Foundational Franchising

At Apex Franchise Development Group we believe and strive to create alignment between the Franchisor and Franchise owners. We call this alignment Foundational Franchising. We create Foundational Franchising by identifying the true purpose of the organization. Our belief is that all of us, including the franchise organization, must be driven by more than money or we risk not realizing our full potential. What we want to create is an organization where the Franchisor and Franchisees live in harmony; driven by the same common purpose and anchored with aligned interests. We have learned that there is a difference between a purpose-driven culture and business success. An organization’s purpose and vision should energize and engage franchise owners, employees, and partners and promote creativity and innovation. When done right this approach toward franchising creates an organization with a sustainable competitive advantage.

Foundational Franchising is created by three elements:

1. Vision (Big Dream)

The vision of the franchise should focus on the future and serve to keep the organization focused on what really matters. Any activity that is not moving toward the fulfillment of the franchise vision should certainly be scrutinized and most likely discarded. With a well thought vision in place, all stakeholders are afforded a clear picture of where the franchise is headed.

2. Our Purpose (Mission)

The franchisor’s purpose should identify why they do what they do for reasons other than monetary. The organizational mission should excite and motivate people to achieve a greater purpose. It should serve as one of the main driving forces behind all key decision-making.

3. Our Values (What do we believe in?)

Values represent who the franchise is at its core. Values not only serve to identify who we are as an organization, but also communicate to everyone the hills we are willing to die on. All decisions should be based on our values. Therefore, every franchise should operate in alignment with their identified values. They should hire, fire, and decide strategic initiatives based upon their values. Organizational values should dictate our actions and behaviors and communicate who we are and what we stand for as an organization. A franchisor’s values are the fundamental beliefs of our organization.

Every stakeholder (Franchisor, Franchise Owners, Employees, Investors, Vendors, Partners, etc..) in the franchise business must be aligned and buy into the Vision, Purpose, & Values of the organization. When aligned by the three elements of Foundational Franchising, the franchisor and franchise owner find themselves working in harmony toward achieving a common vision. They also become driven by a common purpose, and connected as a community through a common set of values.

________________

Ryan Rao is a Principal of Apex Franchise Development Group and is a franchise development expert who has grown multiple franchise based businesses into national and international brands. Franchising has allowed him to help individuals realize their dreams of business ownership, while permitting them to experience the independence, flexibility, and freedom that comes with being a business owner. He also serves as a franchise consultant, and is a personal growth advocate.

Follow or Connect with Ryan on LinkedIn at https://www.linkedin.com/in/ryan-rao/

 

Why Franchisees Fail

Can I speak with a franchisee?

Becoming a franchisee is a life changing decision. For most, the purchase of a franchise means transitioning out of a career, operating your own business for the first time, and investing ones hard earned savings. The good news, in virtually all scenarios, people prior to you have already made the same life changing decision.

In my opinion, the most important due-diligence step a prospective franchise owner can take is to speak with a current (and if possible a former) franchisee of the brand.

These 8 questions will help maximize your conversation with franchise owners:

1. What was your background before you became a franchise owner?

  • Importance of this question: Do I have the experience & skill set necessary to be successful?

2. Can you explain a typical day in your role of being a franchise owner? What is the most challenging part?

  •  Importance of this question: Could I do this work day in & day out?

3. (If local) Would I be able to shadow the operations of the business for a day?

  • Importance of this question: Test drive the franchise before you own it.

4. Would you be willing to discuss your financials; including project cost, revenue, EBITDA, & how long it took to break even?

  • Importance of this question: Does this ROI align with my expectations and goals?

5. What happened after you signed the Franchise Agreement?

  • Importance of this question: Does the franchisor have streamlined on-boarding processes which sets franchisees up for success?

6. What didn’t you learn in training from the franchisor that you had to learn yourself? Did you feel prepared day one to open the business?

  • Importance of the question: Will I be prepared to operate this business successfully?

7. What is one thing you know now you wish you would of known before you purchased this franchise?

  • Importance of the question: What am I missing?

8. If you had to do it all over, would you purchase this franchise again?

  • Importance of the question: Overall happiness of the franchisor/franchisee relationship. Use their experience for better or for worse to your decision making benefit.

These eight questions can be used as a cheat sheet to maximize your time speaking with current franchisees of the brands you are interested in. The desired outcome of these crucial franchise discovery calls is to receive unbiased perspectives of what it is like to become a franchisee of the brand. After a few calls, trends will start to form which will substantially influence your decision making. Carefully take into consideration all findings before you make your very own life changing decision and become a franchise owner.

Here are some other great articles which helped me formulate my opinions and should be viewed as you consider franchise opportunities:

________________

Ryan Rao is a Principal of Apex Franchise Development Group and is a franchise development expert who has grown multiple franchise based businesses into national and international brands. Franchising has allowed him to help individuals realize their dreams of business ownership, while permitting them to experience the independence, flexibility, and freedom that comes with being a business owner. He also serves as a franchise consultant, and is a personal growth advocate.

Follow or Connect with Ryan on LinkedIn at https://www.linkedin.com/in/ryan-rao/

Culture of Execution: The Winning Franchise Formula

When it comes to creating the winning franchise formula most small business owners think they know the ingredients. If they didn’t, they most certainly wouldn’t venture out on their own. However, according to the Bureau of Labor Statistics’ Business Employment Dynamics, about 80% of businesses will survive their first year in business. About 66% will survive their second year. Only about 50% will survive their fifth year. And, about 30% will make it to their tenth anniversary. As you can see, if everyone had the winning formula more than 30% of businesses would still be around 10 years later.

 The Franchise Concept

Because of numbers like these, more and more entrepreneurs are turning to franchising. Franchising offers a template for success. The things that business owners didn’t think about when they were formulating their plan, such as: floor plan layout and its impact on operations, documentation of all systems and processes for consistent training and operations, and the impact of a well thought marketing plan on business and brand development are a handful of the things that make a franchise relationship so valuable. A strong franchise brand will have already tested and refined all aspects of the business model, saving the entrepreneur the headaches of doing it themselves. Not to forget saving the entrepreneur from making many potentially costly mistakes.

 The Issue

Ideally, all the entrepreneur must do after engaging in a franchise relationship is effectively implement the standards.  However, that is many times easier said than done. Success in franchising only goes as far as the franchisee’s willingness to adhere to the established systems and standards. There is a reason why some franchise owners in similar markets with similar demographics succeed and others fail. If we did an autopsy of failed franchise businesses I am quite confident that we’d find that the cause of death was rooted in executing the formula.

 The Failed Business Autopsy Report

  • Time: Typically, at the start of the relationship every new franchisee is all in with the franchisor’s systems and procedures. They begin their new endeavor with enthusiasm and great optimism. They implement their training like they were taught. However, as time passes many begin to loosely apply their learning and become relaxed with implementation of the brand standards. Then, shortcuts creep in, knowing a better way rears its ugly head and before you know it, the proven methods begin to be replaced by “a better way”. Unfortunately for many, the better way isn’t better at all. What lured them to franchising in the first place is replaced by loosely structured systems and poor execution. Inevitably, this leads to lost sales, never reaching full potential and lost earnings.
  • Consistency and Accountability: For any business to be successful everyone must be held accountable for results, including the franchisee. Failing to consistently hold everyone accountable to the standards of operation is the first step toward failure. When a franchisee starts to relax on the marketing routine, operational standards and financial fundamentals, the system begins to take on a new standard. That standard usually involves less than great service, average product, below average cost containment, and a less than stellar brand image. The typical result is a decline in sales, which directly effects revenue.
  • Execution: Business is about getting things done and doing them the way they were meant to be done. Failing to get things done leads to stagnation and stagnation leads to status quo. Status quo leads to becoming average at best. No one in today’s world, which is full of many great alternatives, is going to pay for average. Once you become average you become a memory. When there are many options to choose from you must stay top of mind. Those that are top of mind are the highest performers. The highest performers execute.

Commit to the System

Most entrepreneurs invest in a franchise because the franchise has a record of success, a strong brand, a refined training program, ongoing operational support, marketing assistance, real estate site selection assistance, purchasing power, and established systems in place that help lower risk. Therefore, it would appear to be in the best interest of the franchisee to implement the tried and true systems of the franchisor.

If you are considering a franchise as your business template, do yourself a favor and implement their systems, procedures and brand standards consistently and correctly. The franchisor made it to where they are because they’ve successfully done it over and over again. Therefore, their way is the proven way. You’re paying for their knowledge, expertise, and experience. Do yourself a favor and run the business the way they say it should be run. Develop a culture of execution and insist on consistently doing things the way they are supposed to be done. Do this and the odds of your business becoming one of the 30% that make it to the 10 year mark goes up significanlty. Then, you’ll be positioned to renew that franchise agreement so you can do it all over again.

_________________

Randy Stepp is a business and franchise development professional who’s purpose is to help business owners realize their dreams of independence and freedom.

Follow or Connect with Randy on Linked In at https://www.linkedin.com/in/randystepp

So, you want to franchise your business but are you ready?

Franchising can be an attractive vehicle for businesses to achieve scale.

Ask yourself these seven questions before you consider franchising your business.

1. Can my concept support franchising?

  • Is your concept able to support a royalty structure? If your current business cannot achieve 20%+ EBITDA without royalty and marketing fees included in the P&L franchising may not be for you.
  • How simple is your concept to operate? Can you train your concept to others? How will you train this concept to others?
  • Franchising should follow the “KISS” method. In franchising, the goal is duplication.
  • The best franchisors are uncompromising when it comes to brand consistency and they are willing to spend the time and money necessary to ensure their standards are strictly enforced.

2. Can my management team pull this off?

  • Does your management team have franchise experience? Franchising is a different mindset compared to operating corporate units.
  • The strength of your franchise system will be measured by the strength of your corporate infrastructure.
  • Does your team have unified core values and a singular vision? Can they maintain your culture as you grow?
  • Do you know the inflexion points and positions needed to properly support your franchisees?
  • Do you have a strategic plan?

3. Do I have enough capital?

  • Even the best management team and a fantastic concept cannot begin franchising undercapitalized.
  • Franchising takes a substantial upfront investment before returns are reaped. There are critical points in the lifecycle of every franchisor where investment in corporate infrastructure is outpaced by incoming royalty streams.
  • Franchising can be very profitable but understand it is a long road for most franchisors to reach profitability.

4. Are my legal documents correct?

  • Franchise law is very specialized and your documents must be constructed by someone who specializes in franchise law.
  • Attempting a do it yourself approach in regards to franchise legal documents is a sure path to failure and legal trouble.

5. How will I sell franchises?

  • According to a recent IFA conference there are more than 2,000 active Franchise systems under 20 units and almost 3,000 Franchise systems under 50 units. Why is that the case? Because selling franchises is hard and the business model may not support the efforts.
  • Do you know who your ideal franchise candidate is? Where will you find these candidates? What is your sales process to award a franchise?
  • According to Franchise Update Magazine, the average cost to recruit one franchisee in 2010 was $13,019. That means franchisors that want to add 20 new franchisees must expect to invest $260,380. What is your plan and budget in this area?

6. Who is my demographic?

  • A common denominator of successful businesses is their scientific understanding of their customer. The consumer’s makeup or demographic of any business is constantly evolving but the business needs to apply a data driven and scientific approach to real estate selection.
  • Does your business understand your demographic? Do you have a real estate model? How will you ensure location consistency? How will you support your franchisees with selecting real estate?

7. Do I have the right supply chain partner?

  • Can my current supply chain support franchising?
  • Do I have the right partner to maintain consistency of my product? Regionally? Nationally?

These seven questions are crucial starting points for any business to consider before launching franchising. “Franchising can be a low cost means of growth but it is by no means a no cost means of growth” (Entrepreneur). Make sure your business is prepared before you begin to take on franchisees.

Here are some other great articles which helped me formulate my opinions and should be viewed as you consider franchising your business:

https://www.entrepreneur.com/article/204998

https://www.allbusiness.com/7-biggest-challenges-to-growing-a-franchise-system-16647575-1.html

https://www.entrepreneur.com/article/252592

________________

Ryan Rao is a Principal of Apex Franchise Development Group and is a franchise development expert who has grown multiple franchise based businesses into national and international brands. Franchising has allowed him to help individuals realize their dreams of business ownership, while permitting them to experience the independence, flexibility, and freedom that comes with being a business owner. He also serves as a franchise consultant, and is a personal growth advocate.

Follow or Connect with Ryan on LinkedIn at https://www.linkedin.com/in/ryan-rao/

21 Powerful Questions to vet out a Franchise offering

When most people think franchises they think McDonald’s. A global multinational brand which almost can’t fail. However, for much of the industry that is far from the case.

According to a recent IFA conference there are more than 2,000 active Franchise systems under 20 units and almost 3,000 Franchise systems under 50 units.

But how do you identify which of these emerging franchise systems will be the next Quiznos Sub or the next McDonald’s?

Keep these questions in mind when investigating a Franchise offering:

1. When was the business started? What year did you start franchising?

Longevity of the Franchise is a critical consideration. Is there a life cycle to the brand?

2. How many company owned stores does the Franchisor have?

Can the Franchisor operate their own stores successfully? Are they continuing to develop corporate units?

3. How many Franchisees do you have? Can I speak with your current Franchisees?

Ask the Franchisees about the economics of the business, support they receive from the Franchisor, and if they could do it over, would they purchase this Franchise again?

4. What is the total investment of the Franchise including working capital?

Is this Franchise in my budget? Does the potential ROI make sense? How long till I will be cash flow positive?

5. Is the Franchise SBA approved?

Know your financing options.

6. How many states is the Franchise in?

Is this a national? regional franchise?

7. What is your royalty and marketing fund?

Know your numbers before you sign on the dotted line.

8. Describe the concept.

What is the core competency of the business?

9. Describe your industry.

What industry are you in? What are the trends? What are the current conditions?

10.Who is your competition?

Learn what the competition is doing and why they are doing it.

11. What are the brand differentiators and what are the competitive advantages of your product/service?

What makes this brand better than the competition?

12. Is there an Earnings claim in item 19 of the FDD?

I would strongly caution purchasing a Franchise without an item 19. What are average sales? COGS? Can this business flat out make money?

13. Please describe the backgrounds and skill sets of your most successful Franchise owners.

Do these Franchise owners sound like me? Is there an assessment I can take?

14 Describe the typical day of a franchise owner.

Could I do this work day after day?

15. How many and what type of employees do you need? Are any certifications needed?

What challenges may I face from an employment standpoint?

16. Who is the customer/demographic of your Franchise?

Franchises must understand their demographic when selecting real estate & marketing vehicles.

17. What is the protected territory radius?

Am I comfortable with my radius? Do I feel neighboring franchisees will cannibalize sales?

18. Describe the typical location. What challenges do you face finding this real estate?

Location, Location, Location! Does the Franchisor help me find this real estate?

19. What is the management teams backgrounds and strengths?

Who am I going into business with? Are they qualified to lead a Franchise system?

20. What are the typical objections of prospective franchisees?

Am I missing something?

21. Can I see the FDD?

The FDD (Franchise Disclosure Document) is a standard format document which allows you to learn more about the Franchisor. I would recommend reviewing the FDD with a Franchise attorney.

________________

Ryan Rao is a Principal of Apex Franchise Development Group and is a franchise development expert who has grown multiple franchise based businesses into national and international brands. Franchising has allowed him to help individuals realize their dreams of business ownership, while permitting them to experience the independence, flexibility, and freedom that comes with being a business owner. He also serves as a franchise consultant, and is a personal growth advocate.

Follow or Connect with Ryan on LinkedIn at https://www.linkedin.com/in/ryan-rao/