Transcript: My Top “aha Moments”

INTRO:

Welcome to Demystifying Franchise Ownership, the podcast that brings you expert advice, transparency, and clarity around franchise ownership, whether you're a prospective or current franchisee or franchisor, or simply curious about the topic.  Say hello to your host, Kristine Givens. 

Welcome.  I’m Kristine, an entrepreneur who built and sold a highly successful Chicago based boutique accounting firm and then acquired and operated a national franchise.  After five long years of frustrations, struggles, and challenges, I exited that franchise.  But what I lost financially, I gained in knowledge, experience, and hard-earned lessons learned, all of which I want to share with you.  So, let’s get started.

KRISTINE:

Welcome friends to my very first podcast episode.  As I mentioned in the intro, I acquired and operated a national franchise for about five years.  When I became a franchisee, the franchise was relatively new, and had only been selling franchises for a couple of years.  I'm going from memory, but I think probably there were less than 50 franchisees across the country when I got into the franchise system.  When you acquire a relatively new, untested brand, you are taking on more risk.  But there's the possibility for more upside, or at least there should be.  I was really impressed with the other franchisees, and I felt like I was getting in on the ground floor.  So surely there had to be more upside.  Well, I certainly got that wrong.  In fact, there were so many things I got wrong.  In this episode, I outline my biggest "aha" moments after signing on the dotted line.  I normally associate aha moments with the discovery of something positive or cool.  In this context, my "aha" moments most didn’t fall into that category.  They were "aha" moments like, oh my gosh, sprinkled with a lot of expletives.  How could I have gotten this so wrong?  Anyway, here we go.  

My first aha moment encompasses two related discoveries.  One, just because the franchisor has a business model that works on a smaller scale, doesn't mean the business model will work on a large scale, and in every geographical location.  Before I go into a little more detail on this one, I want to talk about two terms.  

The first one is discovery day.  Discovery day is where you go and meet the franchisor.  Think of it as a first date.  It's like a first date because you're evaluating each other.  The franchisor is putting its best foot forward.  You meet key personnel; they describe the business model at a very high level because they're not giving much away.  You will probably do an office tour or a tour of a facility.  You could speak with key personnel.  

The second term I want to talk about is the FDD or The Franchise Disclosure Document.  The franchisors are required, it's not optional, to provide FDD''s to all prospective franchisees.  The FDD contains information about the franchisor.  Whether they have filed and how the agreement will work between the franchisor and the franchisee.  After going through discovery day and reviewing the FDD, it appeared the business model was sound, and the franchisor personnel understood the business.  They did really understand the business but what they didn't understand was how to run a franchise, which leads me to my next aha moment.  

Just because the franchisor has a business model that has been successful as a standalone business or with a few locations doesn't mean the franchisor has the knowledge, talent, and resources in place to be a successful franchisor.  And, let me give you an example.  I had operated a successful accounting firm for more than 10 years.  We were very well known for our exceptional service in an exclusive niche market.  Part of the reason we provided such exceptional service was because we had built an infrastructure and developed standardized procedures for the employees, so the work was done consistently and efficiently.  Consequently, I was stunned and flabbergasted when I discovered the franchisor did not have a sound infrastructure or standardized tools and resources.  As franchisees, we had access to a Google Drive where we could find tools and resources.  There were multiple versions of the same tools and resources.  And on top of that, they were developed by individuals who had industry experience, but didn't have franchise experience or even in some cases, business experience.  They were practitioners in their area of expertise.  That was it.  That was a qualification that he had to running this franchise.  The franchisor thought, oh, this person understands the underlying business so they will be great working for the franchisor.  But they had no franchise experience.  They didn't know how to run a franchise at a higher level.  These less than ideal tools and resources made it so difficult for franchisees that we wasted oodles of time.  It provided a great amount of frustration for me because I felt like I had to first figure out how to run the business, which I shouldn't have.  I was purchasing a business, an existing business model, and then I had to execute.  

Related to this podcast, I'm also creating courses on franchise ownership.  Prior to creating my first course, I wanted to validate my course idea, so I sent out a survey to some of my former franchisees, you know, fellow franchisees.  One of the survey questions was, what did you find most unexpected about franchise ownership?  I kid you not.  One of the responses was “how little the franchisor really knew.“  That is shocking.  You're paying an incredible amount of money for a business model, their expertise, and an existing business in a box.  When you buy a franchise, you're buying the right to use existing business model and the standards, and everything related to running that business.  If you're not getting that you're not getting what you paid for.  

My next "aha" moment was the realization that the franchisor was providing very little, if any, corporate marketing support.  Most franchise agreements are written with broad terms and are skewed to the franchisors favor so they have the power in the relationship.  The power resides with the franchisor.  However, I went into this endeavor expecting that the franchisor would provide more marketing support, especially given the CEO had marketing knowledge and experience.  My thought process was the franchise agreement is broad and vague about the franchisor’s responsibilities around marketing support, but our interests are aligned or so I thought.  So why wouldn't the franchisor want to make financial investments in marketing?  The franchisor succeeds when the franchisees succeed.  

I go back to my survey.  Let me give you a couple more snippets.  These are quotes in response to my question on what was unexpected about franchise ownership.  The first quote is verbatim, "the lack of corporate marketing support, lead generation is a real challenge.  And digital marketing is extremely expensive, with not much to show for it."  

The second quote is not specifically related to marketing support, but it relates back to the comment about thinking that our interests are aligned.  The quote was "I was expecting the franchisor to be more focused on the success of the franchisees." 

And then the last quote is "how little the franchisor actually cared about the financial success of his franchisees coupled with the shocking inability to successfully manage its own business.”  These are some harsh comments. But keep in mind, these responses are coming from a group of franchisees who are all very smart, experienced, and had impressive business credentials.     

Another "aha" moment was just how difficult it would be managing creative employees.  I was accustomed to managing employees as the owner of an accounting firm. Consequently, I wasn't intimidated by the prospect of managing employees. However, I didn't realize how different it is to manage creative individuals versus analytical accountants.  I have a background in music and arts.  I'm a fairly creative person, but I had no clue how to manage many of my employees. Going back to my survey and the same question on what was unexpected about franchise ownership.  This respondent said, "I had worked in corporate America for a number of years with very professional teams.  I was very surprised about the mindset of a skilled worker workforce.”  I had the same struggle.  I didn't know how to relate to most of my employees, plus, not having previous industry experience.  I found some of my employees did not respect my authority as I hadn't been in their shoes.  

Okay, I promise.  This is my last "aha" moment.  I didn't realize how difficult it would be to grow my sales.  Of course, being that I have a financial background, I put together a very detailed financial projection before signing on the dotted line.   I was spot on when it came to predicting expenses but where I was off was how much and how quickly my sales would grow.  I had interviewed other franchisees during the due diligence process, which is very important.  The challenge was given this was a newer brand, or a newer franchise concept, there were only a few existing franchisees who had been operating for more than a year.  Thus, I had to project my sales based on a lot of assumptions, including franchisor, and existing franchisee representations.  Obviously, the franchisor had a vested interest in getting me on board, so they were showing me only the best side of the franchise.  They were giving me the sugar-coated version.  Even in hindsight, I think the franchisees were honest and forthcoming about their situations.  But they had limited history to share with me.  I totally underestimated how long it would take to grow the sales.  I underestimated the importance of marketing experience.  I had a lot of sales experience selling professional services, but not with marketing per se.  My ability to grow sales was also dependent on the employees selling themselves in our service.  Because I didn't understand necessarily how to relate to them, I did not know how to coach them on selling our services.  In retrospect, I should have sought coaching myself on how to coach them.  

Going back to my survey one last time, one of the respondents said in response to my question about unexpected aspects of franchise ownership "how hard it is to make money."  That really sums up the franchise experience for me.  Even though I was an experienced entrepreneur, I still struggled with making money.  

Well, those are my "aha" moments as a franchise owner.  Let me leave you with some takeaways.  

Number one, really scrutinize the business model.  Ask yourself, will this business model work on a large scale?  Will it work in every geographical location?  If it's a national franchise, Will it work across the country?  

Number two, does the franchisor have the knowledge, the resources, and most importantly, the talent to operate a franchise?  I would want to know that the franchisor has someone in leadership with franchise experience.  

Number three, is there evidence that the franchisor is making an investment in marketing strategy and execution?  Is the franchisor providing marketing support beyond just basic marketing 101?  Are they providing national marketing support?  

Number four, if you are considering a franchise concept, which requires having employees, ask yourself, are you comfortable managing that employee base?  This applies even if you will have a manager.  I had a manager in my franchise.  Do you know and understand what motivates this employee base?  If not, you need to get coaching for yourself or move on to another franchise concept.  

And lastly, do you have a good handle on how much and how quickly sales will grow?  If the franchisor is newer, you probably don't have the sales history to know with confidence in your sales projection.  If it's a well-established franchise, you should be able to confidently build a sales projection.  

To wrap all this up.  I'm going to quote an excerpt from my website.  The success of a franchise depends on the skills and experience of the franchisees, the strength of the brand, and the effectiveness of the business model.  Without the right combination of these factors, franchise ownership is frustrating, stressful, and has a greater likelihood of failure.  As I said my intro I want to share my experience my hard-earned lessons learned with all of you.  Thanks for listening and keep your eye out for my next podcast.