Would you like to convert your current business into a franchise? While franchising might seem like the next logical step in growing your small business, there are a number of financial and legal matters that you need to consider before opening that second location.
In episode #91, Elizabeth Larkin and Gene Marks discuss the most successful strategies for franchising your business.
1:32—Today’s Topic: How Do I Franchise My Business?
2:07—Business owners who want to open a franchise should first consult with a franchising expert who can guide them through this process.
2:51—You need to develop a value proposition and a distinct brand for your business to in order to entice your potential franchisees.
3:57—Another essential step in franchising your business is to determine an appropriate franchise fee.
4:45—Lastly, you and a lawyer need to create a complete franchise document that your potential franchisers can use.
7:26—Gene stresses the importance of offering perks to your employees.
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Submit Your Question
Elizabeth: Welcome back to the Small Biz Ahead Podcast. I’m Elizabeth Larkin, I’m the editor of Small Biz Ahead, and I’m here with …
Gene: Gene. Marks.
Elizabeth: Small business owner.
Gene: Yeah, a contributor to Small Biz Ahead as well.
Elizabeth: And a contributor to Small Biz Ahead.
Gene: That’s exactly right.
Elizabeth: And co-host of this podcast.
Gene: Yes, and we have a great time doing this. This gets me out of the office, you realize, this is why I like doing this. So, for all you guys that listen, it’s like come up to Hartford for a day, and we have these podcasts, and nobody’s yelling at me, I’m able to sneak away and do this and it’s very therapeutic. Carry on.
Elizabeth: And I put on my calendar and my boss’s calendar, and my boss’s boss, and like 18 other people, Gene’s gonna be in Hartford. We’re gonna be in the studio, so-
Gene: Do not bother us.
Gene: That’s right.
Elizabeth: I get to leave my desk and do this and it’s really fun.
Gene: It is fun.
Elizabeth: Just a reminder, if you wanna submit a question, there’s a link in the show notes to submit questions. You can also leave a comment on the show notes, or you could leave a question in the reviews. I’m always looking at the reviews on Apple Podcasts, formerly iTunes, but now I guess we’re calling it Apple Podcasts. And if you’re not subscribed, definitely subscribe.
Okay, so today’s question is about franchising. This comes from Diego. He is a food truck owner, and this is his question. It’s very short and sweet.
“I’m thinking of franchising my business. How do I get started? Are there particular rules to follow?”
So, Gene, this question is pretty much all you because I know nothing about franchising.
Gene: Well, this is … so Diego, I’m assuming he’s got a food truck, and now he wants to sell the concept to other people for food trucks, right? So-
Elizabeth: And that’s a very competitive business.
Gene: It is. It is. But okay so, Diego, here’s my first bit of advice that I wanna give to you. You wanna Google a guy named Joel Libava. And he is, his website, and he calls himself, “The Franchise King.”
Elizabeth: Okay, I’m gonna put that in the show notes.
Gene: Yes, because I have known Joel for years, and he is excellent. Like many successful entrepreneurs that I meet, Joel has picked out a niche and has become excellent at it, and his niche is helping people and franchisers succeed, so you wanna go to his site and you wanna reach out to him. You might even wanna hire him as a consultant to help you put together your franchising plan because dude, Diego, you’ve got a lot of work ahead of you.
You, first of all, have to come up with a value proposition as to why anybody would want to buy into your franchise. Remember you’re selling licenses for people to do this. You run a food truck, which is great. It sounds like you’re successful in all of that, but what’s the brand? Why can’t I just have a competing food truck selling the same stuff? Why do I need to be your franchiser, you’ve-
Elizabeth: Yeah, you’ve gotta have something really unique.
Gene: Yeah, it has to be unique, not only in just the branding and the name recognition, but then also-
Elizabeth: The product.
Gene: The product, and the services that you’re going to provide. Because you remember what a franchise is, is that, we’re buying into this name, we’re gonna be getting processes, we’re gonna be getting the special food that you do, maybe we’re getting access to all of your recipes, we’re getting into your-
Elizabeth: Secret ingredients.
Gene: The secret ingredients, there’s all these things-
Elizabeth: Training for employees.
Gene: Correct. So you’ve gotta first of all come up with that value proposition, before you even charge what a franchise is gonna be, I have to make sure that it’s even worth a dollar of other people doing it on their own. That’s the very first thing you’re gonna do, after you hire Joel to work along with you.
The other thing you also gotta do is you gotta figure out what a franchise fee is gonna be. I mean, how much are people gonna pay you to be a franchise. And the only way-
Elizabeth: What’s a typical franchise fee?
Gene: Oh, it really depends. I mean-
Elizabeth: What’s it, like McDonald’s? Millions?
Gene: Oh, depending on, yeah, it’s millions. I mean, depending on where you’re buying into. It could be a million dollars. I think Dunkin Donuts or Subways are even less expensive, maybe a quarter of a million dollars, you know.
So, Diego, I don’t know if you’ve got that kind of clout, but maybe you’re not a quarter of a million dollars, maybe you’re $10,000, maybe you’re $50,000. I don’t know. It really depends on what you think the market may bear, which, again, is why you wanna talk to an expert in the area. And you’ve gotta look at dozens of similar franchises that have done a very similar thing.
And then finally what you wanna do is, you need to put together the whole franchise document for potential franchisers to use, and to do that you’re gonna need some legal help to do it. Because there are a lot of things that need to be taken into consideration-
Elizabeth: So you need Joel, and you need a lawyer.
Gene: And you’re gonna need a lawyer as well. So, you’re gonna need some capital to get this set up, and you’re gonna go out of the business of making food, which is what you’re doing right now, and into the business of becoming a salesman to sign up people to buy into your franchise. You’re gonna completely change your job description, so I hope you’re a good salesperson, because that’s what you’re gonna be doing.
Elizabeth: How many franchising licenses do you need to sell to make it worth it?
Gene: Well, that I don’t know the answer to. I mean, it really depends on what you’re-
Elizabeth: Because if he just doesn’t wanna … he could just hire someone to do another food truck.
Gene: He could, and just give away some ownership in that. For example, you do it on the same model and you can take 20% of it and I keep 80%, or some percentage that makes sense. If you were gonna be buying into a franchise, you are buying into, again, it’s a branding. And there’s an expectation, my latest go-to franchise, I’m all about lunch, so, you ever eaten at a Jersey Mike’s?
Elizabeth: No, I’ve heard of it, though.
Gene: Jersey Mike’s is killer, man.
Gene: Before, I used to like Potbelly, still do, still do. And I used to like, what was the other sandwich place … the smells are free, I’m forgetting the name of the sandwich place.
Gene: No, it’s not Quiznos, no. It’ll come to me, and whoever’s listening to it thinks I’m an idiot because I can’t remember the name of this chain, but anyway … So, I get into this franchise, Jersey Mike’s is the new one. And they’re opening up franchises around the country-
Elizabeth: What is it? What do they sell?
Gene: Just subs. You know, like hoagies and subs, you know what I mean, and turkey hoagie, Italian sub, and whatever. And they’re good and they’re fresh, and they’re all that kind of stuff, and it’s nice. But they’ve slowly been doing this over time and they provide obviously, all the ingredients, the processes, the signage, the advertising, then of course the branding.
And I was in Colorado Springs earlier this week, and I drove by a Jersey Mike’s and immediately veered into it. Now, of course it was 7:30 in the morning, so, no, I’m just kidding. But it was around lunchtime, but I knew exactly what I was gonna get, and what to expect …
That’s what Diego is trying to create, with his franchising. That takes some time to do.
Elizabeth: Okay. Alright, great question.
Gene: It was.
Elizabeth: We will be right back with Gene’s Word of Brilliance.
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WORD OF BRILLIANCE: Jack Daniels
Elizabeth: Gene, hit us with your Word of Brilliance.
Gene: Alright, it’s two words.
Gene: It’s two words. And the two words are this: Jack Daniels.
Elizabeth: All right.
Gene: Jack Daniels.
Elizabeth: I think you’re peaking everyone’s interest now.
Gene: Alright. There is a company that gives away a bottle of Jack Daniels free, to all of their employees, every month. Do you know why they do that?
Gene: Because they’re Jack Daniels, that’s why. If you work at Jack Daniels in Lynchburg, Tennessee, you get a free bottle of Jack Daniels every month.
Gene: Hey, that’s the product, you want the perks of the job, you get that free stuff. The reason why I bring that up is because we did a podcast recently about stuff to give away to your employees, and I forgot to mention that on that podcast. I wanna sort of reinforce some of the things that we talked about.
Jack Daniels gives away their own product free to employees, right? There has to be some perk for working for your company, that makes you want to continue to work there. And that perk might be giving away, you know, getting something for free. I don’t wanna, you work for The Hartford, so we don’t have to talk about what The Hartford does, but I think a lot of people that work for big companies, some get discount services-
Elizabeth: Oh yeah, we get a lot of discounted theater tickets, or-
Gene: Right. Right-
Elizabeth: Stuff in the Hartford area-
Gene: Very, very important stuff to get. And these are all things that companies do. If you work for American Airlines, you can get free flights, and if you work for a restaurant you get a free meal …
You’ve gotta be doing the same thing in your business. You have to make sure that your employees are getting, whatever you’re offering, they should be getting discounts, they should be getting free stuff because of that.
Now, in my company, we sell B2B, who wants free-
Elizabeth: Yeah, no one wants your CRM, Gene.
Gene: Right, which is why, and if you listen to our podcast, please go back and listen to when we were talking about giving away free stuff. You know, I do get that timeshare that I own, I give away a free week to an employee-
Elizabeth: We’ll link to it in the show notes.
Gene: Okay, and we have gift cards that we give away for free. We give away free stuff. There has to be some additional compensation that you’re paying your people, or even paid time off. People like to get a little extra-
Elizabeth: I think I’ve used this example before, but in one of my first jobs out of college, we had Bagel Thursdays. I definitely have talked about this-
Gene: And they provided the bagels, right, your employer?
Elizabeth: Yes, you came into work, it was Thursday, you’re like, “Alright, I gotta get through another two days for the weekend,” but then you were like, “Oh, it’s Bagel Thursday,” so, you still brought in your own coffee, Starbucks, Dunkin Donuts, whatever you’re drinking, but when you came in, you sat down at your desk and you popped right up, and thought, “It’s Bagel Thursday.”
Gene: And you loved it, you loved it.
Elizabeth: It was such a nice perk, and it was so cheap for the company.
Gene: It’s nothing, it’s nothing, and people love it, free bagels are like, every Friday you get free pizza that’s brought in … There’s a great service that a lot of clients that I have use called AnyPerk, and we can link to them again in the show notes. Any Perk is a service that costs like $10 or $12 a month per employee, but all of your employees every month get a grab bag of discount coupons.
Elizabeth: Oh, nice.
Gene: They have partnerships with a thousand different companies around the country, so, you’re an employee of your company, you say, hey, you’re an employee, you get this grab bag from AnyPerk, you get a free monthly membership to the local LA Fitness, you get 10% off your next Avis Rent-a-Car, the local restaurant offers an entrée if you buy a similar priced entrée, type of thing. So, just a grab bag of perks that you’re giving. People like that stuff.
Elizabeth: I personally hate that kind of stuff, but I know several of my co-workers-
Gene: People love it.
Elizabeth: Love that stuff.
Gene: People love it. And I agree with you the same thing, but I know people really do love it, and listen, you know the people working at Jack Daniels love that free perk as well.
Elizabeth: Yeah, because they can give it out-
Gene: Free bottle?
Elizabeth: To friends, or give it away as holiday gifts to people-
Gene: Yeah, it’s pretty cool.
Gene: It’s pretty cool.
Elizabeth: It’s also kind of neat to have that clout, to be like, “Oh, I can get you a free bottle.”
Gene: Free bottle of Jack Daniels, who’s gonna turn that down?
Elizabeth: Alright, we’ll be back in a couple days with our next question, and this one is about managing cash flow, which is one of our big topics.
Gene: I like that.