Week 2 Forum

Cassandra Shaw: Welcome, Daniel. He is the Entrepreneur's Source, especially when it comes to franchises, and so today we are going to talk about choosing the right franchise. So, Daniel I want to start off, tell us what does it mean to franchise? And what's involved with that?

Daniel P.: Franchising defined, Sandi, is a form of distribution. So, when people talk about a franchise business, they talk about a business that probably started off as an independent business but at some point they reached the point where they wanted to grow, and they wanted to expand, and so, franchising is one form of expansion where they went through a process of formalizing their business model, applying with the Federal Trade Commission, which is a governing body of franchising in the United States, and received permission to operate as a franchisor. So they had systems in place that showed that they were ready to grow. They had the ability to support a development effort to attract franchisees and they also proved that they could support successfully the franchisees as they entered their business.

Cassandra Shaw: Okay, so let's expand on that. For the listeners that are interested in a franchise, in terms of experience and finances, what would be your recommendation that they would need as a baseline to get started?

Daniel P.: Sure, well let's talk about experience first. One of the big reasons, Sandi, that people enter a franchise is that there's not a lot of related industry experience that is needed. So, for example, if you're looking at a mobile pet grooming business, you don't have to have the experience or background of being a pet groomer or being in that industry. So, a franchise is going to teach you their business and what they're really looking for is somebody that has good transferrable skills, somebody that is coachable, somebody that has the passion to be successful, and the risk-tolerance to be a business owner, and also, the financial capabilities to get into a business.

So that's a good lead-in to your second question, the total investments of the 220 franchises, that we represent and do owner recruiting for, starts about $20,000 goes up to $800,000. It's a very wide and varied range of total investment levels. And part of my responsibility is when I'm learning about my clients, I am assessing not only their skillset, their passion, but their financial abilities, so we're gonna take a look at what is their financial picture that they're coming to the table with, as far as liquid assets and assets that can be made liquid, and then I can ask some questions that can determine fundability.

So we're gonna have a pretty good idea before I even introduce a client to a business to avoid wasting anybody's time, that if indeed this was the right fit for the client, there could be a way that they could get into the business. Normally what's happening is, it's a combination of assets that are coming from the client themselves, either that are liquid or can be made liquid, and some sort of funding mechanism that are paired together to satisfy the total capitalization of the business.

Cassandra Shaw: And that reminds me of the discovery process. Let's talk a little bit about that. How do you begin the discovery process for someone that wants to become a franchisee?

Daniel P.: Sure, that's a great question, I'm glad you asked that. The first part of the discovery process is what we call the educational component, and all that simply is, me learning about my client, and specifically what we're learning is, what does the ideal business look like from an income, investment, ownership level, lifestyle standpoint, and is the client viable. How I learn about this, Sandi, is have a couple of meetings with people and I ask a lot of questions, but I also have some technology-based resources that are going to help me better understand my clients.

Once I have a pretty good idea that the client is viable, and after the first two meetings, I'll know what type of business I'm gonna go out and bring back to them to introduce them to. I will actually go out and usually bring back two or three businesses that I think are a good fit for the client that they will be excited to study. But just as importantly, the franchisor has to be excited about the person I've brought to them, because that's what they're holding me accountable to, is to bring them clients that are viable.

So at that point we enter into the discovery process or the validation process, which is where the client goes through a one to two month period of, it's usually five to ten different meetings where they are learning the business on an incremental basis, but at the same time the franchisor is learning about the client on an incremental basis through each one of these meetings. Because not only does the client have to see themself in that business, and see that it's a great fit, but the franchisor, if it's a good franchise, is going to be very selective as far as who they award a license to because they only want to award a license to somebody that is gonna bring them good, long-term value because that's where their gonna make their money.

Cassandra Shaw: So that raises a question for me, as far as selecting a franchise, there is a wrong move that they could make in selecting one, correct?

Daniel P.: Sure. There's actually many wrong moves that can and have been made. People have often bought a franchise based on a perception, and that perception might be, "Hey, I wanna own a restaurant." But a restaurant may not be the right business for them. They may invest in a business before they have a full understanding of higher investment that goes into a restaurant, the many moving parts that are involved in operating a restaurant. The moving parts being people and equipment, both of which break down, as well as the long hours that come along with being the owner of a restaurant.

Often times, a person will get into a franchise that the franchisor may think that they're a good fit or may tell the client that they're a good fit but they're not really a good fit. So that's a franchise that's taking a short-term approach, and they're more interested in collecting franchise fees, and that usually never has a good ending.

Another situation that we see is, a complete due diligence is not done, and part of a complete due diligence is being able to talk to the franchise owners about their experience in a franchise. The franchise owners will tell our prospect clients if it's a good business, if the franchisor is there to support them, and make them successful. So most of the mistakes that we see that are being made, are from people who haven't done the right amount of due diligence, or have not looked at multiple options. Why not take a look at two or three different businesses as opposed to just one and compare and contrast those businesses against one another. So these are all things, Sandi, that we walk our clients through to ensure that they are making the most informed decisions of whether or not to enter a business or to potentially walk away from one.

Cassandra Shaw: And Daniel, what would you say would be an average timeframe for someone that expresses an interest in a franchise to opening the doors?

Daniel P.: That's a great question. It really depends on the type of franchise that you are getting into. A brick and mortar type of franchise is usually going to take longer because you have to find a location, and a site, and the franchisor actually will help you with site selection, and lease negotiation, but that site generally has to be built out then. So it could be anywhere from four to six months from the time that I start working with somebody until they actually open the doors of their brick and mortar. If it's a home-based, an office space, or a portable and mobile service type of business, the time from first contact with me to opening the doors is much less and that is usually anywhere between, it could be 90-120 days. So it really depends on the type of franchise that you have as to when you can expect to open the doors.

Cassandra Shaw: And lots of different options because I think a lot of people when they hear franchise, they're thinking brick and mortar, but as you mentioned you have the home base type as well, and even the mobile, for people to consider.

Daniel P.: Oh yeah, there's many different options and that's what we try to do is introduce them to a business that really is gonna fit their income, lifestyle, wealth, and equity goals.

Cassandra Shaw: So what would be some of the tactical advantages to franchising for our budding entrepreneurs that are listening?

Daniel P.: If you align yourself with a successful franchise, then the support that is gonna be there to help make you successful is a really good thing. If you compare independent business ownership to franchising, independent business ownership is generally a riskier venture because you have to implement and execute the operating system. You have to implement and execute a sales and marketing plan. Where a franchise is going to provide you with free opening and post opening training, and support, that is designed to help you ramp up to cash flow positivity in a faster period of time. And the other thing that's important to remember is where a franchisor makes their money, is in the long-term off of the royalties that they collect but they only collect those royalties, which are a percentage of sales, if they have helped make the franchisee financially successful. Franchises are good for people who want to minimize the risk, and work within a framework that they have in a system that they have already done the research on, and said, "I can follow that system, do it with some level of passion, and I'm willing be taught how to be successful."

Cassandra Shaw: And risk was something I was gonna ask you about as well, so with franchising, would you consider the risk to be low to moderate versus an independent owner that might be moderate to high-risk?

Daniel P.: A franchise business is typically gonna be lower risk because somebody has already created and implemented an operating system. They've distributed and it has proven to be successful. Because a franchisor is not gonna be in business very long if they don't have a successful operating system. So, when you compare your levels of risk, as I said a minute ago, as an independent business owner, you have to do everything on your own. A franchise is gonna give you a designated coach that is responsible for coaching you to be successful. You may have three or four conversations a week with this coach, and that person is gonna make recommendations as to ways that are gonna lead, if you follow the recommendations, to you being successful.

I guess in general when you assess the risk, franchising will have a track record that will show there are a certain amount of people that have been in business for a certain amount of time. Our prospect clients are able to speak to these business owners or franchisees before they make any decisions to invest. So they're able to find out from them, if I follow the system, is this a good working operating system that will yield good results? For anybody that wants to learn more about franchising or they have an interest in exploring opportunities. I can be reached at 800-495-3085 or by email at [email protected], or you can feel free to go to my website, which is www.esourcecoach.com/dprendergast.

Cassandra Shaw: Great. Thank you, Daniel. A lot of wonderful, excellent information on franchising, so I hope all of our student entrepreneurs, our budding entrepreneurs, that are listening out there, really gleaned a lot of those good tips, and advantages, and discovery process, that Daniel talked about. So Daniel, thank you for being here and going through this with us.

Daniel P.: Yeah, thank you so much, Daniel, and if you are thirsty for more entrepreneur focused information, check out our other podcast. Until next time, this is Robin Adney. Now, get back to work.

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