This is a transcript from The Franchise Manual Podcast – Episode #34 – Franchisor Pitfalls

It has been computer-generated so there are mistakes. We encourage you to listen and subscribe to The Franchise Manual Podcast.

Kit  00:00

Hello everybody, you’re listening to the franchise manual podcast brought to you by Franman, the home of the online manual by Franman, where we convert your boring old ops manual into a user friendly interactive wiki site. The franchise manual podcast is a behind the scenes look at all things franchise and the people that make it look easy. Now operating a franchise is not the same as running a small business. So if you’re thinking about franchising your business, then you really need to listen to the franchise manual podcast. My partner in this episode is Michael Peterson, and he’s going to talk with us today about the mistakes that new franchisors typically make during their first year of operation. And this one’s a doozy because some of these mistakes can be quite expensive, while others can lead to the death of the entire system. Now, if you’re a newly minted franchisor or if you’re about to start your journey, then this is one that you won’t want to miss. So I’ll ask you the question that I always do. Why would you spend your valuable time listening to Michael Peterson today? Well, I’ll tell you, I sort of want to tell you the things that Michael has done, but I think it might be easier and faster if I make a list of the things that he hasn’t done. Before he was 20 years old. He’d created a sales organization that spanned three states. So right off the bat, this guy’s an entrepreneur, at age 20. He decided to join the US Army and he served for three years. But after that he jumped right back into business. In 2006, he helped grow a video game franchise to the number seven fastest growing franchise in the world, and the fastest growing private company in Orange County. Now when I say he helped grow, Michael brought in 22 individual franchisees to the company in a single month, many of which were multi unit and generated over a million dollars in franchise revenue in a single different month. Can you imagine that? After numerous dips into different franchise companies he created franchise beacon and we’ll let him fill us in on the details on that in just a little bit. He’s also an author, he wrote a book how and why to franchise your business again, I’m gonna let Michael fill us in on the details in just a bit. Now, I know you’re tired of hearing me talk. So how about we hear from the man himself? Mr. Michael Peterson

Michael Peterson  03:12

I know I hate I’m from a small town in Montana. So So still got my I still got my chops. But you’re not gonna see me in a 10 gallon and you’re not gonna hear me say partner. I’m sorry.

Kit  03:24

We’re not gonna hear that from you either. God. Dang it.

Michael Peterson  03:27

So sir.

Kit  03:28

All right. Well, that’s all right. We, you know, we’d like anyway, maybe by the time we’re done, we can get you to be an honorary Texan. But there’s a lot that goes into that. You can’t just be one. It has to be bestowed upon you.

Michael Peterson  03:40

Right? I have heard that you can’t choose it has to be given.

Kit  03:44

Right? Yeah, you don’t get to ask for it. Hey, before we get started, I want to do a quick shout out to a loyal listener of the podcast who happens to be a brand new franchisor himself. Mr. Michael Gorman. He’s the founder of I move PT microset. He’s listened to every episode at least twice, and that he wishes he had found this podcast six months ago when he started his journey in franchising. Mr. Gorman, this one’s for you, buddy.

Michael Peterson  04:10

I love it. And we won’t forget his first name either.

Kit  04:12

I know just get a great first name. It is an iconic first name. Alright, Mr. Michael, back to you. This first segment of the episode is all about getting to know Michael Peterson. Are you up for some easy questions about your life?

Michael Peterson  04:26

I am up for some easy, maybe even hard ones if you want, okay.

Kit  04:31

Just mix them up a bit right? Before we get too deep into things, I want to try to pay you a compliment. It might not sound like one when it when it comes out. But it truly is. You’re quite an imposing figure. When I see a picture of you, you’re a big guy right in your head and everything. And it’s just it’s just kind of even when you’re smiling. It’s just quite an opposing image.

Michael Peterson  04:55

And it’s terrible. Because you and I are in the same Metroplex but we’ve never actually shook hands and just keep in mind when you when you look at that, but I’m also six foot six, you’ve

Kit  05:04

six six is a big dude. And I’m thinking, Man, this guy’s this guy’s looks scary. But after I spoke to you the first time, you’re as nice as pie, you’re not intimidating at all. And that is my compliment to you. You’re just, you’re just an absolute teddy bear to talk to so far. I haven’t seen you mad yet though.

Michael Peterson  05:21

You haven’t. And hopefully you never well, let’s just try to I think I will say a teddy bear for you the whole time.

Kit  05:29

All right. I love learning about people’s last names. I did some research on your name. And here’s what I found. That um, your your surname, your last name is chiefly found in the in the northwestern European countries of Denmark, Holland, Germany, Brussels, and also further north and Finland. It’s a patronymic name, which means that it’s that it’s from the male given name Peter, which itself ultimately comes from the Greek word Petros meaning rock or stone. And I’m thinking that is so cool, because you’re just like the rock.

Michael Peterson  06:02

I like it. Right. Thank you. I love it. All right. But unfortunately, my great great grandfather actually made up the name arm our family last name is Pearson. Oui. Oui. He was born on the boat on the way from Sweden.

Kit  06:18

Oh, that is a cool story. That was my next question. Do you what do you know about your family history? So I’m going to shut up and you you keep going from right there.

Michael Peterson  06:25

So first of all, I don’t have a family tree. I do have a family bush. There’s a lot of us do a lot of different directions. on my mom’s side, we are whatever you want to call it. Indian native, whatever. Lakota Sioux and my dad’s side is Swedish and German, actually. But his great grandfather was born on the boat on the way from Sweden to the US when they immigrated. That’s

Kit  06:50

cool story. Yeah, on the boat. And so how to even get a birth certificate?

Michael Peterson  06:54

I think they get one when they get here. I would guess of course, keep in mind, it is a family story. So

Kit  07:03

growing and growing.

Michael Peterson  07:04

Yes, exactly.

Kit  07:06

Right. And it was in a it was in a hurricane. He was born right in the eye of the hurricane. And so every time it gets told it gets a little taller and taller. Yes, sir.

Michael Peterson  07:14

And by the time my grandkids are adults, probably going to be happening in that boat even though he was born.

Kit  07:21

That’s right. That’s good stuff. But that’s a cool story in itself. So you are from a little town of Melrose, Montana. It’s not Melrose Place. Melrose Montana population, a whopping 106.

Michael Peterson  07:38

That was after we moved there.

Kit  07:41

Before it was 104. Before he got there. Yes, sir. That’s funny. That’s kind of near Bozeman, right. Actually, Missoula. Okay, Missoula. So that’s where you grew up, right? Like until 18. Or until what? How old were you?

Michael Peterson  07:53

You know what? Here’s the thing I can claim so many different places to have grown up when I was 18. I moved into my 18th house. So I moved over Yeah, I moved around quite a bit most of my life until I joined the military. I didn’t live more than 125 miles away from Yellowstone Park. So whether it be Livingston Missoula, some time in Butte Belgrade, Manhattan but all around the kind of the Gallatin Valley and then up by the Grand Tetons, in the Missoula area.

Kit  08:21

Yeah. So what’s, what’s the reason for moving around so much,

Michael Peterson  08:24

my dad just always had that bug. He had a great job as a Tecumseh, certified two stroke engine, and somebody offered him a job working on a ranch and six months later, we’re living on a ranch in the middle of nowhere.

Kit  08:36

That’s cool. That’s fantastic. Tell me Were you a textbook child, or were you a troublemaker grown up? Tell me a story, the biggest trouble you got yourself into, Okay,

Michael Peterson  08:45

I gotta, I gotta make this illegal. So I was that kid, I got basically straight C’s D’s all the way through because I didn’t turn any homework in aced every need to leave me. Okay, so here’s a bad one. And kids, if you’re listening, don’t do this. But because we lived in a small town. My best friend’s mom was also a teacher. And we ordered a couple of pizzas for her one day, one night on a Saturday, and I was gonna get suspended for it. And this just tells you kind of how I grew up. My dad went down and yelled at the principal because he said it was none of his business what I was doing on my halftime now, let me tell you, between my dad and I, we had some he definitely had some things to say about it. But you know, family first. And so he said, you know, this is between us and you keep your nose out of it. This is a military matter. Yeah, exactly. I was a little bit of a troublemaker, but I was also a voracious reader writer. I had my first thing published when I was 12 years old. So I’ve been a reader and a writer my whole life.

Kit  09:49

That’s cool. We’re gonna get into that later on, because I want to get into that in a lot more detail. Now. Tell me about your family. You talk to me about your parents, were they were they really strict or were they kind of traditional? Tell me about your your siblings. I think you have three three sisters and tell me about in kiddos that you have. Sure,

Michael Peterson  10:05

sure so can you like weird stories? I do. My parents got divorced when I was four or five years old and they got back together when I was 29. That is so cool. That never happens. It never happens. And unfortunately, they both passed, but they spent the last 10 years their life together happily. And so that’s just that’s that you only see in the movies, right. But it was pretty cool.

Kit  10:28

I think that’s a unique story. Yeah, yeah. My

Michael Peterson  10:30

dad, honestly, I grew up in a biker household. My dad rode a triumph his whole life. That’s kind of how we grew up. And then after him a mom split up, he became, you know, straighten his life out a little bit. And, you know, again, just kind of became a buckskin and a mountain man and we spent our time panning for gold and, and doing that type of fun stuff. I have several siblings, because my parents were split up when I was a kid. We all didn’t really grew up together, but I have three sisters and an awesome brother.

Kit  10:58

That’s very cool. Now do they all still live up in the area? No. So

Michael Peterson  11:02

what my one of my sisters does in Deer Lodge, which is 5000 people if you count the prison and is the state prison that’s how they managed to get a McDonald’s I swear to you I’m not making that 1700 Without that the rest of them are around Salem, Medford oregon area.

Kit  11:20

Okay. No, that is now what about what about kiddos?

Michael Peterson  11:24

No kids for me, sir.

Kit  11:24

All right. That’s why you have all the money to play for later

Michael Peterson  11:29

once loved them.

Kit  11:30

Tell me about your dogs.

Michael Peterson  11:31

So right now, I don’t have any dogs. And my last best friend was my German Shepherd who you know, they they don’t live forever. But he was my best friend. You can see him on the back of my book. And currently we have Wallace who is the most persnickety cat you have ever met in your life? Oh, you switch from a dog to a cat cat came? I’m not sure if the cat came with the wife or if the wife came with the cat. By the way. I love them.

Kit  11:57

It’s this. I think it’s the latter. Okay, because cats are that way they control everything. Exactly. All right, what was your first real job? And then what I want you to do is tell me what that job was that made it on your resume and then after that take me from that job. All the way to franchise beacon just just kind of going over everything but just give us a picture of how you got to where you are here. I’ve

Michael Peterson  12:20

worked my whole life man. I deserve to gold watches at this point if we go by 20 years, okay, my first job was arcing at a carnival at nine years old. I did that for a summer I swear to you I’m not making that thing or barking Hey, come on in man. Let me show you how this game works when your girl up for oh, that’s cool. barking. So I did that when I was nine. But my first full time job was when I was 12 Washing dishes during the summer with a restaurant that my dad was managing and I have not not worked since I ended up going to homeschool so that I could continue working. Did a few restaurant gigs until I was 16 years old started selling vacuums door to door. Which company was that magic company most folks probably haven’t heard of called Silver king, but you’ve used it if you’ve went to a carwash because they call the carwash vacuums. All right, ended up joining forces with a guy who I was working for and we started two more offices. So by the time I was 17, I was wandering an office in Helena Montana and wanting Great Falls and a traveling sales team. Wow. Yeah, you’re 17

Kit  13:25

years old boy, most people are still are still scratching their butt at 17. And here you are

Michael Peterson  13:30

not gonna say I wasn’t but I was trying to

Kit  13:36

17 I was just like, when they tell us that when my son was a Boy Scout they said you gotta get him to their to their Eagle Scout before before they get affected by the fumes. It’s like what are the fumes? It’s gasoline and perfume? A because think about

Michael Peterson  13:53

Yes, well, I was lucky got that kind of squared away and met my my first wife very young. And we were together for a very, very long time. But so she supported me in that and then I don’t know why Kitt. I had a successful career, but I just I had to join the military. Just it was a requirement in my heart in my mind. I kept getting the pool. So I went and joined to drive a rocket launcher for three years.

Kit  14:17

So what branch of the military did

Michael Peterson  14:18

you join was in the Army

Kit  14:19

Go army?

Michael Peterson  14:20

Absolutely steel rain, which is artillery. That’s what I did. I was going to Oklahoma for basic. And they went to a little town called bomb mucholder Germany, which is middle of nowhere mountain town in Germany and then ended up finishing up at Fort Stewart, Georgia. Oh, that is

Kit  14:37

so cool. So while you’re in Germany, you’re on base and everybody speaks English but then you go off base, right? Did you learn any German while you were there?

Michael Peterson  14:44

It’s bracket stairclimber Deutsch. I speak German, very low. But here’s the awesome thing. They all speak English. Okay, it’s a required class in 12th grade. But I remember following a soldier into a convenience store who tried to speak English to the woman behind the counter. And she said no spread currency. I don’t speaking, I don’t speak English. And then he laughed. And I tried to talk to her in German. And her English was better than mine. Oh, that’s funny. He wants somebody to assume the Vichy sure English in Germany. Right?

Kit  15:16

I think that’s beautiful. And I’d be the same way.

Michael Peterson  15:18

Exactly, exactly. That’s

Kit  15:20

very cool. On behalf of everybody. I think everybody would agree with me, I really do appreciate your service to the country. Most people don’t take the time to express that. And it’s a really big deal, what you put on the line for your country. And then you did it because you wanted to not because you had to. And I think it’s fantastic. So thank you very much.

Michael Peterson  15:39

Thank you. I appreciate that. I was fortunate enough to serve and peacetime. Okay, so I didn’t have any combat duty, thank goodness, but a lot of my friends did. And I do appreciate that.

Kit  15:48

Well, it doesn’t mean that it couldn’t have happened and you were on the line, you were ready for it. So I think that you put yourself out there saying hey, if there’s a war I’m in, in, that’s equal to me, that’s just as important.

Michael Peterson  15:59

I appreciate that. Thank you. So yeah, I did my three years got out got my honorary discharge, I drove a rocket launcher around. That was my job.

Kit  16:07

Was that awesome? And they paid us drive a rocket launcher. And

Michael Peterson  16:11

let’s just be clear, it’s awesome. Well, the only thing cooler and driving a rocket launch around is a couple of times and I got to fire

Kit  16:20

it pulling the trigger.

Michael Peterson  16:23

A cost a quarter million dollars every time I pulled it. So it didn’t let me do it very often. But I do it a few times. And it was pretty fun.

Kit  16:30

It said that just some practice you were actually firing that thing

Michael Peterson  16:33

that was tracts of snow. So that was yeah, it’s big trucks are seen on all over the news right now because they’re trying to send them over to Ukraine. They’re talking about MLRS that’s what I did. And I was fighting fake rockets. Keep that in mind. The real ones were like a million quarter piece. Okay, so I got out man, I ended up back in, in the Yellowstone Park area actually ended up in Wyoming went to work for a cell phone store for a little bit. I had I knew the guy before I went in the military, and then got head hunted out of his office to to help this guy take his three store cell phone chain to five stores. And so we grew that across Wyoming. Today it’s cold down there, man. It is cold in Wyoming Montana. I needed to find out.

Kit  17:14

It’s down there. You’re we’re in Dallas. You’re right. It’s right there for us. Talking about but for where you are is cold. It is cold down there.

Michael Peterson  17:25

It’s cold in Montana and Wyoming. So I decided I need to thaw out the marrow and jump ship to Arizona.

Kit  17:32

Well, that’ll do it for you. I lived in Phoenix for a year and that. Certainly, that’ll certainly thaw out the bone marrow.

Michael Peterson  17:38

Yes, sir. It did kill Why do you keep a oven mat in your front in the front seat of your car? You’re probably people who know this.

Kit  17:47

Right to turn the car on or to put your seatbelt on?

Michael Peterson  17:50

Yes, sir. That is that’s Phoenix right there. You’re gonna have to grab the steering wheel. But I was running a marketing company there. Yeah, we did a lot of different things. We sold windshields that was our big thing because there’s a big need for it. They’re also worked with healer band bombing range bringing in wood so that they could blow it up with their with their planes. Build they build a little miniature tanks and blow it up. That’s cool. Yeah, just doing what Yeah, I had a business partner and we were just finding opportunities always been an opportunity seeker had a company that wanted to franchise. So this is like when I kind of dip my toe into franchising probably did it completely wrong. But their first franchisee bought him out. So it’ll be nice. Yeah. No harm, no foul. Exactly. And then from there, my business partner had been a former franchisee of a company called yackety yak wireless, which, if you’re old enough to remember the earliest cell phone days, they were very famous cell phone franchise, the founders of that company and started a video game franchise in Newport Beach, California. And they called him up and said, Hey, we need to we need a development team down here. And he’s like, okay, you know, I’ve got my, my best friend here. Michael Peterson. We we’ve been doing a lot of things together. He’s like, let’s move down to Orange County, California. And we

Kit  19:08

that’s cool to be able to just get up like that. She just got it moved. Boom, here we are in California. So we’re here we are. Hannah, Arizona to orange. Talking about culture shock.

Michael Peterson  19:20

Exactly. So we started this and I experienced something kit that I hope really nobody else ever does in franchising. We grew from four stores when I got there early oh seven to 100 franchises open by the end of that year. We opened a retail location every other day for a year and a half cheese that’s too fast. To be honest with you, that’s just too darn fast. But we grew that and as we were growing it people were asking us questions getting advice and that’s where franchise became came from. So from Montana to franchise beacon. There you go.

Kit  19:55

Now give me your elevator pitch on franchise beacon.

Michael Peterson  19:58

Sure we are a boutique franchise consulting and development firm we take small companies turn them into franchises. For those companies and other companies that already franchising, we take over their franchise sales and development from first call to close, you know, managing ad ad budgets. And then for other companies, we just do consulting, like putting together a sales process are my partner, I say I have three degrees. They’re all from the school of hard knocks. My partner is a CA from McGill and and a lecturer at McGill University. He’s Canadian, and he’s really good at the strategic planning side of the business and you know, coming in with thinking about your exit strategy.

Kit  20:36

That is a fantastic story. Mr. Michael, you have made it all the way to segment two of the episode. Congratulations. Yes, hey, the audience loves you

Michael Peterson  20:49

know, if there’s gonna be like a seat that was going to fall out from underneath me if I didn’t. I made it all the way through.

Kit  20:57

We do have a red button over here, the eject button and but you will know when it when it happens, you won’t even know so, I mean, it’s that quick. You just won’t even feel it. Free Up Space. All right. Mr. Michael, you’re definitely very qualified to address our topic today. And that topic is pitfalls or mistakes made by franchisors during their first year of operation and I am super eager to hear what you have to say. Because this applies to everybody. Are you ready to start segment two?

Michael Peterson  21:28

I am one of my favorite topics. Let’s do it. Nice. Nice.

Kit  21:31

All right, kiddos, Sing along if you know the words. I’m Boudreau with Boudreaux burgers, and I’m selling these things fast. How you think we were giving them away to walk past my burger joint and being better. Everybody loves him and I’m the only one making them. So I want to franchise my SPG franchise agreement and ops manual for free man. Already start moving these babies.

Michael Peterson  21:54

Yeah. Oh. You got one out of me.

Kit  22:00

I know. I did get one out of you got dig. I didn’t even I’m gonna have to really bump that up in the editing. Make sure but uh, here’s your Yeehaw. So wait just a minute. Boudreaux knows burgers, but he didn’t know anything about franchising. I think that one of the biggest mistakes that the Bucha rows of the world make when they start franchising is that they mistake this venture is a get rich, quick scheme. They all seem to have these visions of sugar plums dancing in their heads, and very few know that this is a long road to hoe. It takes time and a lot of hard work to get a franchise off the ground and to keep it in the air without stalling. What are your thoughts on that?

Michael Peterson  22:41

Here’s the thing is Boudreaux needs to realize this franchise. Franchise sales is like nothing he has ever done before. And I like to start actually, when I’m talking to people about what makes franchising so unique. I actually like to start with this idea, which is that when somebody decides to buy, and Boodles burgers, if we can keep talking about him?

Kit  23:07

Sure, that’s our fictitious character that doesn’t know anything about franchising. I didn’t want to pick on anybody. So I picked a made up a fictitious character. So absolutely. We’re talking to the boardrooms of the world out there who have found themselves as a franchisor. And they don’t know what they don’t know.

Michael Peterson  23:22

Yeah. So let’s start with the first thing that you probably never thought about, which is that if somebody decides to buy your franchise, that’s the fifth decision that they have to make. First, they have to decide that they want to go into business for themselves, right? They have to decide if you’re if you’re a full time franchise or where you require full time commitment, they have to decide they want to go full time if you’re not then they have to decide they want to keep their job. They have to decide they want to go into your burger industry, right then they got to decide they want to do it as a franchise somebody tell them what to do every day, right? Then they gotta decide to buy virtuos I love it. We chose decision doesn’t come up until number five, but he’s probably engaging people at number one, or number two, and so you got to really know that and I think that’s one of the biggest things that young franchisors misses how long that process can be and where they might fall in that process.

Kit  24:12

Right that’s very interesting.

Michael Peterson  24:13

It is you are really the last in the line of decisions which why people talk about how fast they sell franchises and and I won’t lie yeah, I’ve done a franchise sale from first caller to wrapping up in 16 days which is illegal shortest, you can do it. But the beginning of this year we we took building kids preschool we brought in a franchisee who first call to sign a franchise agreement was 1385 days. 3.7 years is my personal record. Yep. You know what? He did what he needed to do to make those decisions and we’re right there walking it with

Kit  24:50

him and it wasn’t costing anything while he’s not making decisions. You can just walk around. I think that’s beautiful. I think that’s beautiful. So before the show, I asked you to share with me some talking points. Have, you sent me a list of topics broken down into two groups pre launch and post launch? So let’s start at the beginning with the pre launch, you said that one of the biggest mistakes franchisors make is not getting the FTD to fully capture the business model. What does that mean to you?

Michael Peterson  25:17

Well, if I remember correctly, a very short conversation about what I call the second year rewrite is actually what led to you and I’d be doing this today, right? Because I think we’re talking about something else now is just complaining. Because I do that once in a while. I’ve heard other people use this term, but I think I might have been the first one to use it. And the second year rewrite of the FTD is where at the end of your first year as a franchisor, you sit down and you rewrite your whole FTD to see what it shifts had to begin with, right? Not getting the FTD to fully capture the business model can lead you to so many issues, especially if you have some good growth in that first year. Because whatever’s in there, that’s what those folks are going to stick to. Right, you might change it for further franchisees down the road, but for these first 1234, you’re stuck with whatever you wrote, so really spending time and digging into that model as it exists not just in Dallas. But how is what’s Boudreaux got to do to open a burger shop in Orange County or in Billings, Montana? And how is that going to change the user experience? How’s that going to change the build out cost? How’s that going to change who’s going to source product and make sure that that’s all really sealed into that? Obviously, the operations manual, okay, you know, that’s where a lot of that lives. Item seven, Item eight, you’ve got to get that right out of the gate.

Kit  26:40

A good friend of mine, Tom Spadea, he’s a franchise attorney up in Philadelphia. So we’re working with him on a project and and he said something that I just love, and I’ve repeated a lot. He says reading the FTD and the franchise agreement and getting the manual done, he goes, that’s just the baby coming out of the birth canal, that’s you giving birth to a franchise. That’s it. That’s that, that doesn’t make anybody a franchisor. There’s just so much more that has to happen before success. And everybody thinks, Okay, I’m done. I’m a franchisor. Now I’ve got my franchise agreement in my in my FTD. And it’s just not if you look at a newborn picture versus that same child at one years old, you can’t even recognize those two people as being the same human. And the same thing applies, in my opinion to franchise concepts. You give birth to that concept, when you finish your FTD in your in your, in your operations manual a year from then, man, you don’t know what you don’t know. And all of a sudden, you’re editing your manual, you’re changing your manual, you’re you’re making changes to your next version of the FTD. Because when you start trying to implement everything it didn’t, it doesn’t necessarily go the way that you thought it would go. And and you start finding better and more efficient ways to do things now that you have franchisees. And so everything’s changes so much so fast those first one or two years,

Michael Peterson  27:59

they do and that’s another thing, you know, you hit the nail on the head, they do change. And so you have to build flexibility into the model pre launch, so that you can comfortably put those changes in there. And by the way, Tom Spady, a good friend of mine, known him for years, he has a such wealth of knowledge in this in this industry, and as you know, he used was a business broker before he became an attorney. So he really does have that background. And this is something actually one of our first conversations Tom and I had was seeing a franchise or young franchise or just as an example, putting to be implemented clauses in their agreements.

Kit  28:34

Yeah, that was the second part. You know, what does that mean? I saw the second point on your list. So tell me about that.

Michael Peterson  28:39

I’m sure you’re familiar with national ad fund, right? Most franchisors charge a certain percentage of revenue, but you want to picture it. Just picture Ronald McDonald. Okay, he’s paid for by McDonald’s brand fund, right? All the franchisees kick in. And the franchisor uses that money. I have seen so many franchise agreements, where the franchisor reserves the right to implement an ad fund. Oh, that’s great that you reserve that right kit. But when I’ve been running my business at your 7% royalty for two years, or three years, and now you’re gonna throw two more percent add fun on there. Yeah, you’re gonna have a problem with me. So start charging that from day one. Yeah.

Kit  29:20

So people get comfortable with the budget with their income and their expenses. And they get in, they kind of they kind of budget around what their income is. And now we’re going to take away a chunk of that. And oftentimes, it’s not just that 2%, right, because oh, by the way, we’re also going to implement the technology fee. And oh, yeah, by the way, in what you’re saying is do it from day one. Yes. And you won’t have any problems with it. Do you have any stories where you’re from? Okay, let’s hear one.

Michael Peterson  29:48

No, not where I’ve heard where I’ve lived again. We talked about playing trade at the beginning, right that grew from four to 100 units. We had a to be implemented add fun And now, I told you at the beginning, I hope nobody else here grows that fast because it’s it really is dangerous and and it’s just going to lead to an implosion usually. But we had 100 franchisees whose agreement we were going to change to bring in an added fund, because we were doing it in year two. Now, are you going to do something in year two, that’s going to affect 100? franchisees? Probably not. But we did. We did. Right. So you might plan on it. And yeah, so that was I mean, we actually ended up having a huge conference, and there was negotiations back and forth. And this would never have happened if you have one franchisee charged to add funding use 100% of that money and buy advertising in their mark. Yeah,

Kit  30:43

and just don’t expect it, it’s gonna pay for everything, you’re allowed to do whatever you want with it. Right? Right. So use it in their market, I think that’s beautiful. And that could be anywhere it could, like we said, it could be the national ad fund, could be a technology fee, could be local marketing spin to required local marketing spin, hey, we’re not going to require to view now because I feel sorry for you because you don’t have the money and or I think you don’t have any money, or whatever it is making an assumption and just do it, they need to be budgeting for it. And that should be part of their loan for their operating capital. Once they get their loan, right.

Michael Peterson  31:15

It should be and you mentioned the technology fee a couple of times, you’re probably you might have a four or 500 607 $800 technology fee, and you might only be spending 150 200 bucks a month on Franch per franchisee, right? If you’re collecting that then allows you to build out your technology platform. So yeah, by all means spend it on technology when you’re collecting a tech fee, but don’t expect to give the first couple of franchisees equal value today, for that technology fee they’re paying you you’re gonna give them value in spades as you develop the technology that you’re going to be able to do because you’re collecting this tech funding from day one instead of kicking it in in one or two years.

Kit  31:56

Right. Okay. Very cool. Now, the next thing on your list is says be careful about cutting corners or coming in underfunded, are you talking to the franchisee, or the franchisor at this point

Michael Peterson  32:09

Zoar. I mean, obviously, and make sure your franchisees don’t either. I’ll give you a great example of cutting corners, right in your own operations manual

Kit  32:18

or your own FTD they’re gonna come out there and say we’re not doing my own FTD it’s like really? What what’s your background?

Michael Peterson  32:26

Yeah, make law school.

Kit  32:29

making burgers. It’s okay. I don’t recommend to do that. I’m not even a franchise attorney. I think you’re nuts.

Michael Peterson  32:35

Yes. Yeah. So that was a that was a shameless plug. But but the reason I did it is because before I met you and found out how you did operations manuals actually did this, because I didn’t know there’s people that would go out and spend time with a young franchisor and, you know, study their their operations and put it into an operations manual. I thought everybody just was trying to sell you a template. And so I’ve written a couple ops manuals. And if I had that to do over again, I would not

Kit  33:02

you have scars. Is that what you’re telling me?

Michael Peterson  33:06

Yes, sir. But that wasn’t cutting corners. That was lack of knowledge dealt or cut corners. Don’t come in underfunded. If you’ve got 75 grand in the bank and you’re ready to franchise No, you’re

Kit  33:17

not at another 175 for that.

Michael Peterson  33:20

Yes, sir. You and I can sit down right now and write an FTD for the burger joint. And guess what? We’re franchisors today. Right. Right. That’s it. That’s all it takes. Yep. But now we’ve got to bring in some franchisees. And that’s expensive, right, we’ve got to register in some states. That’s expensive. Hopefully, you’re using a good franchise attorney, you can get an attorney who specializes in franchising, it will do your FTD for six $7,000. And you will have a six or $7,000 FTD. Right. And you will have a 60 or $70,000 lawsuit down the road.

Kit  33:52

Yeah, for those of you who don’t know, six or $7,000 FTB is way cheap said,

Michael Peterson  33:58

oh, yeah, yeah, you’re definitely using it. You just got out of law school.

Kit  34:03

Or not, or they’ve got their there are a few consulting companies that just bundle everything up. And they think, I guess they’re working on volume. But the point you’re trying to make here is you get what you pay for. Yes, don’t start the process, because we have a lot of clients that come to us, and and they say, Hey, we need a manual. We’ve got somebody working on our FTD. And I said, Okay, I’m gonna need three days of your time. Oh, I don’t know, I can’t do that. Because I have to work I was can we do it on the weekends, because I’m working in the counter and every day of the week. So here’s a guy who’s in my opinion, he doesn’t have his infrastructure, any of his infrastructure in place. I always say you need to be able to take six weeks off and not have anything not even feel the ripple in your business, because you’re going to least have to do that going to expos going to bringing in franchisees for training. So if you can’t pull yourself out of your business, but that’s just like a symptom or just one element the other is your Money. Because a man’s it costs things to purchase in a learning management system to hire somebody who’s going to be your development, because you can’t do everything all by yourself. There’s not enough time, right?

Michael Peterson  35:11

Absolutely. By the way, if you’re behind the counter swinging burgers, it’s because you still love to sling burgers, right? Which means you should not be franchising, because you don’t get to sling burgers anymore. Or

Kit  35:20

you go find someone like you, right? This friend says, We can do that

Michael Peterson  35:24

we’ll do everything from from soup to nuts to bring somebody into its franchise space. But if you’d love to bake, don’t open a bakery, because you don’t get to bake anymore. You could tell other people. If you love a bakery, don’t franchise it. Because you don’t get to be a bakery store owner anymore. Your bakery franchisor. Now,

Kit  35:46

I love that statement. Yeah.

Michael Peterson  35:49

So if you are still working your business, not because it can’t go without you. But because you don’t want it to then you’re not at that point where it’s time to franchise in my opinion, irrespective of capital,

Kit  35:59

right? But the other leg of that stool is money. What does it cost to attract a lead? What does it lead cost?

Michael Peterson  36:07

Sure. So once you’re already you’ve spent the money on the FTD in the operations manual, are you ready to go a link and it might cost you 20 bucks. But let’s talk about what a franchise sale costs, in my opinion, and some people will disagree with this number. And this is not counting franchise brokers, which we can definitely talk about but but other types of advertising like franchise portals website, SEO, SEM, pay per click, you’re probably going to pay. Once you’ve got a few franchisees somewhere between 10 and $18,000, per franchisee and advertising. double that, at least for the first one, multiply it by 50% for the second one and 25%. For the third one, those three folks are going to be the hardest franchisees for you to find. Wow,

Kit  36:55

it’s part of that because we don’t have any franchisees in place for them to call and talk to

Michael Peterson  37:02

you said something. That’s a symptom of the problem. I wouldn’t say that’s a symptom of the problem. You know, we always say we don’t franchise an unproven concept, right? You’ve got to have you know, your legs underneath, you have to have a couple of years business. But no matter what, you’re actually franchising an unproven concept because you haven’t proven that you can franchise it yet. Got it. That’s interesting. And so that takes a certain person to buy into that model,

Kit  37:25

right? So that’s a personality profile, that is a person that is that is not averse to risk that it actually loves it thrives on it and not averse to change thrives on it. And that’s the person that that’s going to be the first person to buy that the

Michael Peterson  37:41

still wants to be a franchisee I know think about how narrow that is.

Kit  37:46

I’ve always call in I’ll say this in a mean way. I always call franchisees I call them entrepreneur lights. Right? Yes. So the franchisor is the entrepreneur, he’s the one that’s willing to go out there and make the mistakes, willing to put his money down his house down and risk his house and all of his money and make the mistakes and develop a concept and a franchisee comes along and says you know what, I kind of am like that too. I kind of want to be that person but I’m not. I’m just that scares me. So I want something that’s already in place. So you have an entrepreneur light but that guy that we just talked about was right on the cusp. He’s the one that’s going to come in and say yeah, I’ll be your first franchisee I don’t need a validation call. I don’t need those things. I don’t need to see an item 19 Because sometimes they don’t even have them some some franchisors don’t even put them put them out. I can get it I had the vision just like you do. I’m just don’t want to be the one to risk everything.

Michael Peterson  38:44

They are going to be a little bit more of a pain in the neck than any other franchise. They’re also going to contribute more to your system than any other franchisor you bring in probably. But yeah, it is a narrow it is a narrow band of folks that are entrepreneur light ish. If I can, if I can still there. And you know, they still want to have they still want to be able to see their fingerprint on the brand. Kit. Do you Do you know have a fire fish came out?

Kit  39:11

No. Tell me about it. So you know Ray Kroc is Ray Kroc the founder, not even the founder, but yes, he was with McDonald’s,

Michael Peterson  39:19

the founder of McDonald’s franchise, right? Right. Yes. So it was sometime about five years after he had been franchising and they were having an issue with their Friday sales in their in the restaurants because there’s a sector of the Roman Catholic church that doesn’t eat red meat on Fridays, and so they can’t sell them a quarter pounder, Ray wanted to sell them a cold pineapple burger franchisee in New Jersey wanting to do a fish fillet sandwich. And so Ray said let’s let’s do a let’s do a cook off. Let’s see who sells the most this weekend. That’s cool. And right. Yeah, I mean, he’s gonna see Here’s what really you know what, which one really works. As the story goes, come Monday. What he said was, you know what, I’m just gonna go ahead and let my franchisees decide. And I’m going to pull my burger out and put his in. Now I think what everybody knows is he just got his butt whooped in the contest.

Kit  40:20

That’s how we ended to him on a platter.

Michael Peterson  40:23

Yes, sir. And that’s why we have a flavor fish sandwich. And you will not as a McDonald’s franchisee today, leave your fingerprint on the McDonald’s system. Sorry, like that? Not at all. Not at all. That is what happens when you bring in a young franchisor. So those are the people you’re looking for, yes, they want a path to follow. Yes, they are looking for systems. But they also want to see their fingerprint on the system.

Kit  40:48

Again, so we’re kind of getting away from our cutting corners. And in that topics, I want to kind of get back to that, but cutting corners and coming in underfunded. And then we talked about the what the costs were associated, what people don’t get is how much it really costs to become a franchisor. So a lot of times we get clients that come to us with with barely even enough money to do the FTD in the manual. And they say, yep, we’re gonna we can do this and that they just that you just can’t do it properly. There may be a few that figured out that can bootstrap it. But what you’re saying is, that’s that’s a huge mistake. Just wait, be patient, save your money, so that you can come in and do it properly. All right?

Michael Peterson  41:28

Absolutely. Because forget about franchise sales, you’re going to spend 10 $15,000 a year to renew your franchise agreements, depending on what state you’re going into maybe 25,000, you’re going to spend 10 12,000 on your audit, right. And here’s the thing, if you sell two franchises, and you spent an extra $20,000 a year to renew, that means you added an extra 5000 per close. If you sold 10, you added a lot less per close. Right. So coming in with that underfunding not being able to advertise or not being able to register in the right states just just don’t do it. That’s cool.

Kit  42:06

All right. So we’re moving from pre launch topics to post launch topics. And the first one that we have under post launch is you say that hands down. The biggest mistake a franchisor can make is bringing in the wrong franchisees my

Michael Peterson  42:22

most important job in life is to say no, absolutely. This is the I mean, again, I’m in the only sales job where I have to introduce you to every person I’ve ever sold my product to before I can sell you my product. Where does that? Ah I love it. Yeah. So I mean, it’s something to think about. So especially and if I’ve got 1520 Happy franchisees and one or two that you know, they say there’s gonna be a suggestion box in heaven, because you can’t make everybody happy. Right, but But if that’s your one or two franchisee you’re not selling anymore, because they’re the ones who are going to validate or in this case, not validate your Yep. So you want to make sure that those folks are not underfunded, first of all, second of all, they fully buy into your system, and they’re not constantly talking about changing it.

Kit  43:16

I love what you’re talking what you’re speaking right now. So make sure they’re not underfunded, because there’s a temptation for us to let the first one squeak, here’s Okay, let me back up a little bit and tell me if you agree with me or not. Everybody with a franchisor starts, I’ve got 30 people that want to I got 50 people and I have a boy, we’re franchising and we’re gonna get rich. And all of a sudden, he finishes his FTD you’re laughing because I know what you know. And so they, for the sake of the listener, the new franchisor out there, you’ve got 30 And they’re all gung ho and they’re chomping at the bit to become that franchisee of yours, until you put a contract in front of them, put an FTD in front of them and have them put their money where their mouth is

Michael Peterson  44:01

ask him to write a big old check.

Kit  44:05

Yeah, say Oh, or I gotta go wash my hair. I got my mom.

Michael Peterson  44:13

Gotta rotate the air in my tires.

Kit  44:17

I’ve got to rotate the air in my tires. I love it. I gotta go change my blinker. Jeez,

Michael Peterson  44:21

I’ve only seen this work once. And that is where the franchisor who had quite a few corporate locations. They had directors in those corporate locations, and they sold those building kids preschools, I’ll just give a shout out. They they sold several of their first franchises to the directors of those preschools. And so they did come in with an idea that they were going to have three or four out of the box. And they did, but that’s because they knew who they were. They had been working with people for 1015 years sometimes and the people are already running the business. If it’s just somebody who came in and tried your burger and thinks it’s awesome and so they think they want to open that in wherever they’re at But they might, they absolutely might. Probably not gonna,

Kit  45:06

right and so franchisors are super excited. And they use all these people fall through it now friends and family, I think in my opinion is a must the place to start. So because you can make a bunch of mistakes with these guys, and you don’t get sued. But you’re a man. Right? Right, you can I can really screw up badly with Uncle Ray and he’s not going to sue me. But if I screw up with Bob Smith from Butte, Montana who didn’t know me from Adam, he’s going to assume I’ve got my ducks in a row. So scratch those first three. And now here we have, or pretend like those first three don’t even exist and franchisor thought he had 30 leads and I was down to zero. And now somebody comes squeaking across the land with I’ll do it. I’ll do it. Well, how much money do you have? I don’t have any, but I can borrow some from grandma. Okay, and then all of a sudden, so you can take it from here. Tell me what happens after that.

Michael Peterson  45:55

Or your item seven is you know, say 150 to 450,000. And with an SBA loan, they’re gonna get 160,000. And if something happens while they’re building, I don’t know, you know, something happened a couple years ago that shut people down in business for a little while. They Snowbird Snowbird COVID. Either one Yeah.

Kit  46:17

Were you in Dallas with that Big Freeze came across through? Yes, sir. I want yeah, so yeah, that and that, and COVID, like, right on top of each other.

Michael Peterson  46:25

But Snow vid I mean, actually is a better example. Because yeah, COVID was a pandemic, he destroyed the world for a while. And hopefully we don’t have one of those for a couple more months, at least. Right. But But Snow COVID For those people who don’t know, what we’re talking about was a week without power here in Dallas. It put people out of business,

Kit  46:42

South Texas, Southern United States. I mean, it was a nasty thing.

Michael Peterson  46:46

It was it was, well, as far as I was concerned, it was only happening down I have any electricity, we have an internet, we didn’t have any phones. We didn’t know where else it was happening. But you’re right. But people went out of business because of that kit, because they didn’t have the funds to float being out of business for a week. So yeah, they maybe they do just barely have enough to get by. But what if they have plenty to get buddy, but you just know they’re not going to fit your culture? Yeah, that’s harder to say no to when you were sure you had your first franchisee four months ago, and they backed out and now you’re you’re sitting there with none. You have to say no to that person. You’ve just got a really fine, I mean, look for a reason to say no to your first couple of franchisees if you can’t find a reason. Great. So I’m a franchise, award them a franchise. Thank you. So yes,

Kit  47:37

that’s that’s a it’s don’t get me started on that.

Michael Peterson  47:43

Because that’s actually exactly what we’re talking about. You could sell them a franchise if they’re not the right fit. But you sure as heck are not awarding them a franchise because they don’t. They’re not the person you want to award them to. So yeah, that’s that is. I’ve seen franchisors with the we call it the checkbook impulse qualification process,

Kit  48:03

with the with the mirror with a phony.

Michael Peterson  48:06

Or you can call it the checkbook in the mirror, either one. You can fog a mirror you’re approved. Don’t do it. Don’t do it. Don’t do it. Don’t do it. Don’t do

Kit  48:15

  1. Thank you. Thank you. I tell people this. And I’ve, if you’re listening, if you’re a regular listener of the podcast, you will have heard this already. But I tell people that your bet to get in bed with somebody for a minimum of 10 years a minimum? Because that’s it. That’s it. They don’t read up the contract, right? That’s longer than most marriages last

Michael Peterson  48:34

8.7 years is the average marriage in the US. Thank you. So you’re gonna use the exact same why?

Kit  48:42

To get in bed with somebody and they better be the right fit for you because, because that’s just the Do you know, Rebecca Monet with his Oracle. I know Rebecca, very well shout out to Rebecca Monae. She’s got the coolest company. She has a personality profile cycle psychographic analysis. psychographic analysis is where you can tell it’s almost like a personality profile. And except that she that she built bakes out into this franchising concept in a beautiful way. I’ve had her on the podcast and and she helps franchisors pick franchisees that are a fit for their corporate culture in addition to the life cycle of their of their business so that if you’re at the beginning, you we talked about those people how they’re a different personality she helps you find those people and you talked about how valuable they were and and it’s just a fantastic concept but but here’s 10 years and we’re gonna get in bed with them and all we do is see if they can fog a mirror and if they have money, there’s so many more things you need to think about. It’s just nasty because five years they’re their biggest headache and you can’t get rid of them.

Michael Peterson  49:48

Yep, exactly. And you can’t you can’t fire a franchisee understand that you can’t fire a franchisee you can fire manager franchisees you cannot fire Have them unless they’re really in contracts. And that’s actually something you mentioned a minute ago Kitt, young Korea is not going to sue you. Right? Right. But you still got to keep uncle re in compliance?

Kit  50:15

Well, it’s validation is the topic. I mean, we can go on forever. We’ve already gone on for a long time, but I’m just gonna get this last piece on before we move in. People don’t get the value of validation. And cross validation can be extremely valuable on one end, and extremely dangerous on the other. And not very often. Is it in the middle like neutral iron Gray, when people talk about the value of a franchisee there would typically what they only look at is, how much did I get from the franchise fee? How much am I making on royalties? But just think about that guy that you described earlier? Who’s willing to come in with no item 19, who’s willing to jump in without any without any franchisees in place? And you mentioned, he’s going to be your golden nugget for validation? Well, if you were to take the value of all of the franchisees that he helps bring into the system and add that to his value. It’s just, it’s incredible. It’s it’s exponential. It is, but it can be the other way around, too. Right?

Michael Peterson  51:21

He can also cut your knees right out from underneath you and I have actually worked with a franchisor who made this mistake and sold the wrong first franchise. I don’t want to say you can’t get past it. You can. It’s just hard. And why why makes being a franchisor is hard. Why make it harder?

Kit  51:39

Yep. All right. Next thing on the list, not having a culture of compliance from day one that so another mistake? You said that’s post launch? What does that mean?

Michael Peterson  51:49

And that’s what I meant when I said, Uncle Ray might not sue you. But you still have to hold him into compliance. Right? A culture of compliance is simply whatever parts of your franchise agreement that you plan on enforcing. And here’s a hint, if you don’t all of them in your franchise agreement.

Kit  52:05

Here’s a hit all of it needs to be enforced zactly.

Michael Peterson  52:09

And a lot of your franchise agreement probably doesn’t, if you didn’t write it carefully. Cut those parts out, please. If they if they’re not something you’re going to enforce get rid of them.

Kit  52:18

I say the same thing. There. Say I’m in a site visit and we’re talking about these Oh, they have to do this. I said it said a half is that a half two or a should? It’s a half, two, and it’s 1231 after the other and they get to about the 10th? What I’m saying, Okay, let’s talk about these 10 things that you said they have to do, who’s going to police that? Because if you’re not going to police it, and they don’t do it, what what value is it has no teeth at all,

Michael Peterson  52:42

we have a saying in the army that said inspect what you expect, right? And if you’re going to expect your franchisees to do something, and you don’t have the ability to inspect it, not saying those clauses don’t have value because they could if somebody’s failing, and you can come back and start looking at those and saying, Okay, wait a minute, you’re not spending your advertising dollars, right. So absolutely those things, you still want to leave them in there. But you want to have a if your franchise agreement requires that your franchisees submit to you advertising expenditure proof every quarter. Uncle Ray needs to show you every quarter that he’s spending his ad dollars if it requires on audited financials, he needs to do it. Yeah, p&l is exactly. Uncle Ray needs to send you his p&l, even though he’s uncle Ray, you shouldn’t have to push this as a police officer. Our culture of compliance comes from a culture of caring. So

Kit  53:36

if you’re talking education as well to right, caring and education,

Michael Peterson  53:40

absolutely. And you’re educating them, either because you want them to follow your system, or because you care and you believe that your system works.

Kit  53:49

Well. You’re educating them on why, you know, you have to do this. Now, let me explain to you why. And that’s so that we can make sure that our brand promises being delivered across the system, because if it’s not, it’s devaluing our system, so we want to make sure that your neighbors, your neighboring franchisees are not devaluing your business. So we want you to comply as well, that’s just more of an educational piece that to help make them want to care, right?

Michael Peterson  54:14

Yes, you know, I’m going to circle back around to I said, you know, don’t have a clause that you’re not enforcing from day one. One of the exceptions to that often is the advertising Co Op. A lot of franchisors have this reserved in their agreement and never use it. And it makes sense. An advertising Co Op is when you have a bunch of franchisees in the same place and you say, Okay, you each have $500 a month you have to spend in local advertising, you’re going to now start contributing that to a pot and spending it together

Kit  54:41

and agreeing on how it’s going to be spent. And that sounds like

Michael Peterson  54:45

harsh clause that you can all of a sudden force him to start spending the money. But what if you have five franchisees in Dallas, that are all spending 500 bucks a month and they could go out and get a better buy by spending it together and franchisee number five He says, No, I don’t want to. Yeah, he’s not saying no, I don’t want to. He’s saying I want to ride your coattails else’s money. Exactly. And so then as a franchisor, you have the right to come in and say, Hey, this is now a co op, and you have to, and so that, again, is from a culture of caring. And I explained that to many prospective franchisees, because they often ask about that. And they view it as almost an unfair term, until I explain it to him like that. So if you care about your franchisees, you should be enforcing that they’re turning in their financials every year, because you want to look at them, you want to find out if they’re overspending by more than everybody else on rent, and by 20%, or in payroll, all of these things are parts of compliance that should be there from day one.

Kit  55:45

That’s cool. All right, the next thing on your list, and you we had alluded to this earlier, and I asked you to rein it in a little bit, you said, we’re a big mistake that franchisors make in the first year is growing too fast. Now, it’s either going to be it’s either going to be they can’t grow fast enough, or, or they’re growing too fast. If they have a really hot concepts, I’ll shut up and tell me what you think what you mean about that.

Michael Peterson  56:12

Yeah, and I don’t think this is a problem that most franchisors are going to run into, frankly, it’s hard to grow a franchise system. But if you are that next brand that’s selling all the sudden you find yourself selling 234 units a month, or, you know, like I did 22 unit to 22 individual franchisees in one month and I was part of a team, slow it down, back it up, make sure you have all the systems in place to support these folks, it’s going to feel difficult to say wait a minute war grip, we’re collecting a million dollars a month in franchise fees, because that’s what we were doing. And we want to slow that. I know, right? And we want to slow that down. Let’s let’s dial back our franchise advertising a little bit. And let’s make sure the systems and processes are down. And the first thing people want to do when they quit selling franchises, is quit spending advertising dollars and they should start spending more. But this is the opposite of that. If you’re selling too many, you might want to dial it back and make sure that you’ve got those stores open, that there’s that they’re good for the first month and the first six months and the first eight months, the first year and you really do understand what it takes to support a franchisee in Toledo, in Billings, in Dallas. And in Orange County.

Kit  57:29

It’s not just about getting them open. It’s not Now do you know Gary Finley? He used to be with Snap Fitness. Yes, he we wrote their manual years ago and we were in there during the time of year when all the contracts were reopening. He goes Kitt because we were averaging a new franchisee a day. How can you manage quality

Michael Peterson  57:49

and you can if you started out by doing a franchise a month and then you did a franchise a week and then you work into it right nine rounds by fitness franchise is a good example. I know Patrick over there real world great guy sells a ton of franchises, but they’ve got years of experience opening a franchise every day or every other day or whatever they do. If you don’t, don’t do it, you know, make sure that you’re growing at a sustainable rate.

Kit  58:17

Yeah, new parents are not given a five year old child Yes. Or an 18 year old. They ease into it very slowly over time. And they they incrementally learned

Michael Peterson  58:26

you said something that I thought dovetail perfectly into the last thing. They’re now scrambling to renew these franchises. Right. Well if you sold 810 1215 franchises your first year open and you negotiated every one of those Yeah, that’s rough to renew and keep track of what each agreement says so try not to compromise to get a deal

Kit  58:49

because this is a bookkeeping nightmare as well. Oh, it’s so hard. Oh, he pays 5% He paid six and a half percent he doesn’t have to pay anything for the first $500 and sales and all this bullshit your accountants are like going we don’t know how to manage all this. I just cursed I’m sorry, everybody.

Michael Peterson  59:05

I don’t think there’s any other words you can use right?

Kit  59:09

Is the only words you could use. So the last thing on our list is compromising to get a deal. That’s a big mistake and as that having the same does that mean the same as what we talked about earlier cutting corners.

Michael Peterson  59:20

Now I put this one last for a reason because you’re you might do it and I’m not saying it’s bad. I’m saying be careful. So when you first bring in that first franchisee remember you are selling an unproven concept, you’re selling a franchise to somebody and you’ve never sold a franchise to somebody before. So you might have to give them a bigger territory. You might have to give them a longer opening period. You might have to commit to spending a certain amount of ad dollars into their marketplace in the first year. It happens first try not to But secondly, make sure that any compromises you do make don’t hurt your system. And don’t hurt your franchisee and I’ll give you an exam There’s a brand and I’m not going to name them. But the brand I’ve worked with were first or second franchisee something like that had a massive territory and in a metropolitan area that we couldn’t sell another franchise into Guess how many people are in that market working to grow that brand name? Right? One? Exactly. So you might have to do this, don’t ever compromise royalties, in my opinion, don’t ever compromise on the term of the agreement, because that’s just going to make you a nightmare. Try not to compromise on anything. And if you do, also look at it and say, Wait a minute, maybe we should just change this out of our franchise agreement and get rid of it, building kids, and now has a rule and they compromise a little bit at the beginning. But they now have a rule of negotiating that if they negotiate a term in a franchise agreement. They are changing next year’s franchise agreement. Interesting, because it’s not supposed to be the best negotiation wins. That’s not franchising. Yeah. And the last thing on this is if you do compromise anything for the love of franchising, don’t do it without having your attorney blessing

Kit  1:01:09

yet because some things can affect other areas of the contract or, or make sure it’s a franchise attorney, not not your not your family law attorney, that you got an actual franchise attorney who understands what the pitfalls are, and can foresee where these changes in this contract are going to affect you in the future. If you

Michael Peterson  1:01:27

are not working in the franchise attorney for everything to do with your franchise, just stop. Just stop, just stop. I have seen so many issues with this. It’s gotta be some, even if they’re new, if they’re new in the business, if you’re a lot of times you’ll work with an experienced franchisor. And you end up working with one of their associates. That’s fine. Franchising is weird. The law is weird. I live with an attorney kit, there’s one section of franchise law, which I won’t bore you with. But it took me like an hour to get her to understand it because it’s so weird, outside of normal law. So you need to be working with the franchise attorney on everything, and especially on any changes to the franchise agreement that your franchise attorney wrote. But at the end, have somebody do your franchise sales have somebody else decide who gets franchise?

Kit  1:02:14

Ah, that’s cool. When we get to different people, so they don’t have skin in the game. I love that idea. That is fantastic. Ladies and gentlemen, that was a secret sauce takeaway right there.

Michael Peterson  1:02:25

We always do a committee, they should be one of the founders of the company, assuming they’re involved, somebody from sales, and then somebody from operations or support. And sometimes that’s all the same person, let’s be honest with you when you’re young. Sure, that should be the idea is it’s somebody who’s actually going to be running this franchise with the franchisee that determines whether they get it and ask your franchisees to during the validation process if they think they’re a good fit.

Kit  1:02:51

That’s interesting. I’m going to implement a new system here on the franchise manual podcast, which is going to be this. Every time there’s a takeaway, a golden nugget takeaway. I’m doing the drums, and that was one of them.

Michael Peterson  1:03:03

I like it. All right, Mr.

Kit  1:03:05

Michael, you made it all the way to segment three the Quick Draw questions.

Michael Peterson  1:03:13

I had been warned about this. And the answer is 12.

Kit  1:03:17

Bacon enters bacon. No, this is much easier than that. By the way. This is the final segment of the show. I call it the Quick Draw questions, quick questions, quick answers. It’s just a fun way to wind down in an episode because we just we just went through a lot of stuff. And that was beautiful. By the way. Thank you so much. Now it’s time

Michael Peterson  1:03:39

to do it. Yeah,

Kit  1:03:41

I think it’s going to be this is going to be a great episode. Now. I know that you are an avid reader, I am Tell me about your all time favorite book, which you know, to borrow a line from Tim Ferriss. What is the book that you’ve gifted the most?

Michael Peterson  1:03:55

Probably either think like a freak or the memory illusion.

Kit  1:04:00

Think like a freak, is that a dating? It’s not

Michael Peterson  1:04:03

it’s not care and you’re reading the wrong dating books. It’s by the author of Freakonomics. Yeah. Which he’s a great economist rather. And think like a freak is how he kind of explains how he thinks, and the memory illusion completely different. It will blow your mind you’ll find out that nothing you remember about anything that happened before yesterday actually is true. Really. We all invent our own past and we change things around so much. And it’s really crazy

Kit  1:04:36

is that like as we interpret what we remember, or we

Michael Peterson  1:04:39

interpret what we remember, we, we wrap it into our own self image. We happen into the image of other people and our experiences in life. And if you ever wondered why you and your wife seemed to have had a different conversation last night, yeah, this is why

Kit  1:04:54

that’s I cannot wait to read that. It’s called the memory illusion or memory.

Michael Peterson  1:04:58

Yes, sir. Remember Religion Alright guys, I’ll

Kit  1:05:01

have all the the the names of the books that he’s recommended in the show notes so you don’t have to worry about writing down right now. That is very cool. So do you read any fiction? Do you like stories? Do you like to get lost in a book? Or is it mostly all self help stuff?

Michael Peterson  1:05:19

No, I actually love fiction.

Kit  1:05:21

Me too. I get people on here that refuse to read it too much interesting stuff in real life. That was Tom 40s. He said that last time because he goes I heard somebody told me this didn’t really resonate with me. There’s too many things in real life that are so interesting. Why would I read? Why would I read fiction? I said, Oh man, you’re missing out on so much fun reading.

Michael Peterson  1:05:39

There is no swords and sorcerers in real life, man.

Kit  1:05:42

I know there’s no dragons or anything. I love it. What is your favorite fiction book?

Michael Peterson  1:05:49

Robert Jordan’s either World Series each books about 1500 to 2000 pages had a heart attack on book 15. And it got finished a book 16 Geez, Louise. I followed that for two and a half decades.

Kit  1:06:03

Is that a fantasy? Is that was that wizards stuff? Oh, I am so into it. Ladies and gentlemen, we interrupt this program because we geek out on fantasy knows for another minute and a half. I didn’t want you to have to listen to you will now resume the show. The point immediately after the game. All right. Do you like to watch TV? I guess we kind of talked about that. What did you What are you binge watching lately? Billions.

Michael Peterson  1:06:32

Almost done. Okay.

Kit  1:06:35

Almost that you’re the second or third person to tell me to watch that

Michael Peterson  1:06:38

great show. Great, great show. It’s what my wife is more reality TV. I’m not. I’m more like Arrow or the flash. So we got into billions. It’s one of the ones that we have agreed on and then upload season one, season two wasn’t season one I’m on right

Kit  1:06:58

now. Season two. Okay, so I haven’t seen Season Two yet because I’ve only seen season one. Okay, upload is really cool. For those who don’t know, it’s, it’s in the future where when you die, you have the choice to upload. If you do this before you die, you can upload your consciousness into a virtual reality. And depending on how much you pay per month for your plan is how cool your virtual reality is. And

Michael Peterson  1:07:22

remind you of your cell phone plan a lot. Yeah, it’s

Kit  1:07:25

about the house cellphone companies. What kind of power they have because it’s like a cell phone company. And if you paid the right plan then you can live in in a beautiful places. Anyway, it’s a really neat and there’s some there’s some murder mystery involved. It’s really fun. Okay, that’s fun. What about your favorite movie of all times? Do you have a favorite movie?

Michael Peterson  1:07:45

Oh, man, favorite movie is gonna be lost boys key for seven went back when he was still really cool. All right.

Kit  1:07:52

What is your go to order at your favorite hometown restaurant?

Michael Peterson  1:07:56

You know what my favorite hometown restaurant or any other restaurant might go to? is gonna be a bone out 14 to 16 ounce, medium ribeye.

Kit  1:08:07

Me know canine teeth are for us. In case you vegans don’t understand that those pointy teeth are for ripping meat.

Michael Peterson  1:08:15

Oh, and don’t get me wrong with the side of creamed spinach and I’m a happy man.

Kit  1:08:20

The fun. Alright, what do you do for fun when you’re not working? And don’t tell me always work? Everybody has a hobby. They just may not know it. You’re just reading, right?

Michael Peterson  1:08:28

I love to read the pandemic made our company super busy. So I almost always do work. I love to argue with my wife. And that sounds bad. It’s not to bait. Yes, we debate about Supreme Court cases from 1950s. And I have a real passion for the law and she happens to be a lawyer so that works out and I love to scuba dive. Well. That’s cool. I had so much fun. So relaxing. And I like to skydive

Kit  1:08:52

I really like regularly you regularly No,

Michael Peterson  1:08:55

no, no I like to I didn’t say

Kit  1:08:59

I like to walk on the moon.

Michael Peterson  1:09:01

I’ve got four

Kit  1:09:02

jets I know but I really liked to four jumps. That’s a lot that is that’s very cool. You have cool hobbies most people don’t have cohabits

Michael Peterson  1:09:09

like that. I’d like to just get out and do stuff you know and I don’t do a lot of it but when I do I like to really just fully immerse myself in something and you cannot be more fully immersed. Here’s the thing about skydiving if you haven’t done it scariest 30 seconds your life yep when you’re before you pull the canopy, but then you under canopy and you don’t have any fear left in your body.

Kit  1:09:32

It’s just nice to me the canopies it’s it’s okay it’s great but it’s not the the adrenaline rush of getting on the airplane. Taking that 15 minute circular corkscrew ride up, opening the door, sitting on the side getting in the in the pre position 123 Boom and making that jump Collie. The man I try

Michael Peterson  1:09:54

not to think about that part because I am a I have a massive fear of heights. which is one of the reasons why skydive. But yes, you’re right. That is a that is a different experience in life. You’ll never experienced anything else like that.

Kit  1:10:07

I’ve only done it once. I think everyone should do it. I think it’s that cool. All right. Do you have a go to joke?

Michael Peterson  1:10:13

I do Skelton walk to the bar and ordered a beer in a mop.

Kit  1:10:20

Thank you. Thank you very much, ladies and gentlemen. If you’re waiters and waitresses that’s funny.

Michael Peterson  1:10:27

Or my other one is there are one zero types of people who understand binary code. You have to see that one in print though for it to make sense.

Kit  1:10:39

Okay, let’s take a little bit deeper. Let’s take it a little bit deeper. I like this phrase, he tell me if you’ve ever heard it, and if you have what it what it means to you. In business, when you say send the elevator back down.

Michael Peterson  1:10:54

And I take every opportunity I can to help young franchisors because that’s what I do, guess what I know the most about and I will take our two hours out of my day for somebody I know I’ll never do business with to help and guide them and just let him bounce ideas. Or you have given my elevator pitch on? That’s right, exactly. But I haven’t made it to the top yet.

Kit  1:11:17

Yeah, you have your own business. You own a business. And it’s a successful business. You’re not You’re not dying out there. You’ve got I’m not going up there. You may not be as high as Ray Kroc. But still you’re at the top and people are trying to you’re trying to succeed young people are coming up and do you and you do it. You just described exactly what it is. You have been sending the elevator back then you have been helping people out. I think that’s cool. Okay, one last question. This last question is just for you to ponder. So you don’t need to answer it. Where are all the baby pigeons? Ladies and gentlemen, that music means that this episode of the franchise manual podcast has sadly come to an end. Michael, as I had expected, you were a phenomenal partner today. And I really do appreciate you taking the time out of your days.

Michael Peterson  1:12:08

It was so much fun.

Kit  1:12:10

Thanks. I think it was too I had a blast. Now. If somebody’s listening to this podcast episode wants to talk to you about what you do. Tell them how they can reach you.

Michael Peterson  1:12:20

Sure, easy peasy. franchise. That’s what we do. Beacon Lincoln Lighthouse franchise That’s my website. It has my cell phone, it has my calendar. It has everything every possible way to get a hold of me at franchise We’re also of course on Twitter, Instagram, Facebook, etc. But the website’s easiest way to get there. All right, is there a phone number on that website 949-282-7304 And to be clear, that’s my mobile so texted Call it whatever you want to know Michael,

Kit  1:12:54

you’ve written a book right? And you told me earlier that that if if the listeners make it this far into the podcast and they call you up, what are you going to do?

Michael Peterson  1:13:04

So call me send me a text either one I will get you a copy of the book. How and why to franchise your business. I will tell you I wrote it. I have six years more experience now than when I wrote it. So also, when the new one comes out version two, which should be before the end of the year, I will get your free copy of that one as well.

Kit  1:13:23

That is fantastic two point O’s including that kids. Remember the words of Longfellow the heights by great men reached and kept, were not obtained by sudden flight. But they while their companions slept, oiling upward in the night. Think about it. live by it. I’m Kip Vinson, the frame man and I am added here