A Piece of Their Action
I have a lifelong friend, Trevor, who owns a franchise. He ended up there indirectly, spending his early career managing divisions for retailers. But disruptions in those niches kept putting him behind the eight ball. He decided he wanted to stop working for people and own his own business. He hired a business broker but told him he wanted nothing to do with franchises.
“I had stereotyped them as food-service-based, and I didn’t want a boss anymore,” he recalls. He says his broker gradually wore him down and explained the benefits: support, proven model, a safer investment than buying freestanding businesses. He ended up buying an existing local territory for an auto parts wholesaler.
People in business often look down on franchisees, seeing them as insufficiently entrepreneurial, driven, or knowledgeable to start their own business—relying on the crutch of a business designed to be bought off the rack.
Apropos of that, a few months ago, Bill Rodriguez called me. He’s a Twin Cities-based franchise consultant who works with prospective franchisees to match them with promising businesses. His mantra: “In franchising, you’re in business for yourself, but never by yourself.”
Rodriguez wanted to know why TCB never wrote about franchising. I put him off, but he was persistent, and we met for lunch. I admitted to him that I had absorbed many of the biases about franchising and assumed those businesses were inherently less interesting to readers. Did you know that franchises are one of every 11 small businesses in America? That one opens every 35 minutes? That there are 821,000 currently operating? (I didn’t.)
His clients are not really entrepreneurs. “Entrepreneurs like risk, employing creativity, and most importantly, like to control all the details,” he explained. “A franchisee is an operator who can build teams and cultures but doesn’t want to start from scratch.”
Rodriguez had been a marketing exec with SnapFitness, a franchisor. He now works one-on-one with individuals who want to enter the space. He has a universe of 625 brands to match with clients. He typically suggests a few, based on the client’s skills and background.
Rodriguez cites two primary pathways into franchising. The first is people leaving corporate America, like my friend. They are looking for a different pace and level of focus, or hear a clock ticking on their dreams. They frequently invest a life’s worth of savings.
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Rodriguez calls the other cohort “semi-absentee owners.” It’s the profoundly affluent, looking to deploy capital and pay a general manager to run the business (some franchisors will provide management for you, he says). Or it’s execs who are looking three to five years out. They keep their day job and transition to the business when it’s mature enough to meet their salary needs.
Rodriguez’s process takes three to four months. (He’s compensated by the franchisor, like an executive recruiter.) A prospective franchisee should add eight to 12 weeks to start a home- or warehouse-based business, eight to 12 months for a brick-and-mortar.
The hottest categories today are home services, kids, the elderly, health/wellness, pets, and business coaching. He says that business failures are less common among franchises during the first two years, but when they fail, it’s due to undercapitalization, insufficient marketing, or frustrated entrepreneurs tinkering excessively with the business model.
Twelve years in, my friend Trevor has changed his tune on franchising. “I would recommend it,” he says. “But it depends a lot on the franchisor and their relationship with franchisees.” The best piece of advice he received: “Whatever annual royalty you’re paying [the franchisor], make sure you’re going to see value in paying them twice as much if you double the size of business.”
He advises prospective franchisees to visit other franchisees of the business they’re considering: “You can’t do too much of that. You want to find a franchisor who really cares that you make money.” And, finally, he says read and show your franchise agreement to an expert before you sign. “A franchise agreement is by nature very one-sided” in favor of the franchisor, he notes. “It’s important to understand the limits” of how it can change terms or otherwise impact your business.
To reach Bill Rodriguez about franchising, email him at bill@liftoffcfc.com.
