Opinions expressed by Entrepreneur contributors are their own.
Emerging franchise brands are laser-focused on growth, and rightfully so. However, growth consumes a lot of cash, and many are undercapitalized and unable to staff adequately in the initial stages of the business. A more nuanced approach to talent acquisition can facilitate success.
Leveraging offshore talent is a lesser-utilized growth strategy for emerging franchise brands. Outsourcing no longer fills just junior or customer service roles — a common misconception in today’s landscape. Now, high-value, skilled workers are available around the globe to support completing higher-level work. Offshoring helps franchisors proactively hire as part of their growth strategy, instead of staying reactive while conserving cash.
Historically, I have seen very few brands leverage outsourced labor. However, that is beginning to shift as franchise leaders begin to understand the benefits of having an international talent strategy. There are compelling reasons that fast-growing franchisors can benefit from leveraging offshore talent.
Talent scarcity persists as a substantial issue that won’t soon go away. It’s becoming harder to find, afford and retain top talent. A ManpowerGroup report revealed that 75% of employers say they have difficulty filling roles, and a study by Korn Ferry found that by 2030, there could be a global talent shortfall of 85 million people — to the tune of $8.5T in unrealized annual revenues if the issue is left unaddressed.
A shift in the talent procurement process is necessary to address this scarcity. Offshoring provides access to a much broader, global talent pool. Franchises need access to a wide range of skills and expertise that may be limited or fiscally prohibitive in their local markets. Offshoring can be particularly beneficial for more specialized roles within the business.
2. Cost efficiency and scalability
A significant outsourcing advantage is cost savings. Offshore talent carries a much lower expense compared to local hiring, with significantly reduced budgets for wages and benefits. With the right offshore talent, work quality won’t be sacrificed. This can be crucial for franchisors that need to maximize their resources during periods of rapid growth.
It takes a long time for a franchise brand to become royalty-sufficient, which is why growth is especially important for new businesses. As franchises grow, the need for broader skills and additional staff rises. Offshoring provides the flexibility to expand or contract the workforce as needed, without the expense or complexity of hiring locally.
3. Quality improvement
Any business in growth mode struggles to hire ahead of the demand curve. Hiring proactively can help franchisors expand their capacity ahead of that curve to maintain high quality, brand value and customer satisfaction. Often, they delay hiring crucial roles or bring on less experienced workers to reduce costs. These are not mutually exclusive.
Most people think of outsourcing as transactionally delegating low-level tasks that no one wants to do. Instead, franchisors should consider offshoring, hiring skilled workers to fill roles earlier than they could otherwise with domestic workers.
For example, leveraging offshore talent could mean that domestic employees can take on new roles, such as management responsibilities, expanding capacity and facilitating greater business value.
4. Round-the-clock operations
Offshore teams often operate in different time zones. Meaning, they can complete their work outside of the franchise’s local business hours, effectively enabling 24/7 operations.
Within growing companies, executives often get mired in operational or administrative details. Through offshoring, franchise executives can affordably find support that relieves operational burdens and allows them to focus on core activities, such as franchise development and strategy and management, which spur growth and expansion. Offshore teams can handle repetitive and time-consuming tasks, which in turn increases organizational efficiency and productivity.
With this level of support, leaders can expand their bandwidth and add strategic value to the organization.
Investing in offshore talent allows room for franchises to grow. Businesses gain access to a wider range of skilled talent, and they can upgrade internal teams and foster leadership capacity and effectiveness. Cost-efficiency and 24/7 service provide much-needed relief to young franchise businesses — and customer service and profitability don’t suffer in the process.
Offshoring helps growing franchises increase organizational value. The flexibility that engaging today’s offshore talent provides creates a skilled global workforce that fulfills more roles than customer service.
Opinions expressed by Entrepreneur contributors are their own.
When it comes to measuring potential, it often feels a lot like guessing. We use vague sayings like, “Go big or go home,” or “You can either be a big fish in a small pond or a small fish in a big pond.” It’s either big or small. Successful or not. Worth it or worthless.
How come we’re only measuring potential like it’s purely black or white?
For under-appreciated small giants with limited resources, this is too simplistic. If you have limited resources, time and energy, scaling takes thoughtful strategy — something that franchise restaurants have long learned the hard way.
Opinions expressed by Entrepreneur contributors are their own.
Franchising has become increasingly popular in 2023. There are a number of positive predictions, according to the 2023 Franchising Outlook Study, and forecasts show it will continue to grow. In fact, it will add more than a quarter-million jobs and another 15,000 new independent businesses this year. Franchising is an amazing business model, regardless of the product or service, from The Lube Center (for cars) to Diaper Services to Diamond Brokers, that can be reliably exercised by trained staff while minimizing the need for innovation.
Ultimately, it creates a template for a successful business model, delivering a replicated product that consumers understand and rely on for a known quality, a known experience and a known price — without concern for the location, time of day or staff.
But the success of a franchise lies in attracting the “best of the best” franchise owners and operators who represent the most compelling characteristics of our American spirit: motivated entrepreneurs willing to invest and commit to creating their own American dream as a business owner. A franchise must compete for these valuable franchisees by demonstrating their franchise provides a clear path to success with support and tools, making it an ideal investment choice.
This article will explore a new franchise value that is obtainable, demonstrable and turnkey, that will not only influence the potential operator but will catapult existing franchise operations to new levels of success. This value is applicable to all forms of franchises in any industry — literally, any franchise that needs or would benefit from building loyal customers — but for the sake of providing examples, this will focus on the food service industry.
Gain a competitive edge with a successful marketing solution
Franchisees desire success just like you do, and beyond furniture and fittings, or supply chain operational challenges, it’s important to support all locations with critical marketing and sales support that sets them up for profitability from the start.
However, the work doesn’t end once the franchisee has a successful launch. Across the entire franchise, from locations in operation for years to the newly opened store, consistent, reliable and valuable guest engagement and direct marketing are as important as the decision to standardize fries delivered directly from Idaho.
Embracing a new, innovative approach to engaging the guest and leveraging the success of the individual locations for the success of the franchise will position both the franchisee as well as the franchisor to new levels of growth.
So, to gain a competitive edge and to attract not only potential franchisees, but investors, integrating an ongoing and successful marketing solution into your franchise operations is a “must.”
The role of integrated WiFi marketing in a franchise
Effective marketing for a franchise requires the right technology to maximize return on investment. Studies show that 96% of customers prefer a business that offers free on-site WiFi (Cisco), and an overwhelming majority of customers are happy receiving promotions and messaging while connected to the WiFi. However, only a small percentage of franchises have turned their WiFi presence into a successful marketing solution, which can be accomplished through integrated WiFi marketing technology.
This technology is actually a set of technologies that include WiFi, text, social media and digital displays integrated to execute a marketing campaign. And it provides a single operational point to oversee franchise-wide marketing campaigns, while also empowering operators to leverage those same technologies for localized campaigns.
With integrated WiFi marketing, customers can access the free WiFi by providing their phone number or by logging in with Facebook, Google or email, and this builds a simple, consistent and reliable communication link directly to the device in the customer’s hand. This link allows the franchise to recognize the device and record their visits and general behaviors, such as the days they come in, times of day, duration of the visit, typical frequency and more. With this new data, the franchise is now able to hyper-target customers with messaging that resonates uniquely with their interests.
With the customer data, personalized SMS messages with specific offers can be sent, and the franchise can track when a customer enters a new location and send them a message such as, “We’d love to hear of what you think of our Fresno location (link to survey), and for your time, we’ll upgrade your choice of combo meals.” Or it could even be something more fun like a link to the social presence of that specific store’s events page and asking for a “check-in.”
Since the goal of this article is to demonstrate a way a franchisor can provide value to attract top-performing franchisees, let’s look at a fully integrated example of WiFi marketing that ties in a WiFi greeting with social media, digital displays, text messaging and use of a QR code — all while customer data is being filtered and the messaging targeted — for revenue-generating results:
A customer who has visited before and provided their information to access the free WiFi walks into the restaurant location and the device is recognized. The customer immediately receives a greeting via text message: “Thanks for visiting us again. How do $5 margaritas and $2 tacos sound with prizes and entertainment? We’re having a 4th of July fiesta. Learn more here (link to event on Facebook).”
The customer goes to the Facebook event with a single click and (hopefully) “likes” the post and RSVPs to the event. While there, the customer learns that those who join the loyalty program get a free pint glass at the event and can reserve EXCLUSIVE VIP seating in advance — an offer only made to WiFi loyalty customers.
The event and loyalty program benefits are further promoted on the digital display signage that has the following message: Get VIP status at our annual 4th of July fiesta. Sign up for our loyalty program by texting FIESTA to XXXX.” The digital display signage also has a QR code that can be scanned for more information on the 4th of July fiesta and a call-to-action to RSVP.
The customer has now received messaging that accomplishes several important steps. First, the customer has been enticed to attend the 4th of July event. Second, the customer has been driven to the restaurant’s social media posts where they can engage, which in turn, ensures Facebook’s algorithm shows the posts more prominently. Third, the customer has been “encouraged” to join the loyalty program which, in turn, motivates the customer to become not just a repeat customer, but a loyal customer. And fourth, the digital display messaging and QR code further reinforce event attendance, loyalty program participation and social media engagement.
Combined, this integrated approach to marketing the restaurant’s event and loyalty program translates to the customer attending and spending money at an event they may otherwise have not paid attention to or known about, and most importantly, the customer has transitioned from being a one-time customer to a loyal, revenue-generating customer.
For the franchise, this is valuable because the solution is centralized, and all the marketing elements can be uniform, distributed in a timely manner and not be reliant on the individual franchise locations for compliance with the program. Additionally, since it can be automated, replicated and distributed across the entire franchise with the click of a button, the underlying marketing campaigns are synchronized and executed for maximum results.
While for the franchisee, the campaigns are no longer a burden and allow the franchisee to focus on their operations, staffing and profitability driven by powerful marketing that drives repeat business and event attendance. Also, the franchise and franchisee both are able to see the tangible, black-and-white results of the effectiveness of the complete marketing campaign in real time.
Effective marketing is essential to growing a franchise business, and the incorporation of integrated WiFi marketing technology can maximize ROI and help achieve business goals — while providing the franchise with a unique and revolutionary discriminator in the competition for the most desirable franchise operators.
By offering Integrated WiFi marketing technology as part of franchise operations, franchisees can capture customer data, send targeted SMS messages, leverage social media, utilize digital displays and access real-time reports across the entire franchise. Overall, providing this technology can increase the franchise’s overall brand image, boost franchise success and contribute to overall brand growth.
Opinions expressed by Entrepreneur contributors are their own.
A few years ago, I was speaking to some friends and colleagues about a vision I had for a new franchise restaurant. I told them the brand had a unique concept and could quickly be on track to 1,000 worldwide locations. The responses were fairly consistent: incredulity and laughter. And these people were supposed to be my friends!
The brand we talked about was The Halal Guys, a company I work with. After an extremely successful 2022, one in which the company opened its 100th location — and with 300-plus more in development — it was tempting to then ask them, “Who’s laughing now?”
The plan was aggressive from the jump: We’d target the 50 largest markets in North America, then go international. Most of those major metro areas are covered now, and international expansion has begun with the UK and South Korea. Pulling this all off as quickly as we’d envisioned seemed impossible to a great many, but that ambitious mindset worked.
Here are some essential strategies I’ve applied in the course of taking more than 10 such brands worldwide.
There’s nothing a failing person likes to see more than someone else fail. So, it’s okay if someone doesn’t see your vision: It wasn’t their vision anyway, it’s yours.
My story about The Halal Guys isn’t an outlier. When you’re building, many people are going to root for you to tank simply because they aren’t winning, which often means that they’ll give you bad advice, encourage you to back off and/or withhold a helping hand. That’s why it’s so important to think positively about your brand’s potential and growth plan. Because challenges arise for young franchises daily, and panic doesn’t put money in the bank.
When I was helping PayMore through its initial franchise launch, it seemed that we couldn’t sell to anyone. Despite great unit economics and a scalable business plan, many thought its buy-sell-trade model seemed too much like a pawn shop, and in truth, we weren’t doing the company any favors by presenting it like one.
Still, there was no panic. We stayed positive and altered our presentation. It’s been a little more than a year now since we launched franchising, and over the last two months have completed more than a dozen deals encompassing 60-plus units. Put simply, positivity paid off.
Think aggressively
It’s important to have brand standards, but it’s also important to know when to bend them. You may be dead-set on only allowing multi-unit deals, for example, but the right single-unit deal can get the ball rolling for a stagnant brand, including attracting good press, which could lead to a multi-unit franchisee down the road.
Also, think about how you can incentivize franchisees to expand their territories because encouraging them to embrace affordable conversions could lead to quicker growth (keep in mind that this requires having the right design and brand standards in place). Thinking aggressively means being prepared to act fast when opportunities arise, so plan accordingly when building your business strategy.
Part of thinking aggressively is thinking big: Don’t be content with small, steady growth if your concept can handle rapid expansion. Don’t be afraid to go for it.
Building a brand that aims to be a household name is a lot easier with a solid team in place. I’ve always enjoyed getting my hands dirty, and I’ve never worked harder than I did for real mentors and with other people who have taught me about the industry.
Case in point: I’m working with a new brand out of Chicago called Cilantro Taco Grill. Their story is inspiring — run by a family of first-generation immigrants from Jalisco, Mexico, who built the restaurant as a tribute to their father and as a celebration of the authentic flavors they grew up with. They’ve dominated the quick-service Mexican scene in Chicago, in part because their business plan was born out of familial love. The company’s story and standards are authentic, and its food tastes better because of that.
This is just part of why it’s so vital to share your goals, and even more so to share your success. Team members should also be in line with the business plan and where the brand is headed — should be thinking positively and aggressively right alongside you. Of course, that requires the right workplace dynamic: People naturally invest themselves in people who take care of them, so incentivize success, offer quality benefits and provide a comfortable workplace.
The goal for any franchisee should be to get wealthy, certainly, which involves building towards an exit. This business, like virtually all others, is about growing an asset that has the potential to sell at peak value. That’s why you need to be positive, prioritize aggression and focus on building a team — with the very possible goal of attracting a buyer. A profitable five-unit franchise chain that sells at eight times its yearly income could potentially set you up for life — a return most other industries can’t offer in a comparable timeframe.
You shouldn’t be looking to create a job — heck, you can go find a job. Your future in franchising should be building generational wealth — for your family, your kids and yourself.
In an A/B test, the goal is to isolate two variables to determine which one works better. This is imperative for decision-making and business growth.
Here’s a quick example
Let’s assume you’re running a pay-per-click (PPC) ad for a home-service business, and you want to know whether an ad that touts same-day service is more effective than one offering a money-back guarantee.
Then you could try two more ads with two completely different messages and measure their results against the winner of the first test or go head-to-head in a real-time matchup.
Do this again and again, and ultimately you will have statistical evidence as to which message (or messages) work best to attract your targeted buyer.
Refine your A/B tests even more
There are all kinds of variants and refinements you can try. Perhaps B won your first A/B test, and now you need to decide between B and C (this process of incrementally improving your messaging can — and should — go on virtually forever).
What we are talking about here is creating a system that you have tested, measured and refined until each element of the system works.
Now imagine that the system you’ve built for your advertising message can be extended beyond just the message to the media that carries it. Each form of media can produce different leads for you, at a different cost per lead. And each of those leads will have a different value to you in terms of cost per sale. So you need to measure these variables during your testing process as well.
If you can do that across the entire marketing spectrum, you can refine your media mix and your advertising budget along with your message. This will allow you to optimize your marketing and create a true system for the entire marketing process.
Keep in mind, though, that when you measure this system against your financial performance, you should only keep it if it generates revenue for you at a rate that allows you to provide your service (or your product) profitably.
If your marketing costs are so high that it becomes impossible for you to turn a profit, you need to go back to the drawing board and find something (different marketing, hopefully, but perhaps different products or services) that will allow you to make money.
Go beyond the marketing example
The example above is how successful marketing systems are created.
But these systems are not just limited to marketing: In the best businesses, they are incorporated in almost every repetitive function of business operations — from site selection and build-out to hiring and training to purchasing and pricing to production and delivery.
Going from small business to successful startup to scalable growth takes more than just good luck. It takes a system. Over the last 34 years, franchising consultant and growth expert Mark Siebert has been sought out by more than 70,000 executives looking to expand their companies. Out of those 70,000, only 5,000 had the right systems in place to go from successful to scalable. In The Multiplier Model, Siebert discusses the factors that determine if an entrepreneur is ready to scale their venture — and the best ways to get started. Read more.
KPIs are the inputs into your business system. Each KPI has a target range that, if achieved and combined successfully with other KPIs, will allow you to manufacture the output of your business profitability.
Read on for what you should know about KPIs and how you can apply these practices to your own business.
KPIs vary substantially depending on the industry. For restaurants, a few of the many important KPI measurements include the sales-to-investment ratio, food costs, labor costs, average ticket, table turns and occupancy costs.
If you’re in the hotel business, some important KPIs include overall occupancy rate and average revenue per occupied room.
If you’re a manufacturer, you’ll certainly want to look at things like the product return rate and net promoter score.
If you’re in the business of selling advertising, you may want to focus on sustaining your customer base — so KPIs like customer retention rate, customer churn and repeat purchase ratio might make your list.
And if you are in a membership-based, fee-for-service business, like a massage or fitness operation, you may want to monitor metrics like revenue growth per customer and time between purchases.
KPI targets can differ within the same industry
KPI targets can be different within the same industry, too. For example, in the restaurant industry, a steakhouse might aim for food costs in the range of 35%, while for a pizza restaurant, that number might be closer to 30%. But shoot for those numbers at a pretzel shop, where 20% would be considered high, and you could have a disaster on your hands.
Different types of businesses in the same broad category (restaurants, in this example) can have very different target KPIs because of other changes in the business model.
Related: Considering franchise ownership? Get started now and take this quiz to find your personalized list of franchises that match your lifestyle, interests and budget.
Going back to our restaurant example, the logical assumption is that we want to keep our food costs down. After all, each percentage point saved on food costs, all else being equal, will translate to a significant increase in profitability. But everything is not always equal.
If you can reduce your food costs by eliminating waste, improving portion and inventory controls or establishing better systems for pricing or purchasing, then you could improve your Money Machine.
On the other hand, if you had to sacrifice quality, raise prices unreasonably high or make your portions so small that your customers left dissatisfied, your reduced food costs KPI could have a severe negative impact on your overall profitability.
In other words, anyone can decrease food costs down to 2% if they charge $50 for a burger. But how many will they sell?
Likewise, you could reduce your labor costs in your restaurant by simply hiring fewer people. But if that results in poor service and unhappy customers, you may have missed the point of the exercise. So as you start identifying the KPIs and target numbers that will ultimately drive your business, bear in mind that changes to your KPIs may have unintended consequences.
Categorize your KPIs
Generally speaking, the KPIs for a small business can be grouped into several major categories: marketing metrics, sales metrics, production and financial metrics, and client satisfaction metrics. And these KPIs generally occur in that approximate order.
Marketing drives sales. Sales drive production. Production drives client satisfaction. And client satisfaction (and the word-of-mouth it can deliver) drives repeat and new business. Effectively categorizing your KPIs, determining your target ranges and developing the right strategies to hit them will put you in a good position to achieve and maintain profitability.
Going from small business to successful startup to scalable growth takes more than just good luck. It takes a system. Over the last 34 years, franchising consultant and growth expert Mark Siebert has been sought out by more than 70,000 executives looking to expand their companies. Out of those 70,000, only 5,000 had the right systems in place to go from successful to scalable. In The Multiplier Model, Siebert discusses the factors that determine if an entrepreneur is ready to scale their venture — and the best ways to get started. Read more.
Opinions expressed by Entrepreneur contributors are their own.
Do you hope to someday bring on a private equity (PE) partner to accelerate your franchise business? If you’re a franchisor, this simple list should be at the root of every decision you make going forward as you build your enterprise, from now until you’re ready to sell or bring on a PE partner:
1. Private equity buyers want proof of franchise model quality, specifically strong unit-level economics and positive franchisee validation
This means to get top dollar, it’s not enough to have a strong franchise value proposition for franchisees. You must track system metrics and show positive trends over time. Collect franchisee profit and loss statements from the beginning. Standardized point-of-sales systems can help collect unit-level performance information that buyers will want to see. Franchisee satisfaction surveys should be implemented. If franchisee feedback isn’t strong, move quickly to address issues and communication gaps.
2. There must be additional evidence of brand momentum through new unit openings, same-store sales growth, significant open whitespace and other growth opportunities yet available
The operating model must be replicable, and there must be proof.For example, can you demonstrate that you open 100% of the units you sell? Are franchisees ramping to profitability within 18 months or fewer? That is much more valuable and important than selling a bunch of multi-unit licenses that never open. Do franchisees experience a solid cash-on-cash return? Buyers especially get excited when they see existing franchisees returning to buy new expansion units.
Private equity sponsors want to see strong growth potential within their own planned hold period. But they also want a terrific growth story for the next sponsor as well to command a good exit price. Franchise businesses can trade between private equity (PE) sponsors multiple times. Technically, this is called a “secondary buyout” (whether it’s the second PE-to-PE transaction or the tenth). I prefer to think of it as the PE Profit Ladder. At each step, new sponsors need to see a compelling long-term growth story for the business to command premium enterprise value.
3. If No. 1 and No. 2 are missing or weak and if the evidence doesn’t match the hype, PE quickly moves on
While you may be selling franchise licenses, that in and of itself doesn’t make your business attractive. It validates that you’re good at selling franchises, not that PE will find your company attractive. You may have even received (or paid for) flattering press coverage. Are you starting to believe your own press? Buyers may be calling you with effusive, “We’d love to talk about your business,” messages. After basking in the warmth of some positive market attention and getting these phone calls, the transition to engaging seriously with a seasoned PE buyer who assesses your business with a swift, clinical eye can feel like suddenly walking into a freezer. Where did the love go?
4. This is where your franchisee-franchisor relationship karma will finally catch up to you
Your franchisees have tremendous power over your sale outcome. If that idea strikes fear into your heart, you know where your work begins. Call it “turnabout is fair play,” “revenge of the franchisees” or whatever you like.
If you’re a franchisor, your ability to sell your company to private equity at a high price with great terms depends on the quality of your relationship with your franchisees, strong return on investment for franchisees and the quality of operators you attract to your system.I’ve seen this collapse of the hype-machine dawn on sellers far too late. PE’s brutally cool, fact-based assessment and the importance PE attaches to franchisee satisfaction, profitability and positive references about their franchise experiences can be jarring to some sellers. If you’re used to acting independently as a founder, it can feel like turning in your high school math test and getting it back with a bunch of red pen mark-ups. Whatever attention you are, or are not, currently investing to ensure strong franchisee profitability, the market will one day hold you accountable.
Most PE sponsors want growth stories, not turnaround projects ripe with risk and headaches. Turnaround projects in franchising carry significant extra risks and uncertainties because of franchising’s distributed ownership model. For many private equity investors, franchise turnarounds just aren’t worth the effort within the available time or will only be considered at a steeply discounted price by specialist firms.
If you or your banker diligently advertise that your business is for sale and months pass with no deal, this well-meaning effort effectively spreads the word to the buyer community that you tried to sell the business but have no takers. This creates a negative impression that you will have to walk back if you decide to wait and go to market again later. It’s like that house that didn’t sell and is finally taken off the market. Two years later, prospective buyers watching the neighborhood see it listed again and remember that it didn’t sell the first time around. They wonder, “What’s wrong with that house? What’s changed since the last time it was on the market?” If you land here, you need to hear the market feedback and make meaningful changes to improve the value proposition for franchisees.
You are much better off fixing your franchise model first and only going to market when you have something truly valuable to sell. Franchising is a brilliant wealth creation model that performs optimally when franchisees can create a rock-solid return on their investment. If you remain focused on promoting and growing unit-level profitability, you will build a truly valuable system that will stand up to PE buyer scrutiny.
Opinions expressed by Entrepreneur contributors are their own.
The ever-increasing competition among franchisors to get an edge on one another has led to some innovative marketing campaigns and initiatives. Amidst this backdrop, video marketing has become a vital component for many brands precisely because it can be utilized in so many ways. But it’s also created a complication of sorts — where to deploy video that best serves a wide variety of brand-related challenges.
If you’re a franchisor who hasn’t yet developed a comprehensive video marketing strategy, there are three primary areas where you should concentrate your efforts: franchise development and sales, recruiting and training. Below is some advice on video usage for each of these important categories.
Videos that increase franchise development and sales
The last of the three areas of brand marketing with the highest value for video is sales development. And one of the best ways to communicate the social proof of your brand involves testimonial-style videos. Done right, what you’re actually selling is the full vision that the brand has to offer. Not just the “who,” “what” and “where” of your business model, but also the “why.” If you need to boost your sales outreach efforts, use testimonials that feature successful franchise owners who were once uncertain entrepreneurs — just like the target market you’re hoping to reach.
To boost franchise development efforts, use testimonials that get real. Feature real people sharing real experiences that include the real ways in which their lives have changed for the better. Be specific! Communicate actual experiences that demonstrate the freedom and flexibility that comes with franchise ownership — especially your ownership prospects. Testimonials that feature the CEO in his office, sharing the details of your brand’s opportunity are great. That’s what most people expect to see.
But you also need a second kind of testimonial — one that’s set amidst an on-location filming site. Imagine a first-person testimonial video that features a successful franchisee in their own backyard with their happy kids playing in the background. Now that could be anyone, including the viewer, who’s likely imagining themselves as a franchisee in your system while they watch.
Videos that benefit recruiting
Franchisors, whether an emerging brand or those who have already hit the magic 50-unit milestone, have a continuous need to fill their sales pipeline with high-quality prospects. New franchisees are the lifeblood of the brand, and each new unit awarded strengthens the system as a whole. And video can also be instrumental in helping franchisors recruit these prospects. If you’re going to deploy video for internal and external recruiting, the key is to feature content that showcases your company culture. Make your key differentiators the star of the show by featuring the aspects of your business model worth investigating.
Shoot videos that demonstrate how existing franchise owners feel about working with the brand, highlighting the types of things that keep them excited about getting up each and every day. Video that provides social proof becomes believable in the viewer’s eyes. They’ll soon understand why the brand has changed other people’s lives for the better. And naturally, they’ll want that for themselves as well.
A great deal of franchisors take their comprehensive training programs seriously. This is the period in which you’re communicating how to own and operate your franchise opportunity to a captive audience. So, captivate them! Use engaging and entertaining (read: not boring) videos to introduce your business model to new owners.
Studies have long since determined that we learn best through visual mediums, but newer information reveals that we also retain much more of the material we’re presented than with written guides and manuals. Instructional videos — especially those related to job safety — are vital aspects of the business model to communicate with new franchisees. And nothing gets the point across about workplace hazards and best practices for safety on the job than training videos.
Hopefully, this information has been a helpful guide for deploying video that will enhance your overall brand marketing efforts. If you’re unsure where to begin, simply think about the three areas where video can have the biggest impact: franchise development and sales, recruiting and training. When it comes to your brand’s value proposition, the “who,” “what” and “where” are certainly important features. But visual storytelling is what best demonstrates that all-important “why” that you’re trying to communicate to your desired target market.
After all, there’s no reason to keep that answer all to yourself — it’s an aspect of your business model that you should be sharing with the rest of the world!
At some point in their career, every worker has probably thought: I wish I were the boss.
In franchising, people often achieve that dream. They might start as a cashier, manager, or in some role at the corporate office, and then rise up to buy a unit of a brand themselves.
This is no accident. Franchises are always looking for qualified franchisee candidates who appreciate their brand and are dedicated to its success, and many of them encourage their best employees to pursue that path. It’s part of the DNA of franchising. Some brands even have apprenticeship or financing programs to help their team members achieve the dream of business ownership.
So, what’s it like to go from employee to boss? And what’s required to make the leap? On the following pages, eight people share the biggest lesson they learned — and what enabled them to finally say what so many others want to say: “I’m the boss!”
Sam Cleavenger’s first job, at age 16, was with Jeremiah’s Italian Ice. He worked his way up from prep boy to general manager and then marketing manager for the brand. When he turned 24, he partnered with his dad and opened a store of his own. Today, he’s working on opening more stores and has 12 partners underneath him opening stores, too.
“Something that separated me from my peers would be always asking what you can do to excel,” he says. “I would always ask my manager what I could do to have more responsibility. Before I became a general manager, I said I felt like I was doing great, and I wanted something more. I said I wanted to take on more leadership. I think it’s the simple fact of asking. A lot of people sit back and wait and think people are going to ask them. I think you have to vocalize that you want to grow.”
Lesson 2:Be creative, within boundaries.
“Everybody has their own creative style,” says Bonnie Alcid. But as she’s learned, creativity alone won’t drive success. It must be focused and harnessed.
For example, she started her career in design and printing, but really started flourishing once she became the aquatics director for British Swim School. In that role, she says, she was able to think creatively, but toward a very focused goal — helping craft lesson plans for new franchise owners and their aquatics directors. Then she became the school’s first franchisee, and creativity took on a whole new meaning.
She learned to hire people who can have fun, and then teach them how to be instructors within the school’s boundaries. “I can teach a child how to swim, and I can teach an adult how to deliver a swim lesson,” she says, “but it’s their personality that’s going to be able to come out and connect with kids and make them successful.”
Tracy Welsh has grown a lot since the pandemic. But she’s also realized: If she’s the only one growing, she’s failing.
Her journey began at Massage Heights, where she was the director of two locations. Both had to shut down at the beginning of the pandemic, and she worried about losing her job. Then, to her great surprise, her boss presented her with a different opportunity: Would Welsh want to buy the franchises where she worked? “I thought, My gosh, there’s no way that this could ever happen,” Welsh says. She was worried about financing, but after meeting with a bank, she realized she could do it.
“It made me grow in a way that I never thought was possible,” she says. Then, as she built her team, she realized she was now in a position to help others grow too. “You can’t just grow yourself,” she says. “You have to have the mindset that you want to grow other people at the same time, growing employees, growing guests, growing members. Doing the same old thing and never changing it up is not the way to go as an entrepreneur. You have to grow and evolve.”
Lesson 4:Make smart lease deals.
Ivette Escobar was assistant to the founder of Sweet Paris Crêperie & Café in 2012, and ultimately became the brand’s chief development officer. When she and her husband opened their own location, she knew the lease terms were a key — because if she couldn’t control the environment her business was in, she couldn’t ensure its success.
“We will not take a location that will not let us do our facade,” she says. “If they just want us to put up a sign, we say no.” If you’re looking for a space yourself, she has advice: Ask for tenant-improvement money to upgrade the space. “If it’s a second-generation space, they give you less money, but that’s where you have to have a really good broker to negotiate and advocate for you, to show them what you’ll be doing for them and the traffic you’ll be bringing, so their investment will pay off. If it’s a first-generation space where it’s brand-new construction, or a shell with four walls and you’re going to be doing absolutely everything inside the space, that’s where you can negotiate more.”
Image Credit: Zohar Lazar
Lesson 5:Be the start of a virtuous cycle.
Joe Jaros started delivering for a Marco’s Pizza in high school, became a shift manager at 18, and told the owner he wanted to become a franchisee at 21. Eventually, they became partners — and Jaros now owns five stores. Now he wants to keep the cycle going, by being the boss that helps the next generation of franchise owners thrive.
“I decided that I was going to have my own apprenticeship program where I take great operators and turn them into franchisees,” he says. But he does it in a very particular way: He selects some of his best employees and helps them buy a piece of his own stores. To him, it’s just good business. “If it’s going to take me seven years to pay off a store, and the average general manager lasts about a year, I’m taking a lot of chances,” he says. “If I know I have a great operator to last the whole seven years, my risk factor is much lower. I figured, if I just make a little less on each store, but I mitigate my risk, I’m going to come out ahead in the end.”
Kelli Amrein had spent years in childcare, including director positions where her job was to manage teachers and schedules. After she joined the staff of Celebree School in 2011, she eventually got to see the business side. “They gave us full access to payroll and budgeting and all the financial reports that we could analyze to see where the business was growing,” she says. “I really liked that challenge.”
When Celebree started franchising, she was 41 with three kids — but she took a chance and became the brand’s fourth franchisee. “I really would not have taken this leap if it was in an industry that I didn’t know enough about,” she says. “I knew all of the risks that happen inside the building, outside the building, the marketing, how many hours a day it would take to do things. I knew I’d have to be available to answer questions after-hours — I knew the risks, I knew the industry.”
Lesson 7: Ask for help when others won’t.
Matt Peters was 16 when a friend got him a job knocking on doors, offering homeowners a free estimate for Weed Man’s fertilizer and weed control. At first, it was a bust — he was too socially awkward and didn’t know how to sell. “I had to fall flat on my face a number of times,” he says.
Instead of giving up, he started asking others for help. That included talking a lot to the supervisor who drove him and his fellow salespeople around. By taking their advice, Peters blossomed into a winning salesman — and at 24, he bought his first franchise. Today he’s 32 and owns two locations. “I still see other people that I think are much more talented than I am,” he says, “but I learned from good people who were patient enough to teach me and cared enough to give me advice and feedback and coaching. They either saw potential in me or encouraged me to do it and supported me.”
Lesson 8:Make data-driven decisions.
Austin Clark was playing college football and had just finished his kinesiology degree when he had a career-ending wrist injury. So he changed paths: He got an MBA, became general manager at D1 Training’s headquarters, and then eventually went on to become a D1 multi-unit franchisee.
How does he grow his business? By constantly tracking key performance indicators: “Say, marketing: I know what my cost per lead is, my cost per 1,000 impressions, my funnel converts, the percentage of my customers that come through the marketing funnel and end up scheduling with us. By tracking those KPIs in the data, and being in a franchise system with other people tracking those same things, I can see the areas where we’re struggling. I can lean into the franchise and see who has figured those marketing pieces out. Who’s done a really good job generating more leads for less dollars on Facebook and Instagram? I can then go and look for people who are great at that.”
Opinions expressed by Entrepreneur contributors are their own.
Have you ever thought about the future success of your business? Have you ever wished you could predict what will happen next year based on the decisions you are making today?
What if you could look at your business 12 months from now based on those decisions? What if I told you that you could see the future and have the ability to predict what is going to happen? Well, I have good news for you. As a part of a franchise system, you have a unique ability to time travel in your own business!
Two things can make this happen.
Step #1
The first is what we call historical pattern recognition. This is the analysis of historical data from your Profit and Loss Statement (P&L). This analysis is done on a line-item basis of every variable and fixed cost in your P&L, as well as the revenue stream and net profits over a 12-24 month time frame.
By analyzing this data, we can identify the 8-10 critical metrics driving your business. This data is then used to create a pattern of numbers based on your history.
A simple explanation of pattern recognition works like this. I used this example in a keynote speech to a franchise organization at their annual convention in Nashville last year. I told the audience that I had two examples of tracking a set of numbers in the previous nine days and wanted to see if they could predict the following number in the pattern.
In the first example, I gave them the number 44. I then asked the audience, “Given that number, can you predict, with any level of accuracy, what the next number in the data set will be tomorrow?” The obvious answer was no. There just isn’t enough data.
In the second example, I told them that over the last nine days, I had tracked the numbers 1-2-3-4-5-6-7-8-9. Now I asked them to predict the next number that would come up tomorrow. In this example, they all got it right. The obvious answer is 10.
Not only did they get it right, but there is a high probability of that number being accurate. The entire audience just traveled to the next day and predicted what would happen. This is what we call basic pattern recognition. With enough data, we can figuratively time travel to the future and predict with a fair level of accuracy what will happen.
The second step in time travel is unique to a franchise system. This is what we call the “collective knowledge” of the franchisor. This is a potent tool for predicting the future results of the decisions you make today.
Let me break this down. Before the speech I just spoke about, I had requested and been given six P&Ls from different operators within the system.
I got two from their top operators. I got one from a middle-of-the-pack operator, one sample data set the franchisors use in training, and two from lower-performing units. I then lined these up and did a line-item analysis of the past 24 months.
What we found out was that most of the metrics were very similar. (With a few one-off exceptions). Two units were profitable and growing. One was profitable but with no growth, and two were stagnant and not increasing sales. Of the two units without growth, one was breaking even, and the other was losing money.
The one glaring difference between the units that were growing and profitable, those that were stagnant and finally, the ones that were losing money was the amount and percentage of money spent on marketing. There was a stark contrast between the units.
I then took the marketing dollars spent by each unit and showed both the short-term and the long-term return on investment from their marketing spend. The top operators were earning up to $15 in revenue for every dollar spent. This was enough to cover the natural attrition of current clients and acquire enough new clients for growth. The middle-of-the-road operators were getting around $10 in revenue for every dollar spent but only covering enough new sales to make up for the natural attrition of clients. That meant they were stagnant in revenue and profits. The bottom units were generating around $5 in revenue per dollar spent but were not spending enough marketing dollars to cover their client attrition rates. This resulted in declining revenue and profit losses.
What we learned in this exercise was interesting. The top units were spending around 8% on marketing. The bottom units were around 4%. The only real difference in revenue and profits between these units boiled down to about 4% additional spending on marketing. A 4% difference in spending was the difference between profitable growth and stagnation to losses.
This exercise allowed us to look at each unit from a historical pattern recognition perspective and then combine it with their decision-making around marketing spend and determine what the future revenue and profits of the units would look like.
At this same event, I asked the crowd if they would like the opportunity to have a one-on-one with the top operators in the system to ask questions about sales, expenses, growth and profit. Almost every hand went up. At this point, I told them that they had that opportunity through the use of their FBCs (franchise business consultants) assigned to their territory.
These FBC have all the information available on every unit within the system. They have all the data from the top units down to the ones that are not making money. They have the data to do the comparative analysis. In essence, they have the keys to the kingdom. They know the answers to all the questions. They know what works and what has been tried and failed. This is not a guess. This is something they have experienced and learned. This is the power of the collective. The historical decision-making of hundreds or thousands of franchisees is the power of franchising. Every good decision and every bad decision is available to be learned from.
As a rule, business success is not about having all the answers. Success is about asking the right questions. The power of the franchise system is that they have the answers to the questions. They already know what decisions will work and what decisions will fail. Your job as a franchisee is to ask questions. But here is the key: when you ask a question and get an answer, you need to follow the answers you get.
Opinions expressed by Entrepreneur contributors are their own.
When I speak with individuals considering investing in emerging franchise brands, they often express excitement about the opportunity to be a part of building a brand from the ground up. However, they often need help determining how to assess the brand’s potential for success effectively. “Will this brand be the next Chick-fil-A?”
By understanding the strategies that have contributed to Chick-fil-A’s success, you’ll be able to make an informed decision on whether a particular brand aligns with your goals and values and has the potential to be a success story.
In this article, I’ll share six key strategies that have made Chick-fil-A a household name, and how you can apply them to evaluate emerging franchise options. Let’s explore what it takes to choose a franchise that has the potential to be a success story.
Chick-fil-A has a solid and recognizable brand identity that has been built over the years through its focus on quality food, customer service and religious values.
As an entrepreneur looking to invest in a franchise, you can learn from Chick-fil-A and focus your search on brands that have developed or are developing a unique and compelling brand identity for their franchise. By creating a distinct and consistent brand message that appeals to a target audience, entrepreneurs can create an emotional connection to the brand and attract loyal customers willing to pay premium prices for products. For an entrepreneur, this is the ideal scenario.
A limited menu does wonders
Chick-fil-A’s menu is relatively limited compared to other fast food chains. This allows the company to focus on perfecting a smaller number of items. As an entrepreneur researching franchise options, you can take note of this strategy and consider focusing on brands that offer a limited number of services to their clients. It all really comes down to quality over quantity.
Limited services can also help manage overhead costs more efficiently and reduce operational complexity. Furthermore, studies have also shown that limited menu and service options can increase customer satisfaction and loyalty. Brands that take this approach find that less is more when it comes to creating a successful franchise.
Chick-fil-A has built its success through its focus on chicken, a popular food item in the fast food industry. Emerging franchise brands can learn from this by finding a niche or specialty they can focus on and excel in. This will help them stand out in a crowded market.
Developing a unique selling point and mastering it can also generate a higher profit margin for you, the franchisee. By focusing on a specific niche, you, as a potential franchisee, will also be able to cater to a particular customer base and be more efficient with any marketing efforts. Work smarter, not harder.
Using strategic expansion
Chick-fil-A’s continued growth in the U.S. and internationally is a significant factor in its success. As an entrepreneur looking into different franchise options, it’s essential to consider how a brand approaches growth. Not only should you look out for expansion opportunities, but you should also make sure that the brand is expanding responsibly.
As a potential franchisee, you want to check that the brand has the necessary support team and resources to sustain growth. On the other hand, stagnant growth or lack of growth is also a cause for concern. The key to growth, just like Chick-fil-A’s, is to expand sustainably so that the franchise doesn’t outgrow its support infrastructure.
By understanding the brands’ growth strategy, you’ll be better equipped to choose a franchise that has the potential to become as successful as Chick-fil-A.
Chick-fil-A is renowned for its superior customer service, which contributes to a positive customer experience. As an entrepreneur looking into franchise options, it’s essential to seek out brands that highly emphasize customer satisfaction.
Providing a welcoming and prompt service can assist in attracting and retaining customers for a franchise. Simple gestures can go a long way in creating customer loyalty and a positive brand image. Brands that heavily invest in employee training and incentives can foster a culture of exceptional customer service, leading to increased customer satisfaction, repeat customers and revenue.
Furthermore, building a reputation for outstanding customer service can also lead to word-of-mouth advertising and a positive overall brand image, which is critical for any franchise’s success.
Adept at implementing unique marketing campaigns
Chick-fil-A has been known for its creative and out-of-the-box marketing campaigns that have helped the company stand out from the competition and create a buzz. As an aspiring franchisee, it’s important to look for a brand that is constantly experimenting with new and unique marketing tactics to attract customers.
This can include using clever slogans and creating viral social media campaigns and events. By analyzing a brand’s marketing efforts, you’ll be able to determine if it is a creative approach to standing out in a crowded market, which can ultimately drive foot traffic and revenue for a franchise.
Chick-fil-A’s iconic “Eat Mor Chikin” campaign is a great example of this. By using cows to promote chicken instead of beef, it created a memorable and impactful campaign that is still being used after 20 years. Additionally, creating campaigns that tell a story or evoke emotion can also be a powerful tool in building a strong brand and creating a connection with customers — vital for any business’s long-term success.
It’s crucial to do your research and not be swayed by sales pitches. Investing in an emerging franchise can be a thrilling opportunity, but it’s vital to ensure the brand you choose has the key attributes of long-term success as outlined above.
The franchise agreement is the contract between the franchisor and franchisee, but it’s not a “standard” or “form” agreement. The format of the contract differs from one franchise system to another.
While each franchise agreement will differ in style, language and content, all franchise agreements have covenants, each of which describes a promise, right or duty that the franchisee or franchisor owes to the other or that benefits the franchisor or franchisee. The following is a list of those covenants that one most often sees in a typical franchise agreement. (The franchise agreement on our companion website will have the specific language that addresses each covenant.)
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1. Grant of franchise
The “Grant” section lets franchisees know that the franchisor is granting them the limited, non-transferable, non-exclusive right to use the franchisor’s trademarks, logos, services marks (called generally the Marks) and the franchisor’s system of operation (often called the System) for the period of time defined by the franchise agreement. The franchisee receives no ownership rights to the Marks or the System, and the franchisor always retains the right to terminate the franchisee’s grant-of-license because of a breach of the franchise agreement.
2. Opening date, territory limitations, build-out and similar rights
This covenant describes the franchisee’s territory (be it exclusive or not) and sets up a time schedule by which the franchisee must find a brick-and-mortar location, must have the plans for the unit approved and must be built-out and opened. This section may also disclose other matters such as the computer equipment needed to operate the business and the like.
This section will disclose the fees more specifically described elsewhere in the agreement. The fees include the initial franchise fee, any fees paid to the franchisor prior to opening, any fees paid to the franchisor during the term of the franchise, all advertising fee obligations and the like.
4. Advertising
In this section, the franchisor should repeat the franchisee’s advertising obligations as they’re stated in Item 11 of the franchise agreement (and the fees for which are identified in Items 5, 6, 7, 8 and 11 — as applicable).
5. Term and renewal
This covenant spells out the term (length of time) of the franchise agreement measured from the date the franchise agreement is signed to the date that the franchise agreement expires. If renewal rights are granted, this section will also spell out the prerequisites of this arrangement.
6. Services offered by franchisor
Though not all franchisors will repeat the pre-opening and post-opening services that they offer the franchisee in the franchise disclosure documents, sound drafting principals will require that these matters be repeated in the franchise agreement. Including them in the franchise agreement, however, removes the specter of litigation as a way to insert rights into the contract that aren’t otherwise stated.
7. Protection of proprietary information, marks and other intellectual property
As discussed in the “Grant of Franchise” section earlier, the franchisor is granting only a temporary license to the franchisee. Most franchisors will enforce this understanding by adding specific language that identifies each item that makes up its proprietary, confidential and trade-secret information and by then stating the limitations that are placed on the franchisee’s right to use such information. It is important protection for the franchisor and is not usually a covenant missing from the franchise agreement.
This section should disclose any training offered by the franchisor, including any additional training, seminars, meetings or the like that the franchisor will either require or urge the franchisee to attend.
9. Quality control
As the name suggests, franchisors will address the franchisee’s specific quality-control requirements. This is sound franchising and is necessary to insure that the goods and services offered throughout the system meet the franchisor’s minimum requirements.
10. Transfers
Virtually all franchise agreements control the franchisee’s right to transfer their interest in the franchise relationship. This section will list the prerequisites to a transfer.
All franchise agreements will contain some recitation of the violations of the franchise agreement that will be treated as a breach. These violations may be divided into those breaches that result in the immediate termination of the franchise agreement, for which no cure is given, and those violations for which cure is provided.
12. Obligations upon expiration or termination
Once the franchise relationship has ended — either because the term has naturally concluded and no renewal has occurred, or because the franchise agreement was terminated — it is typical for the contract to list a series of steps that the franchisee must take to “de-identify” the business and the franchisee’s association with the franchise system.
13. Franchisor’s right of first refusal
Most franchise agreements give the franchisor the option, but not the obligation, to exercise a first right refusal to purchase the franchisee’s business — in the case where the franchisee seeks to transfer the business, or the first right to purchase the franchisee’s assets at the time that the franchise agreement expires or is terminated.
14. Relationship between the parties
Franchisees are always treated as independent contractors of the franchisor. This has several important implications. An independent contractor is not an employee or agent of the principal. Instead, the independent contractor is in business for themselves. The parties to this relationship pay their own taxes, hire on their own, are responsible for their own employees and generally operate independently of the other in carrying out the contract between them.
All franchisee agreements will contain an indemnification covenant, which means that the franchisee will reimburse the franchisor for any losses it suffers as a result of some negligent act or wrongdoing of the franchisee. These covenants are almost always one-sided in favor of the franchisor — which is fair, given that the franchisee and not the franchisor is responsible for the day-to-day operation and maintenance of the business.
16. Non-Competition covenant and similar restrictions
A non-competition covenantis one that seeks to prevent the franchisee from opening a business that would compete with the franchised business. Virtually all franchise agreements will have non-competition covenants. The covenant is often broken into two parts: the “in-term” covenant; and the “post-term” covenant.
As the name suggests, the in-termcovenant prevents the franchisee from competing against the franchisor and any other franchisees while the franchise agreement is in force. Typically, this covenant covers a geographic area around each franchised, company-owned and affiliate-owned business. The post-termcovenant covers the former franchisee after the franchise agreement expires or is earlier terminated because of an uncured breach.
This covenant spells out the methods the franchisor uses to resolve disputes with franchisees.
Most often one will see at least a nonbinding-mediation requirement followed by a binding-arbitration requirement. In other cases, these two methods of resolution will be preceded by the requirement that the parties first meet face-to-face.
18. Insurance
All franchise agreements will require the franchisee to obtain insurance to cover its business operations. In all cases, each of the franchisee’s insurance policies will require that the franchisor be named as an “additional insured,” meaning that the franchisor enjoys the same coverage as does the franchisee, even though the franchisor is not paying for the coverage.
19. Additional or “miscellaneous” provisions
This is kind of the catch-all section of the franchise agreement that contains what some call “boilerplate” language, meaning that it is “usual” that such language be included in any contract. In virtually all franchise agreements, you’ll see covenants that cover mergers, modifications or amendments, non-waiver provisions, state-specific addenda and more.
The heart and soul of the disclosure portion of the Franchise Disclosure Document (FDD) — and indeed its very purpose — is set forth in the Items. Each Item is given a specific title (which cannot be altered), and within each Item, the franchisor is required to provide the answers to a myriad of FTC-mandated questions. For a complete list of the questions in each Item, take a look at the NASAA Guidelines on our companion website.
Following is the list of Items, along with a brief description of the content to be found there.
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Item 1: The franchisor, any parents, predecessors and affiliates
Item 1 gives you the franchisor’s background and that of any parent company, predecessors and affiliates. A predecessoris defined as “a person from whom the franchisor acquired directly or indirectly the major portion of its assets.” An affiliateis defined as “a person controlled by, controlling, or under common control with the franchisor.”
Item 2: Business experience
This Item gives you the past five years’ worth of the personal business experience of the franchisor’s directors, trustees, general partners, officers and any other individuals who’ll have management responsibility relating to the offered franchises.
Item 3: Litigation
In this Item, the franchisor must disclose any material litigation involving the franchisor and predecessor, parent and affiliate, if the litigation involves claims about the franchisor’s sales process, their performance under the franchise documents and claims of antitrust, fraud, unfair or deceptive trade practices, or comparable allegations. The franchisor must also disclose any franchisor-initiated litigation against its franchisees and any other business litigation (even if it’s not franchise-related) if, at the end of the day, the litigation negatively impacts the franchisor’s financial condition or their ability to operate a franchise.
This Item must disclose any bankruptcy in the past ten years that involved the franchisor and any parent, predecessor, affiliate, officer or general partner of the franchisor, or any other individual who will have management responsibility relating to the sale or operation of the franchise.
Item 5: Initial fees
Here, the franchisor (and any of their affiliates) must disclose all of the initial fees they charge to the franchisee before opening. Such fees include the initial fee paid to purchase the franchise rights (often called the “initial franchise fee” or IFF), computer or point-of-sale equipment that must be purchased only from franchisor or their affiliates, and similar fees.
Item 6: Other fees
This section of the FDD advises you of any other fees you’ll have to pay to the franchisor or an affiliate as well as costs that are collected by the franchisor for third parties, or that are otherwise imposed. Line items include a statement of the royalties, advertising fees, service fees, training fees, renewal fees and other similar one-time or ongoing charges.
Item 7: Estimated initial investment
In this section, the franchisor must disclose a range of the minimum and maximum of all fees, costs and expenses that the franchisee will incur prior to opening the business, including the initial franchise fee, real property expenses such as rent and construction costs, the cost for computer equipment and similar line items. The expenses must include both pre-opening expenses and those incurred during the “initial phase,” which is at least three months or a reasonable period for the industry.
Item 8: Restrictions on sources of products and services
Franchisors require franchisees to buy the goods and services needed only from approved vendors. This section lists the approved vendors and also calls out the franchisor’s specifications for permitting a new vendor into the system. It will identify any revenue the franchisor receives from the required purchases, including rebates received by the franchisor from any supplier.
Item 9: Franchisee’s obligations
This Item lists your obligations as a franchisee, with references to the sections of your franchise agreement that contain the obligations. The purpose of this is to identify your principal obligations under the franchise agreement and other agreements.
If the franchisor sponsors financing for new franchisees, it will be spelled out in this section.
Item 11: Franchisor’s assistance, advertising, computer systems and training
This is one of the more lengthy and important disclosure Items. In this Item, the franchisor must disclose:
The services they’ll provide to the franchisee before and after opening.
All advertising expenditures you’re expected to assume.
The average time it takes a franchisee to open.
The type of computer and similar electronics necessary to operate the business.
A detailed description of the training you can expect to receive.
The table of contents of the operations manuals.
Item 12: Territory
The franchisor must disclose whether it offers franchisees an “exclusive territory” within which to operate the business. With an exclusive territory, the franchisor promises that it won’t permit another franchisee to locate within the territory and that it will also refrain from putting a company-owned or affiliate-owned business there. This Item must also disclose whether you can relocate, and if so, what the criteria are for your move and whether you have any rights to purchase additional units.
One of the more important disclosures in this section is whether you’re required to meet a quota or perform in some other manner as a way of insuring either your right to an exclusive territory, or your right to continue in business at all. This Item will also disclose the franchisor’s reservation to itself of certain marketing and sales rights either within or outside any territory.
Item 13: Trademarks
This section must identify each principal “Mark” (trade name, trademark, service mark, service name or logotype) to be licensed to you, and must state whether the franchisee is required to modify or discontinue use of a mark under any circumstances.
Item 14: Patents, copyrights and proprietary information
The section spells out the patents and copyrights held by the franchisor.
Item 15: Obligation to participate in the actual operation of the franchise business
This section discloses whether the franchisee must personally participate in the operation of the franchise. If there’s no such requirement, this section must state whether the franchisor recommends such participation, whether the person who’s handling day-to-day operations must complete the franchisor’s training program and whether this person must own an equity interest in the franchisee entity.
Item 16: Restrictions on what the franchisee may sell
In most cases, the franchisor will require the franchisee to sell only the goods and services that are part of the franchised business. This section spells out those restrictions.
Item 17: Renewal, termination, transfer and dispute resolution
Item 17 contains a cross-referencing table to the franchise agreement for 23 separate line items. It’s different than Item 9 in that it includes a concise statement of the content of the particular franchise-agreement covenant as well as the location of the covenant in the agreement.
This section requires the franchisor to disclose whether it uses a famous person to endorse the franchise. If so, it must disclose the compensation paid or promised to the person, the person’s involvement in management or control of the franchisor and the amount of the person’s investment in the franchisor.
Item 19: Financial performance representations
In layperson’s terms, a Financial Performance Representation (FPR) is any document, chart, arithmetic calculation, math formula or other representation that would allow a potential franchisee to determine what they could earn. The only way the franchisor or its sales staff or brokers can offer an FPR is if it’s stated in this Item 19. If no such information is found in Item 19, any claims made by the franchisor as to your potential earnings are in violation of the law.
This section provides information regarding existing outlets in the franchise system. It covers outlet transfers — and the status of franchised and company-owned outlets — for the past three fiscal years, as well as projected openings for the next fiscal year. It must also provide information regarding any reporting changes, any confidentiality clauses signed by franchisees during the past three fiscal years (“gag clauses”), and information about certain trademark franchisee associations.
The FDD must contain an exhibit with the franchisor’s audited financial statements for the prior three fiscal years. If the franchisee has been open less than three years, the FTC allows the franchisor to phase in audits. The franchisor is also required to provide a separate, audited financial statement for a company controlling 80 percent or more of the franchisor.
Item 22: Contracts
This section requires the franchisor to attach to the FDD a copy of all form contracts the franchisee will sign, including the franchise agreement, leases, options and purchase agreements.
Item 23: Receipt
In this final section, the franchisor is required to include as the last page of the FDD a form for the prospective franchisee to sign to acknowledge receipt of the FDD.
Phillip Chang has wrestled with this question many times — like in 2004, when his bubble tea franchise, Boba Loca, hit a wall. “I couldn’t solve the problem by just adding another drink,” he says. “I wanted something more, something bigger.” So he created Yogurtland, a self-serve frozen yogurt brand that sparked an international craze (and many copycats).
Seventeen years later, Yogurtland is still going strong — no small feat in the ever-changing food world. And Chang is ready to expand again. Over the past two years, he’s introduced two new concepts within the Yogurtland brand: Holsom by Yogurtland — a fast-casual, healthy meal joint — and Egg N Bird, which specializes in a Korean chicken sandwich (and doesn’t use the Yogurtland branding). Here, Chang discusses the art of innovation, diversification, and gaining a competitive edge.
You approach expansion very carefully. Tell me about that.
I do not like expansion for no reason. My philosophy is: Why am I doing this business and what’s the end goal? That has to be very formed. Without that, everybody is just chasing money. If you don’t have your own philosophy or a good foundation of who you are, it’s nothing. Identity is so critical. You have to start from there.
So where did the Holsom and Egg N Bird concepts come from?
Before we expanded, I wanted to build strong roots with Yogurtland. Doing that gave us lots of great ideas. I thought, How can we make it better?
We started with quality. That’s how I came up with Holsom. It’s very light and nutritional food. But with Holsom, there is still a connection to yogurt. I wanted to go beyond that — explore a real meal. So for Egg N Bird we did lots of research to ask, What is the demand out there?
The beef market is huge, but I thought people maybe missed the chicken opportunity, and chicken is a healthier option. I’m Korean, and there are lots of chicken restaurants in Korea. I knew how they served the chicken, and so with our amazing team, we put together the demand for our market and came up with this amazing chicken sandwich.
How do you think innovation and continual diversification have contributed to the success of your brands?
In the restaurant industry, we think of trends in terms of cycles. There’s challenging times, but one thing that never changes is that a top brand can win in any kind of cycle.
With Yogurtland, frozen yogurt consumption is constantly going up and down, but we have such great quality that we continue to thrive. We are taking over a big portion of the ice cream market.
The same thing is true with Holsom and Egg N Bird. When we have top quality and provide worth to our customers, we can dominate the market.
What advice do you have for business owners going through a not-so-great sales cycle? How do you stay motivated in times when it’s not the best?
All entrepreneurs should have their own philosophy and beliefs — an identity, and a clear idea of who you are. What do you want to achieve out of this?
Always try to look at the whole picture. When a leader is so into little operations, they miss big trends. You have to understand if a market is turning from a typical beef hamburger to a chicken sandwich — there are lots of signs. If they read them ahead of time, then they can plan. Take a step back. And always make time for meditation — about your life, your family, your goals, the people around you, and what you’re trying to achieve.
Opinions expressed by Entrepreneur contributors are their own.
Technology is a pervasive part of our lives and businesses. But that’s not a new concept — we’ve been adapting to technology every day for decades now. What’s important to note these days is the importance of staying on the cutting edge of tech as competition in the franchise industry continues to grow more than ever before.
The franchise model not only creates the necessity for the franchisor to stay in-the-know on current trends and advancements but also to keep its franchisees up to date as well. This is because, at the end of the day, staying on top of technology attracts both franchisees and customers. In the current world in which we live, franchisors are responsible to their franchisees and customers to find new tech as well as to maintain, update and fortify existing systems.
Franchisors must keep a finger on the pulse—and disseminate accordingly
The focus of technology for a franchisor should be adding value and making business easier for the customer and the franchisee. To do this, franchisors must keep up with advancements in the tech sphere, adopt relevant developments and then pass them through to the franchisee and/or customers.
Every part of franchise operations has a technological element, from training software and point-of-sale systems to social media, mobile apps and digital payment platforms. Figuring out which emerging operational tech is going to succeed and is worth investing in is where it can get tricky. However, franchisees rely on their franchisor to seek out and weed out these opportunities on a regular basis. Industry conferences, continuous research and curiosity about how other industries are engaging new tech are all ways franchise organizations can learn and grow in this space. A robust IT department headed up by a Chief Technology Officer can be key in passing along new information and training franchisees as well.
Franchisors have to determine the usefulness of different technologies available and discern what is going to be effective from top to bottom of the organization in order to use it competitively.
Using technology to attract franchisees
When potential investors meet with a franchisor, a major discussion topic should include what technology the system is currently using and what its goals are for the next three to five years. Franchisors who make it a priority to guide unit owners in developing their building design with flexibility for future technology are going to keep a competitive edge when recruiting franchisees as well. In my experience at the educational child care franchise system, Kiddie Academy, many of our franchisees have a tech background and know what to look for and expect when it comes to selecting a business opportunity that knows what’s what when it comes to the latest developments. It’s also smart for franchisors to focus on scalability when it comes to selecting technology that will attract franchisees so as to offer solutions that are cost-effective and add value across the board.
Another reason to stay current on trends to recruit franchisees? Younger generations rely on technology more than any other generation and have high expectations for its use. If your technology isn’t updated, you may be missing out on some great young entrepreneurs. Overall, if franchisees feel like the technology in place helps them market to customers, make sales and run a successful business, everyone benefits.
The goal of using technology in franchising is to solve needs for both franchisees and for customers. Because the customer experience is so important to earning and keeping business, it’s important to make sure that the technology in place is simple to use and effective.
As a child care franchisor, my company is constantly assessing the needs in our customer experience that aren’t being addressed in our industry — one of which is allowing self-scheduling for center tours. With self-scheduling, we can allow parents to schedule a tour of a Kiddie Academy location quickly and easily, bypassing many manual steps that used to occur in the process and would potentially throw up barriers for prospective customers. Now, busy parents can go onto our website and secure a time for a tour (and reschedule or cancel a tour) instantaneously.
Other technologies that consumers have come to expect include mobile payment options, relevant email marketing tactics, classroom cameras, robust mobile apps and an engaging social media presence. At the end of the day, parents and customers in general are looking for ways companies are using technology that will make their lives easier and the purchasing process quicker.
Tech maintenance and security are of the utmost importance
Once you have sophisticated technology for your organization in place, maintaining the systems and keeping customer data safe is key to continued success. Network security issues and the rise of system failures means that businesses must protect information and data as securely as possible. It’s best to spend time and money upfront to head off a failure or breach and to have backup plans in place in advance. Some industries, like child care, have more sensitive information on file than others and should be managed appropriately. Without constant vigilance, workflow and trust can be negatively impacted for customers and franchisees alike.
Technological innovation is important to all industries today, especially the franchise industry, as it helps attract both franchise investors and customers to the business. Make sure the tech your company focuses on is worth the effort and that the time will be available to protect and maintain it.
How will you know if your new tech is a success? If your usage and satisfaction are high. Make technology seamless (to the point where it becomes so integrated, it virtually disappears) for your company and its stakeholders, and your business will reap the benefits.
Opinions expressed by Entrepreneur contributors are their own.
The 2023 IFA Convention will be held at the Mandalay Bay Resort and Casino in Las Vegas, taking place from Sunday, February 26 through Wednesday, March 1. It’s a five-day extravaganza, widely known as the biggest trade show of the year for the franchising industry. The theme of this year’s show, “All In. All Here,” reflects this acknowledgment. I first attended the annual IFA Convention in 2019, but I’ve learned so much since my first exposure to this all-important gathering.
I wanted to pass along some of the things I’ve learned over the years, including what to do — and what not to do. It’s my hope that any first-time attendee will benefit from these five helpful tips.
You know what makes the best salespeople the best? They have an insatiable appetite for learning. When it comes to the prospects you’d like to cultivate at the IFA Convention, you should strive to learn everything you can about what they have to offer. So, make it a point to attend the speaking events and panel discussions that reflect your target market. Listen intently. Take notes. You’re making a commitment to learning what they’ve learned. And it will make it much easier to connect with them in person down the road.
2. Don’t bolt right after the show
A great deal of IFA Convention attendees bolt for the airport the minute their obligations are squared away, leaving a trail of smoke behind them. Ever wondered why? You’ve already spent a considerable amount of time, money and effort into attending this once-a-year event. So, you might as well stay that one extra night — or at least make plans to attend the final dinner engagement. Speaking from personal experience, I’ve found that some of the most intimate conversations I’ve ever had at the IFA Convention occurred during this occasion, long after most others attendees have already filed out. The closing cocktail hour and dinner party are all about fun and friendship-building. And I’ve also discovered that the connections you make there can be 100 times more impactful than 500 cold calls or emails.
Networking opportunities at the IFA Convention should begin long before you ever set foot on the trade show floor. So, take my advice and do a bit of pre-convention outreach. First, carefully review the trade show’s agenda, looking for prime connections in your target market. Commit to attending their speaking or panel discussion sessions — then let them know about it in a friendly email. The name of the game is “no hard sell,” as you’re not looking to close a deal ahead of the event. You’re simply looking for a way to make an ice-breaking introduction. Email a select few in your target market, and share your interest in hearing their presentations. It’s an excellent way to lay the groundwork for networking in person later. It almost always makes it easier to get an audience with your preferred contacts. But even if you only get through to one individual, that’s still a very big win.
4. Be selective with your time
The annual IFA Convention is big. Really big. You simply don’t have the time or bandwidth to hit every single exhibitor — not by a long shot. Do some valuable pre-show reconnaissance, and plot your movement on the trade show floor ahead of time. When you do amass your list of preferred contacts and their booth information, stick to your plan. But when you stop by, don’t do a fly-by business card exchange. Do your best to make that all-important personal connection with your preferred contacts. Do, or say, something memorable. Turn the charm up to 11. Look for things you have in common. At the end of the show, if you’ve secured 10 memorable conversations, that’s much better than coming away with 762 business cards of no significance.
5. Look for additional shows to attend
If you don’t end up with any leads, clients or new business following your first IFA Convention, don’t be discouraged. Quitting is for quitters. And some research has shown that it takes a minimum of three years in the franchising space to become known. So, repetition counts. If you want to become part of the franchising industry’s exclusive community, it takes effort, patience and persistence.
Opinions expressed by Entrepreneur contributors are their own.
Franchising can be a great way to get into business ownership. Look for a proven operating system, strong unit-level profitability, a great management team, differentiated and valuable product/service offerings and satisfied franchisees.
Most people who think about starting a franchise business end up looking at new unit development. That’s because most franchise opportunity marketing is geared toward selling new units. You may not even think about buying an existing unit or group of units. But if you’re considering starting a franchise business, then resale options should absolutely be on your radar. Remember that resales can also be combined with new unit development! So, it’s not a case of “either/or” (new OR resale) but could be “yes/and” (new AND resale) for the right buyers.
Assessing resale options is a great way to understand the value potential of any system you’re considering. What do units sell for when owners retire? Is the brand too young to have much of a resale history? Are resales going to existing owners who want to expand (because their experience as a franchisee is positive), or only to new operators (who don’t know the brand as well)? Are owners exiting after a long tenure with a history of good cash flow, or soon after joining because it didn’t work out? You can learn so much about a system by looking at resales.
Second, stepping in to run a business that’s already producing cash flow may be a better fit and less risky for many prospective franchisees. That existing cash flow can help you either acquire more units or build out new units much faster than if you had started from scratch. With a resale, the business is already operating. You’ll have a much better sense for the potential of the business, competition and areas for improvement.
You can tour the site or the territory. You can mystery shop and potentially meet the staff. You can assess existing marketing campaigns and spending and the impact on revenue. You can review multiple years of business results, including what happened during the pandemic. When starting a franchise from scratch, you can never be sure whether a concept will resonate or whether you’ll be able to find a good location. You also have to hire and train your entire team. It may take up to three years to fully ramp up a new franchise unit. Yes, walking into a going concern is a bit like drinking from a firehose, but if you assess the business carefully and you’re confident about the existing team in place, you can get off to a fast start.
Keep in mind that franchise salespeople earn commission on new unit sales, usually not resales. Keep their incentives in mind if they give you advice. Large franchise systems usually have strong resale programs and well-established processes. But it often takes smaller brands a while to handle transfers in a coordinated way. Don’t be put off if a younger system doesn’t have a smoothly operating resale program just yet.
There are business brokers in every community with franchise resale options. You can also approach owners directly and let them know you’re interested. Especially if you’re solely focused on resale opportunities and tell them so, they won’t see you as a threat and thus may be willing to share information about the franchise that can help you decide whether to keep looking within that system or consider other options.
Between 3-5% of franchise units are typically transferred every year. FRANdata forecasts that we ended 2022 with 792,000 franchise units in the U.S. If we assume 3-5% will transfer again this year, that’s 23,760 to 39,500 potential resales coming available. Not all of those will transfer, of course, and many will end up as multi-unit acquisitions, especially in legacy systems. But it still suggests there should be a robust number of units available from retirements as an option for you to consider.
Franchisees exit for many reasons. Retirement, a desire to monetize their years of hard work, burnout, relocations, illness, change in personal circumstances, etc. are all drivers. In healthy franchise systems, the transfer cadence is relatively predictable because it is tied to renewal schedules and lease expirations. There are only surprises if unforeseen personal circumstances prompt an exit. Unfortunately, for other brands, profitability issues drive churn. As you examine resale options, make sure system churn is due to normal retirements and not a red flag about system viability.
Finally, as you’re talking through resale options, listen closely to what the corporate team says about the exiting franchisee and the reasons for system turnover. Turnover is natural in a franchise system. Corporate team defensiveness about turnover is not. It’s incredibly bad form to blame turnover on franchisees, yet during mystery shops, I hear “it was just a bad fit” more than 95% of the time. Keep in mind that the corporate team has the final say on who is allowed into a franchise system. If it truly is a case of bad fit, it reflects badly on corporate’s approval process.
Speak to as many franchisees as possible to understand whether they are growing and investing in expansion units, including resales. Try to talk to other owners who have acquired resales in that system. Did the business meet their expectations? Have they gone on to expand further in new units or other resales? How did they start strong and maintain early momentum?
You may find the route to business ownership has been partially paved by an entrepreneur in your own community. They are ready to retire and looking for someone like you to take the reins of the business.
Opinions expressed by Entrepreneur contributors are their own.
Franchising your business is a proven route to rapid growth. But becoming a franchisor is not an automatic ticket to success, especially in this challenging economy. In January, for instance, three established franchisors filed for bankruptcy protection: Taco Del Mar Franchising Corp., Uno Restaurant Holdings Corp., and Daphne’s Greek Café.
Still, many business owners dream of seeing their brand become a household name, with a network of franchisees from coast to coast or around the globe. When the right concept is franchised effectively, it can be a great expansion strategy that doesn’t require as much up-front capital as growing through company-owned units.
If you’re considering franchising your business, know that the process of becoming a franchisor is usually long and involves considerable cost. Just because you qualify to sell franchises doesn’t mean you will find buyers. Data from the International Franchise Association shows that of the 105 companies that started selling franchises in 2008, more than 40 had not reported the sale of their first unit by the end of 2009.
Becoming a successful new franchisor entails making many thoughtful decisions early on that will affect your business for years to come. There’s also a lot of legal paperwork to wade through to make sure your business complies with federal and state laws that regulate the franchise industry.
Here’s our guide to the important steps you’ll need to take along the road to becoming a new franchisor.
Step One: Step One: Evaluate if Your Business is Ready
The first question to ask is whether your business is suited to being franchised. Beyond having a track record of sales and profitability at the existing business, there’s several factors to weigh here, says Mark Siebert, CEO of the national franchise-consulting firm iFranchise Group.
Consider your concept.
Most good franchise concepts, he says, offer something familiar, but with some unique twist to it. A good example is Florida-based Pizza Fusion which offers a familiar product–pizza–but with all-organic ingredients, delivered in hybrid-electric cars.
The concept has to appeal both to end consumers and to prospective franchisees. There should be an expectation that more units will create economies of scale and increase profits. Additionally, the business needs to be something you can systematize and replicate, not something that needs your personal touch to be successful.
“Ask youself, is the concept salable?” he says. “Can you clone it? Does it provide good returns?
Check your financials.
Most successful franchises take a business that’s already profitable and try to replicate that success in other locales. Cleveland-based franchise consultant Joel Libava says he likes to see companies with at least a couple of profitable units beyond the first one already in operation before a company tries franchising.
“Is it just one great restaurant and mama’s wonderful pizza sauce?” Libava asks. “Or did you keep growing?”
Gather market research.
Don’t rely on your gut feeling that your business would be a smash hit across the country. Gather market research to confirm there is widespread consumer demand beyond your home city for what your franchise business would offer, and room in the marketplace for a new competitor.
Prepare for change.
Becoming a franchisor means you’ll be engaged in entirely different activities than you were as a business owner. You’ll primarily be selling franchises and supporting franchisees now, instead of selling pizza or fixing toilets.
“Ask yourself if you’re comfortable having a role as a teacher and salesperson, selling and supporting franchisees,” Siebert says, “as opposed to going out there and doing it yourself.”
In addition, franchising your business will require that you relinquish some of the control you’ve had over how your concept is executed.
“Franchisees won’t do it exactly the way you would, even if they do it well,” says IFA president Matthew Shay. “If you are so married to your concept that you won’t let anyone else touch it, then franchising may not be right for you.”
Evaluate other alternatives.
Before you plunge into franchising, you may want to consider other options, Siebert says. Depending on your situation slower growth, finding debt financing or taking on partners are all alternatives that may prove better ways to move forward.
It also can cost $100,000 or more, so ask yourself if your company has the financial resources. Remember that while franchising allows you to grow fast, it also means giving up most of the franchise units’ future profits, Shay says.
Step Two: Learn the Legal Requirements
In order to legally sell franchises anywhere in the United States, your business must complete and successfully register a Franchise Disclosure Document with the Federal Trade Commission . In the FDD, you’ll be asked to provide a wide range of information about your business, including audited financial statements, an operating manual for franchisees, and descriptions of the management team’s business experience.
Beyond the federal FDD requirements, some states have their own rules for selling franchises within their borders. California and Illinois are generally regarded as having the most daunting registration process, says Libava. If you want to sell in one of these states, you’ll need to meet their requirements as well, at additional cost.
Franchisor Cindy Deuser, 51, co-founder of five-year-old franchisor Lillians Shoppes, says the rule binder her home state of Minnesota provided was two inches thick. It took the bargain-fashion-accessory company a full year and cost more than $100,000 to qualify in 45 of the 50 states, she reports.
“It took longer than we thought, and was very intense in terms of all the things you have to cover,” she says.
To advise and assist in this process, consultant Libava recommends hiring an experienced franchise consultant or franchise attorney. Often, a new company will be set up to act as the franchisor. Find an expert who can make sure you’re doing every required step correctly.
Step Three: Make Important Decisions About Your Model
As you prepare your legal paperwork, you’ll need to make many decisions about how you’ll operate as a franchisor. Key points include:
The franchise fee and royalty percentage
The term of your franchise agreement
The size territory you will award each franchisee
What geographic area you are willing to offer franchises within
The type and length of training program you will offer
Whether franchisees must buy products or equipment from your company
The business experience and net worth franchisees need
How you will market the franchises
Whether you want an owner-operator for each unit or area/master franchisees who will develop multiple units
New franchisors don’t realize how much each of these decisions can affect their future profitability, says Siebert.
“If you’re thinking either 5 percent or 6 percent royalty, for instance, the difference doesn’t sound big,” he notes. “But five years later, when you have 100 franchises sold, and they each make $700,000 a year, that’s a $7 million annual mistake. And you’ve signed a 10-year contract.”
Lillians’ Deuser says she and her sister/partner Sue Olmscheid, 45, ran many business-model scenarios with their franchise attorney before settling on their $25,000 franchise fee, 7-1/2 percent royalty and 10-year contract term. They seem to have hit a winning formula–Lillians has grown to 32 shops in its first two years as a franchisor with its unique concept, in which stores are only open a few days a month.
Be careful to note whether geographic variables such as weather or local laws may affect franchisees’ success. Territory size is important too, as too-large territories may have to be bought back later at a premium so they can be split up, notes IFA’s Shay.
In the case of San Francisco Bay-area solar-panel installation franchisor Solar Universe, the company is selling franchises in concentric circles moving outward from its headquarters, mostly in warm-weather states with high electricity costs and generous state green-energy rebates, says founder Joe Bono, 36. Solar Universe has sold 14 territories since qualifying as a franchisor in January 2008.
Inadequate training can leave your franchisees ill-equipped to implement your system successfully. Solar Universe spent nearly $1 million preparing to franchise, Bono says, including $150,000 to create a state-of-the-art training center for franchisees complete with indoor roofs where they can practice installations.
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Step Four: Create Needed Paperwork and Register as a Franchisor
Once you’ve made the important decisions that shape how your franchise will operate, you’re ready to complete your legal paperwork. When you submit it, be prepared for authorities to critique the document and possibly demand additional disclosures before they approve your application.
While the FTC essentially just files your FDD away, you’ll need to wait state approval. Bono reports Solar Universe waited several months to receive comments back from the state of California on its filing, and it took four months in all to get approved there.
Step Five: Make Key Hires
As you prepare to become a franchisor, you’ll usually need to add several staff members who will focus solely on helping franchisees. In the case of Solar Universe, the company sells its franchisees the solar panels they use, so founder Bono says he needed a full-time hire to staff the order desk. The company also hired a trainer and a full-time “franchise advocate” to answer franchisee questions and resolve any problems.
For its part, Lillians Shoppes hired a trainer, a creative director, a marketing assistant and a franchise-process manager who helped get franchisees using company software and systems, says CEO Deuser. Lillians now has a full-time staff of seven. The founding sisters still do all the buying for the growing chain, but Deuser says growth means they are already looking into hiring a second trainer.
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Step Six: Sell Franchises
Now that you’re in business as a franchisor, one of your most pressing activities will be to find franchisees and convince them to buy your concept. Lillians is unusual in that the company has sold all its franchises by word of mouth and doesn’t have a sales representative. To help stimulate interest, the company offers a $1,000 referral fee to anyone who sends the company a new franchisee.
At Solar Universe, Bono says they’ve hired two in-house salespeople to handle franchise marketing. The company has also entered into a partnership with the national franchise-consulting chain FranNet, whose consultants may present the company to their prospects. Other common sales techniques include attending franchise fairs or hiring independent franchise marketing firms to help locate investors.
Selling franchises is difficult because of the high risk involved for franchisees, notes Siebert. Your salespeople should know your business well and be able to tell a compelling story about why you’re a worth the investment of their time and money.
Siebert boils down the issue this way: “You’re saying, ‘I want you to give me all your money. Then, quit your job, give up your security and benefits, and go into a business you’ve never been in before. And follow my rules.’ You’ll need to establish a pretty high level of trust.”
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Step Seven: Support Franchisees
As a franchisor, you’ll have gone through a lot to reach this point. But here – at the point where you begin supporting your franchisee network – is where a chain ultimately succeeds or fails. Your training programs and other support efforts will create quality control, notes Siebert, making sure the brand provides a uniform experience no matter which unit customers visit. With the Internet, this has increasingly come to mean providing ongoing online learning modules for franchisees to use.
“If you’re a restaurant operator and employ 20 people in a unit,” he notes, “you have thousands of new employees going through the system every year. Without ongoing training, it’s pretty easy to institutionalize wrong behaviors.”
At the same time, you’ll need to start marketing the growing chain to drive sales to franchisees. Many new franchisors underestimate how much this marketing and support effort will cost, says consultant Libava. Marketing encompasses everything from radio or print ads to uniforms, logos, fliers, and logo art on company vans.
“Trust that you’re going to need a lot of money for marketing,” he says.
Blue Moon Estate Sales was established in 2009 with a mission to set new standards in an unregulated industry. The need for an estate sale typically comes about during a particularly stressful point in a person’s life. A person may be moving, downsizing or managing a loved one’s belongings. The brand’s ultimate goal is to efficiently minimize that stress and maximize results.
Helping people is what motivates Blue Moon Estate Sales, and the brand prides itself on providing excellent service to both its clients and customers. Estate sales are a big undertaking, and this franchisor has it down to a science. The foundation it has built supports a trustworthy, reproducible business model proven to result in great sales, loyal customers and successful franchisees.
A Blue Moon Estate Sales franchise provides a tremendous opportunity in a growing, in-demand industry. In 2021, 6.5 million existing homes were sold in the United States. For years, estate sales have been run by small, unregulated companies with varied results. Blue Moon Estate Sales experts train franchisees extensively on the ins and outs of successful marketing, acquiring new business opportunities and conducting sales. With millions of baby boomers in need of estate liquidation services this franchise opportunity offers prospective franchisees the most opportune time to start a career in this industry.
Today, families are much smaller but own a lot more stuff – often more than can be reasonably passed down to loved ones. By taking advantage of Blue Moon’s complete market support, comprehensive training and reliable strategies, franchise owners can expect a high return on investment in one to two years – as well as a steady increase in returns annually. Very few companies exist in this franchise segment and Blue Moon was the first to focus purely on estate sales.
Blue Moon continues to stand out, offering franchisee candidates all of the following.
A low startup cost with more bang for your buck.
Large, protected territories.
Minimal inventory.
A low investment.
Brand confidence and recognition.
A loyal following of return customers.
An extensive web presence.
A friendly, supportive staff.
A proprietary digital platform.
Blue Moon’s highly scalable, home-based business model requires minimal space to store supplies and provides significant advantages, including the following.
Home based business.
Flexible work hours.
No accounts receivable.
A loyal, direct-pay customer base.
Effective, multi-channel marketing.
A proven sales management process.
A proven client intake process.
Blue Moon believes in going into business for one’s self, but never by yourself. With this franchisor, you’ll receive the following.
Comprehensive, hands-on training.
Ongoing educational resources.
Franchisee website maintenance.
Specialized support from a team of experts.
24/7 access to a private community of peers.
Sister brand networking and referral opportunities.
How much does a Blue Moon Estate Sales franchise cost?
To open a Blue Moon Estate Sales franchise, here are the financial requirements, cash required and ongoing franchise fees associated with business ownership.
Initial franchise fee: $19,500 to $52,000.
Initial investment: $40,950 to $85,525.
Net worth requirement: $100,000.
Cash requirement: $50,000.
Royalty fee: 5% / 7.5%.
Ad royalty fee: 1%.
Term of agreement: 10 years.
Blue Moon Estate Sales franchising doesn’t offer in-house financing for candidates but does maintain relationships with several third-party funding sources which offer financing to cover the franchise fee, startup costs, equipment, inventory, accounts receivable and payroll. For the latest information, please review Item 7 of the Blue Moon Estate Sales FDD for explanatory notes and additional franchise information.
Support and training offered by Blue Moon Estate Sales franchising
Blue Moon Estate Sales franchising includes a team of highly experienced professionals working to support each Blue Moon franchisee across the country. The two-week training program covers all disciplines of the industry. The brand teaches proper marketing techniques, sales, setup and event planning from its extensive front and back-of-house marketing platform, as well as item assessment and identification processes, pricing strategies and more.
Blue Moon is constantly investing in online marketing platforms that drive leads for each franchise owner. It also plugs franchisees into an innovative sales platform that integrates social media, email, rewards and sales data marketing – all together in one place.
The brand’s support team handles franchise development marketing to recruit new owners, corporate-level marketing to increase brand awareness and credibility across the nation, and marketing for current owners to increase brand awareness and business success at a local level. Franchisees can rely on the marketing team for both training and resources to communicate effectively to consumers, clients, referral partners and other local community members. The marketing team is responsible for organic and paid efforts, including but not limited to: Website development, search engine optimization, advertising and analytics, graphic design, social media, copywriting, print collateral, radio, podcasts and video development.
How can you find out more details on the Blue Moon Estate Sales franchise?
Running estate sales is fast-paced, fun and a lot of work. Blue Moon is seeking candidates who are energetic and ready to succeed. Whether it’s through a love of history, resale, collectibles, antiques, art or vintage items, a passion for this business is key. It is also important to remember that Blue Moon’s clients are often experiencing stress that comes along with major life changes.
With this in mind, the brand’s ideal candidate has the following characteristics.
Exceptional ethics.
High energy and drive.
Strong communication skills.
Respect and compassion for others.
A willingness to follow a proven system.
A passion for the industry.
A business mindset.
Each Blue Moon Estate Sales location is home-based, and franchisees can set their own hours. With no brick-and-mortar requirements, there are no mandatory operating hours that would keep someone restrained in a retail environment. Rather than a storefront, Blue Moon’s sales are conducted within its clients’ homes, and only minimal space is required for supplies.
Blue Moon Estate Sales is one of the few franchises that strikes all the right chords with people looking to earn a good living while making a difference in others’ lives. If you don’t mind getting your hands a little dirty, working some weekends, and serving your community, you might be just who the company is looking for.
To request more franchise information on franchise ownership, please visit the Blue Moon Estate Sales brand page here on Entrepreneur.
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“Zombie franchises” are out there. What is a zombie franchise? It’s one that has stalled out but still markets its franchise opportunity as if nothing is wrong. The brand is typically shrinking in both relevance and the number of open units. Previously loyal customers are being siphoned away by more innovative concepts. Underlying demographics may have shifted. Market trends may be working against the brand, but management hasn’t created a new path. Unit-level economics are weakening. Management inertia or denial may compound the brand’s problems.
Zombie franchise systems are usually filled with franchisees who would gladly exit if only they could! Poor unit-level economics and an undercurrent of franchisee discontent scare away buyers, so resale volumes are low. Expansion-minded franchisees look outside the brand.
New franchisees who miss the signals eventually realize their mistake. They may feel disclosures were inadequate or misleading. They often look back on conversations with franchisees and wonder how they didn’t hear the negative feedback. They may remember sunny conversations with consultants/brokers and the corporate team and feel duped. Or perhaps corporate is truly out of touch and doesn’t even realize there is a problem! All of this destroys franchisee trust and usually the relationship.
Franchisees in a zombie system are typically shackled to the business with personal guarantees, a site lease, equipment or vehicle leases, a Small Business Administration (SBA) loan, a loan against their home, a loan against their investments or 401(k) or loans to family and friends. The long-suffering franchisee can’t hire enough help because they can’t afford it, can’t sell the business and can’t close it down. They are essentially indentured servants.
Often these brands spend significant money on branding and advertising to try to convince potential franchisees that they are still worthy of investment. They try to reinvigorate franchise unit sales, but not the underlying business.
You’re too smart to get pulled into a weak franchise concept. Here is an easy checklist to keep your due diligence on track and avoid zombie franchises. If you’re a founder hoping to sell to private equity, PE will screen out brands with these attributes unless they are dedicated turnaround investors, so fixing these issues becomes your to-do list:
Lack of unit growth, especially via existing franchisees. Talk to as many franchisees as possible. If they don’t want to expand even though the territory is available, I advise moving on.
Weak unit-level profitability
Unfulfilled development agreements. Franchisees would rather lose their deposits than follow through and open promised units. Item 20 in the Franchise Disclosure Document lists franchisees and holders of development agreements. Connect with those franchises.
Corporate parent overly dependent on selling franchises. Look at how much revenue is related to franchise fees compared to recurring royalty revenues.
Corporate parent putting more attention on supply chain and rebates to drive revenue, again usually a signal of falling recurring royalties. Murky disclosures about rebates and supply chain costs to franchisees should also encourage you to move on to other concepts.
Bloated sold not open (SNO) funnel or SNO numbers that are quietly adjusted from year to year due to weak unit openings. Google prior year press releases and industry articles. Was management bragging about “400 units sold” five years ago but only 50 units are open, and the rest are still sitting in the Item 20 sold not open list? Red flag.
An increasing number of poorly performing franchises. Again, it is worth the time to track down old disclosures so you can compare several years of unit-level performance. How resilient is the concept? Are trends positive?
The franchise stops publishing Item 19 earnings representations when Item 19s were routinely included in prior disclosures.
Increased franchisee litigation
Franchisees who want to sell before the expiration of their first license agreement.
Prospective franchisees drop out after considering resale options.
Franchisee discontent spills onto internet sites dedicated to publishing stories from unhappy franchisees.
During validation, you discover that franchisees aren’t following the system. They have developed “hacks” to improve profitability.
Corporate team turnover, especially among field support (they are the staffers working most closely with potentially unhappy franchisees). Do franchisees provide positive grades on management team performance?
Do you see danger signs but management seems to be in denial? Complacent? Blaming franchisees? Has anyone from the corporate team ever left to become a franchisee themselves? Why not?
Is there evidence of ongoing investment in innovation to keep the brand relevant? Do franchisees say this is a problem area?
Relatively high Small Business Administration (SBA) loan-charge offs. These are lagging indicators due to time but certainly a troubling signal.
Is working through the above list work? You bet! You owe it to yourself to conduct thorough due diligence. The above list will save you time, money and headaches. If you see weak signals, don’t waste your time. Just move on. There are many strong, healthy, proven franchise options out there. Be picky and protective of your time and money. Only the worthiest concepts deserve your attention and commitment.
What if you’re a franchisor and you recognize troubling signals of your own brand in this list? Start with improving unit-level economics and rebuilding trust and strong communication with your franchisees. Those are the two highest impact areas in any franchise.
Are you interested in eventually selling your franchise business to private equity? Preventing problems in the first place is key. Any whiff of trouble can have a big impact on your deal terms, business valuation and even which investors will take a serious interest in your brand. Once you’ve stalled out, the bar is raised to prove you’re back on track. Remember that most PE investors in franchising want a growth story, not a turnaround project. Are you building a valuable reputation?
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