employees is part of rebuilding the brand. Happy employees don’t make stress-related mistakes that lead to bacterial contamination, right?
You can never go wrong doing right for your staff. As a manager, they are your eyes, ears, hands, and voice. Keeping them happy and healthy is doing the same for your business.
I went to one of the warehouse club stores yesterday to make some bulk purchases. If you’ve ever been in one of them – Costco, BJ’s, Sam’s Club, etc. – you know that one feature of walking around the place is that there are usually free samples. You can taste the latest and greatest in meats, cheeses, and frozen things to cook while you’re too busy to make something yourself. That got me thinking about the fact that you really don’t see a lot of sampling elsewhere.
I’m a fan of the free trial. It gets customers walking through your door and using your product. What I don’t particularly like are those “free” trials that require you to fork over your credit card. Free means without strings, right? In particular, if you’re a business that is built around what I think is the gold standard – recurring revenues – you ought to be spending a good chunk of your marketing dollars on free trials.
It’s relatively simple math, right? What’s the lifetime value of a customer? What does it cost you to offer up a free trial – a visit, a free month, whatever? What is the conversion rate of those freebies – how many of the trials become regular customers? Recurring revenues are predictable and generally pretty stable. I bet you’ve signed up for subscriptions of some sort and forgotten you’ve done so or don’t use them as often as you thought you would. For a business, that’s a customer without costs, and that’s a nice margin!
When I talk to people who are looking at franchise opportunities and who don’t have a particular brand or industry in mind, I usually talk to them about the businesses with recurring revenue models. Things like cleaning services. Not a sexy business, but very profitable and that, in part, is because of the recurring revenues. Same thing with spa businesses or some hair salons that feature memberships. Are those businesses that can offer a free trial? Maybe if you’re an out-of-the-box thinker. Giving a converted customer the ability to give away a free trial to a friend is another great way to expand your base at very little cost.
Here is the thing about free trials leading to recurring revenues. As with any business, you have to maintain a high level of customer service. After all, when someone’s credit card is getting dinged each month and your business appears on their statement, it’s an opportunity for them to reconsider. If they walk away, no amount of free sampling will get them back most of the time. Everyone loves something for nothing. The opposite – nothing for something – is very much NOT true!
I left corporate America at the end of 2007. In the dozen years since I’ve worked for myself. Oh sure, I have always considered the clients for whom I consulted to be my bosses, but at the end of the day, I was on my own.
If any of you have been, or are, in a similar circumstance, you know that it’s both a liberating and terrifying feeling. There is the freedom to spend a beautiful day at the beach or on a golf course instead of working. After all, you’re the boss. Along with that freedom, at least for me, there was always guilt that I had taken the day to play or run errands rather than grinding it out as I had done for the 30+ prior years of my business life. I guess the Protestant work ethic applies even to Jews…
While I’m still working for myself, the last year I’ve not been BY myself. As a franchise consultant, I’m a part of a much broader network of several hundred other coaches. We share information, I have access to ongoing education about franchises and how to do my job more effectively, there is someone doing collections for me, and the network actually even finds leads for me if I want. I’m in business for myself but not by myself, as is the case with any franchise.
Candidates (people considering investing in a franchise) sometimes ask why they should go with a franchise instead of using their capital to start up their own business. The statistics answer that question for me. 90% of new businesses fail in anywhere from the first five years to as little as the first four months. 90% of franchises are still in business after five years. There is a reason for that, which is that you’re investing in a proven concept. The mistakes have been made, the operation has been refined, marketing plans have been tweaked, and all of that is being handed to you as part of your investment along with training that can last from a few days to weeks, with ongoing mentoring and education for much longer. Pretty spiffy, and a route I wish I had taken a dozen years ago instead of trying to figure it all out on my own.
So what can go wrong with a franchise? I think the two biggest sources of problems are when franchisees don’t follow the model or when they are undercapitalized. In the first case, ignoring the model is basically throwing away what you paid for and diminishing your success rate quite a bit. In the second case, ANY business will fail if it’s undercapitalized no matter how well-run it is. Counting on immediate cash flow to support the operation (or your ability to eat!) is short-sighted. That’s why franchising makes even more sense since there is a track record of what capital is needed to get the business up and running for the first few months. It’s actually so clear that the franchises put those costs in their Franchise Disclosure Document (item 7) and those are numbers I have and discuss with folks as they are looking at investing.
Being in business for yourself is great. It’s even better when you’re not by yourself. I can show you how to make that happen for you. Just click here and let’s get started.