Franchise your business

What is a franchise? Is franchising your business right for you?

Franchising your business - How to create a franchise manual

Franchising your business: how to select franchisees

Franchising your business: Create a bulletproof franchise manual

Franchising your business: your franchise system must document everything

Franchising your business: selecting the right consultants to franchise your business

Franchise your business

My specialty is helping franchise your business, where your business sells B2B, or is unusual, complicated, involved, or different. Oddball if you will.

If you’re trying to franchise a food concept, I’m not the guy to help you. If you’ve got a business that doesn’t fit into what you see in the Sunday franchising ads in the newspaper, and you want to franchise your business but can’t seem to figure out how to start, then you might want to read this article.

Here’s what you’ll learn:

· Six keys to avoiding franchising failure.
· How to determine if what you have can be franchised.
· Dos and don’ts of finding a lawyer and how to best work with that lawyer.
· The secret of finding successful franchisees.
· Avoiding law suits and problems.

The information you’ll learn will help you whether you decide to engage a consultant, or do it yourself, if indeed franchising your business is for you.

You won’t find this information in any book or website that I know of. A lot of it is a different angle that you won’t have heard before.

Let me tell you my qualifications. In the nineties, I set up Personal Clothiers Franchise Corporation, Equipment Recycling Network, and NuSmile, all franchisers.

My company sold literally hundreds of franchises and licenses with franchise fees of $10,000 or more not including working capital and all the costs the entrepreneur needed to invest. I set up and ran a joint venture with a company listed on the American Stock Exchange, Styles on Video.

In 2000 I had raised $14 million dollars and was running a venture-funded company. That company did deals with the likes of AOL, eBay, and many other large companies whose names you recognize.

Since then I have done consulting work with people like DuPont, George Washington University, and a host of small companies.

I currently run a marketing technology firm that I co-founded. I continue doing franchise consulting, helping people like you to franchise your business concept.

One of my clients has a coating technology for heavy equipment and I helped them set up their franchised dealer network.

Lest you think it is all sunshine and rainbows, I’ve had my share of hard knocks. My good and bad experiences have both taught me many of the pitfalls of franchising a business like yours and how to avoid them.

If you and I work together to franchise your business, I think I can help you avoid a lot of those pitfalls that even the lawyers won’t tell you. If we don’t work together, you’ll learn about some of them in these articles.

What is a franchise? Is franchising your business right for you?

Let’s first talk about what a franchise is. The legal beagles will tell you that a franchise involves a trademark together with some type of control that you put on people who you license your trademark to.

It’s true, that to franchise your business, you need a trademark plus an element of control, but there is more to it than that, and an element that is important for you to understand.

I’m going to go into this so you and I can come to an insight well beyond the legal beagles.

We’ll use McDonalds as a great example. The trademark is the name McDonalds, the golden arches and so forth. The control they exert on you as a franchisee extends to every area of your business, from finding a location where they help you, to hiring employees to cooking French fries.

People buy a McDonalds franchise system because they don’t want to re-invent the wheel. They want a proven system that they can follow, together with a recognized trademark that will bring the public in and make marketing costs cheaper.

As a prospective franchisor, you probably don’t have a recognized trademark that anyone will have heard of, at least outside your local area. What you have to offer people who would buy your franchise is a system that has gotten results for you and that can be taught to them.

So when you are thinking in terms of franchising your business, what you need to think of more than anything else is what I call your business process. What you do to get customers, how you deliver the product to those customers, how you recruit and train employees, how you handle after-sales support.

Since you probably don’t have a recognized big-name trademark, you will have to sell prospective franchisees on the quality of your business process, the processes that you are giving to them under the franchise agreement.

Communicating a process effectively to a franchisee is what your business needs to be all about. That means several things, what I regard as keys to successfully selling franchises and getting your franchisees productive.

Franchising your business – How to create a franchise manual

If you don’t have a successful business unit already up and running, you need to get that first before you consider franchising.

Sounds fundamental, doesn’t it? And it is pretty basic. But a lot of people like to jump the gun. Notice that I said there are two requirements in the first key: a successful operation that you run yourself, and a business that can be taught to other qualified people through the medium of a good franchise manual.

A lot of folks have a successful business but it isn’t something others are able to do or willing to do.

I started a franchisor buying and selling used telecommunications equipment. It made my franchisees money. But it proved very hard to sell because people who would buy it perceived it as a “junk business.” Without the glamour, it was hard to sell.

So people who would buy my franchise were few and far between. Many people who bought franchises are still successful to this day, but as it was hard to sell new franchises. Eventually I had to shut it down and let everyone loose.

Here’s another example. I was contacted by a man recently who runs a successful solo business and he earns over one hundred thousand dollars per year. But few people would be willing or able to do what he does. They would lack the talent, they would lack the drive. So his business is not a good franchising prospect because it would be too hard to find people willing and able to do what he does. We could write a good franchise manual and have our act together, but selling franchises would be difficult.

Speaking of this key, there are basically three kinds of franchises.

One kind is what I call the personal service franchise and it is run by a solo operator who may build it up and eventually have a number of employees, but meanwhile the success will depend upon that person’s talent.

A good example of a personal service franchise are the various janitorial service franchises. The entrepreneur will buy a franchise and work cleaning carpets or bathrooms or servicing commercial buildings. He or she will be very involved in the business on a continual, 10 or 12 hours per day basis. He or she may involve family members, but the business will not start out with a location, employees, and overhead.

This type of personal franchise requires a much lower investment, and tends to have a much higher failure rate for reasons I’ll get into.

The second kind of franchise is what I call an investment franchise, and it requires a location, overhead, and generally a considerable amount of capital.

I am helping a company launch franchises that will cost two hundred thousand dollars in capital. The business cannot be run by a solo operator. The business requires management, employees, equipment, a location, and overhead, right from the get-go.

This type of franchise has a much higher possibility of success because the franchisee has the ability to seek out good managers and employees who may be very professional and able. The franchisee’s employees will train and learn from the franchising manual so that they can follow the franchise system on behalf of the franchise owner.

A muffler shop is another example of this type of franchise. These franchises are often more of an investment than a business, in that the franchisee will invest her money and set up the business and expect a return from it that is not directly limited by her day to day involvement in the business.

The same way people buy stocks, and some people buy bonds, investors will invest in this type of franchise.

The third type of franchise is sometimes referred to as a conversion franchise or partial franchise. It involves finding people already in a certain business, and offering them an extension of their existing business using your system or sometimes a renaming of their existing business so they start operating their existing business under your name and with your system.

A great example of this would be the Krispy Kreme donuts section of the gas station convenience store.

The standalone Krispy Kreme stores are expensive to set up and run. A gas station convenience store already has customers hungry for donuts, so this type of franchise makes sense for the gas station. It is also sometimes a partial franchise, in that the gas station continues its existing business and only sets up a small area of the convenience store for the rack of Krispy Kreme donuts.

Conversion or partial franchises can make good sense for you, but they can be tricky because it can be hard to get an existing business operator to switch over to your system, even partially. You can have the best franchise system and the best franchise training program and franchising manuals in the world. But the franchisee already is set in their ways and may not follow your system.

Be that as it may, we are talking about making sure your business has a system that can be taught to other qualified people, and the type of franchising you do will largely determine the pool of qualified franchisees you can pick from. Something that requires some real thought. And that leads me to the second key to successfully franchising your business, which is selecting the right franchisees.

Franchising your business: how to select franchisees

Money can blind you as a franchisor to those signs. And if you sell franchises to people who are not able to make a go of it, guess what? It’s your fault, not theirs.

That’s right, if you sell franchises to people and they fail, you have to bear the responsibility. Remember I said bad experiences had taught me so much? Well, I sold licenses to people who were probably not qualified, and they failed, and then wanted their money back. Do you want to be in a mess? I didn’t think so.

So how do you select good franchisees who are likely to succeed? Because you can have the greatest franchise system and the greatest franchise manual in the world and your success still depends upon selecting the right franchisees.

It turns out that there is a secret to selling franchises, and that secret also assures you of picking the best people are most likely to pan out.

That secret is called “the reverse sale.” But it must be done completely honestly.

When you speak to a prospective franchisee, you have to sell them on why they would want to consider buying a franchise from you.

But you also have to get them to sell themselves on why they would be good.

You have to get them to do their homework, investigate the market for themselves which is fortunately much easier today with Google and the web. You may have to get them to write essays on how they would handle various aspects of the business. Get them to review your franchise manual and understand it.

The more you get them to sell you on why you should award a franchise to them, the greater their commitment and the greater the chances that they will work out.

You would think that if a person invests $10,000 or $50,000 or $200,000 in a business franchise, the fact that they invests the money means they are serious and will pan out, right?

Well, I found that this is wrong.

I’ve seen people invest huge amounts in a business when they were the wrong person for the business. They failed and they got mad, and rightfully so. You cannot be in this position.

You have to use the reverse sale to get people to sell themselves, thoroughly investigate your concept, review your franchising manual and your franchise training program, talk to prospective customers, visit your operation and spend time there.

Most of all, they have to tell an awfully convincing story as to why they are right for your opportunity.

In a nutshell, they have to sell you on why they should be permitted to write you that check. If you play this any other way, you are likely to get burned and let me tell you, it’s very unpleasant. If you follow this franchising system, and you honestly get people to check things out and really understand and commit to whatever is crucial for their success, you’ll have a great franchising business.

Franchising your business: Create a bulletproof franchise manual

Whatever you think you have to teach them, and whatever length of time you think it takes, double or triple it.

Do you learn from just reading articles like this one once? Probably not.

Most people tell me they read articles like this several times.

It takes the human mind time to absorb new knowledge. And it takes even longer for the brain to incorporate that new knowledge into the day to day.

At school, you got lectured to, and then you took a test. But how much algebra do you remember? Who was the fourth president of the United States? What were the causal factors of the Great Depression? Maybe you learned this, but chances are you don’t remember it. Why?

Because you didn’t incorporate what you learned into your day to day.

We all have a collection of information we use day to day, and if you are going to really communicate your system to your franchisees through a good franchising manual and good franchise training program, you have to double or triple the amount of training and support you anticipate, because it takes much longer for people to “get” something than you can imagine.

Especially when you’re so close to the subject yourself –you have a hard time remembering what it was like when you knew nothing about your business. They call this the “beginner’s mind” in Zen. And it is hard to recapture because you know too much!

And that’s the position new franchisees are in – they know nothing, and you will have to spend two or three times longer than you think in getting them to learn the operations and incorporate it in their day to day.

So as simple as your franchise manual is – make it even simpler. As complete as your franchise training program is, make it even more complete. You cannot do too much to train and support your franchisees. Whatever you think they need, they need twice that much franchising help and support.

Franchising your business: your franchise system must document everything

That means having an excellent franchise operations manual.

That means keeping the franchise manual up to date.

That means having a good method to get franchise manual updates to each franchisee.

That may mean creating audios and videos, and constantly updating a private area of your website just for franchisees.

It means storing every communication with any franchisee.

When they call you, you need to take notes and keep it in their file. When you email something, you need to make sure it becomes part of the file. If a customer bypasses the franchisee and calls you directly, you need to listen and take detailed notes and put it in the file.

Why is this franchise documentation so critical? Because if a franchisee does fail, he or she will come back to you and blame you for their failure.

If you have dealt with them honestly and you can point to all the support and conversations you had with them and with their employees, they won’t have a leg to stand on.

If you make this part of your own day to day, any franchisee who isn’t doing well will get all kinds of help and support on their franchise from you, with full documentation. So if they finally toss in the towel they won’t blame you.

They’ll move on and chalk their failure up to the school of hard knocks. You won’t have a guilty conscience either, which is equally important!

They certainly won’t try to go after you. Today people talk to one another through email and the web, and if you document the heck out of everything, you’ll be in a strong position if a franchisee badmouths you.

You’ll have data to back up your support and this data will help put an end to what I call “group gripes”, people banding together to gripe about you.

With the documentation, group gripes can be nipped in the bud and you can be successful even if you have a small percentage of people who don’t work out.

Franchising your business: selecting the right consultants to franchise your business

That means the right consultant, the right lawyer, and the right selling organization or salesperson to sell the franchises.

First, a word about lawyers. You should always find a lawyer that specializes in franchising and that’s all they live and breathe.

Most lawyers who specialize in franchising split their time between helping franchisees buy a franchise, and helping franchisors set up and run a franchise. This is fine, as it gives them a point of view that is helpful because of the experience working both sides of the fence.

Most franchise lawyers do what is called transactional work, meaning they put franchise paperwork together. They don’t litigate disputes so they do not have a full understanding of what can go wrong.

I compare lawyers to draftsmen. You’re making a big mistake when you depend too much on your lawyer’s advise. A draftsman requires an architect to have the vision and the big picture and a knowledge of where things should go. So it is with lawyers – they are paid to draft documents not design franchises.

Even lawyers that specialize in franchising and who create the franchise offering documents don’t have to deal with the real world ramifications of their advice past the signing of the franchise agreement.

Lawyers may help you draft a Uniform Franchise Offering Circular, but they often aren’t as experienced with what happens later on.

They don’t have to sell the franchise, they don’t have to support the franchisee, they don’t have to design a good franchise operations manual, or a good franchise training program. They don’t have to document everything the way you do.

Franchise lawyers are good to turn to for advice on specific legal issues. They may be able to tell you “sometimes I do this for my clients” or “you should think of adding such and such to your documents.” But if you depend upon them to design and structure your franchise you are making a big mistake.

One question I get is “big firm or small firm.” I think either a big firm or small firm can work out. But I usually prefer small firms because they are often less expensive to prepare the UFOC and franchise paperwork.

One-person franchise law firms can be very good.

Regardless of big or small firm, there is a secret to hiring a law firm and the secret is this: you don’t hire a firm, you hire a specific lawyer.

There are merits to working with big firms and I have done so in the past and continue to do so at times.

But I am aiming for a particular lawyer in that big firm and that is the lawyer I deal with most of the time for my franchise legal needs.

If you hire a big firm, you need to make sure that you know who will do the actual work.

If you deal with a partner, he or she is often out of the picture except to review documents. It’s the associate who does the work. Who is that associate? How many deals has he or she done? Associates at big firms are often super qualified. But you will generally pay big firm rates. I have paid seen people pay $15,000 for a completed UFOC and I have seen people pay $50,000 and even much more. There isn’t an easy answer to this, but the secret of “hire the lawyer not the firm” will serve you well in the area of franchise law.

I am a great believer in fixed price agreements where the lawyer does everything for you in terms of drafting your initial documentation and registering your trademarks and handling state-specific franchise filings for a fixed price.

So now let’s talk about the consultant. The consultant you engage should be someone who has done what you need done in the past for other clients. Too many consultants will do everything. They won’t turn down a buck even when they lack the qualifications to help you. You want someone who has handled the type of thing you are doing. Not necessarily in the same industry, but someone who has experience with the complexities of your business.

Here’s what I do for my franchising clients. I ask a lot of questions. I look at what they are trying to do in terms of a franchised system, what they are trying to achieve. I ask questions around that.

I will suggest possible answers and provide options based on different answers.

There are many ways of doing a franchise manual, or creating a franchise structure. I think you should know the options. But I will steer you towards a franchising structure that we both think you can sell, that you can support, and that has a high chance of avoiding the pitfalls including law suits and unhappy franchisees.

I have written franchise operations manuals, trained franchise salespeople, sold franchises, put together franchise training programs, and advised franchisees. I have set up franchisors and advised others who have set up franchises. I have created awareness programs that got the press buzzing about my clients, and you know that articles written about you and industry buzz about you is much cheaper and more effective than any advertising programs.

But I do not do everything. I have no restaurant experience nor do I want any. If you are trying to franchise a retail store, unless it is oddball I won’t be able to help you. I did some work for a large company involving water store franchises, but I consider water stores a little oddball, don’t you? I like to think that I know my limitations and if you find a consultant you should determine that they know theirs.

The crucial thing when you are franchising your business is that you do the essential things right.

There are shortcuts you can take, and band-aids you can use, and I’m all in favor of shortcuts and bandaids, when they’re used in the right places. It’s the essentials that really count.

Have you heard of the 80/20 rule? It says that in franchising, 20% of what you do makes 80% of the difference in terms of franchise selection, designing your franchise training program and your franchising manuals.

In other words, there are some essentials that you can’t skip and you can’t shortcut, and if you do, you will have trouble.

What are the 20% essentials? One essential is structuring your franchise right. Because if you don’t it will never work out.

Another essential is using the “reverse sale” and only award franchises to franchisees who are likely to succeed rather than those who can write a check.

Another essential is creating a quality franchise training and franchise support program, because without quality training and support, you won’t successfully communicate your system to franchisees and they won’t succeed.

If these essentials are starting to sound familiar, you’re right. They are the keys to successful franchising. Done right, franchising can be a lucrative route to building a strong and lasting company you can pass down to your children and grandchildren.

But if you don’t do the essentials right, you won’t succeed, and failure can be very expensive in franchising.

So in these articles, we’ve discussed the six keys to successful franchising, and covered a number of ways you can avoid failure in franchising your business. What are the next steps?

I would be happy to talk to you by phone and provide you some ideas and suggestions. I do not charge by the hour, I charge by the work involved, and in a matter of minutes I can easily tell you if you are someone I think I can help. If you’re interested please call me at 703.407.1089.

If after we talk there is reason to talk more, we’ll schedule a conference call. Most prospective clients fly in to visit me and we meet to talk things over. If we get to that point, I look forward to meeting you and your team.