My Podner 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. Some of these mistakes can be quite expensive, while others can lead to the death of your entire system. If you are a newly minted franchisor, or if you are about to start your journey, this is one that you won’t want to miss.
Michael Peterson Intro
Get to know Michael Peterson
Topic Segment: New Franchisor Pitfalls
Topic Segment: Quick Draw Questions
TOPICS DISCUSSED IN THIS EPISODE:
Key areas franchisors miss in their first year:
Not getting the FDD to fully capture the business model. This leads to something so prevalent that I came up with a name for it; the 2nd year re-write. So many franchisors make massive changes to their second year FDD either because they didn’t capture the existing model in the first year, or they didn’t have someone walk them through the thought processes they should be going through on every item before they commit it to paper.
Having “to be implemented” clauses in their agreements. The most common one I have seen here is a national ad fund, though I have seen tech fees quite a few times as well. When your franchisee #1 or #2 has been operating for 3 years, paying you your royalty only, and suddenly you decide your system is big enough to justify the advertising fund of 1-3%, believe me they will not be happy. Start taking this from day one, even if you turn around and spend it in their market.
Cutting corners or coming in underfunded. This is probably the #1 cause of failure of young franchisors. Deciding to write an operations manual in-house, find the cheapest franchise attorney possible (or, worse yet, trying to do an FDD without a franchise attorney), not having quality marketing materials, not having funds set aside for franchise sales; these are so self-defeating.
A bad operating manual can lead to system problems and even litigation.
If you succeed as a franchisor you will end up using a good franchise attorney, if you start out with inexperienced or ineffective counsel, you’ll just pay in negotiation, litigation, or just headaches before you switch to better counsel.
Your marketing materials are your first impression, you have to make them count.
Franchise sales cost money, period. If you don’t have a good marketing budget, you will struggle to grow. Think about this. Each year, you are going to spend between $6,000 and $25,000 on renewal, depending on how many registration states you go into and how complicated your audit is. I would guess the average is close to $12,000. If your lead generation spend results in one sale, then you have an extra $12,000 in costs for that sale. If you have a robust budget and someone solid handling franchise sales, and you award 3 franchisees, then the renewal is only adding $4,000 cost-per-close. Big difference.
Hands down, the biggest mistake a franchisor can make is bringing in the wrong franchisee. If you have been doing all the ‘right’ things, spending money, having a professional franchise salesperson either in-house or outsourced, reaching out to brokers to talk about your brand, and 6 or 12 or even 18 months in you don’t have a franchise sale, that can be frustrating. It also might happen; the first franchisees are the hardest to find (lets delve into that). I have seen this situation cause many franchisors to award a franchise to someone they shouldn’t and regret it for years to come.
Not having a culture of compliance from day 1 is another seemly small issue that will come back to haunt you. If your FA calls for quarterly or annual financials from your franchisees, get them even if you don’t know what to do with them! If your franchisees have a required add spend, monitor it from day one. Or better yet, engage with them and help them spend it correctly, but either way make sure they are spending it. If there is a clause you are not enforcing from day one, throw it out.
A problem many new franchisors think they wish they had; growing too fast. I have been in this position. I am talking about 4 stores open in January and 120 open that December fast! Trust me, you don’t want this kind of growth out of the gate.
Compromising to get a deal. . . I put this one last because it very well may be something you need to do. As I mentioned, first franchisee is HARD! It may be reasonable, appropriate, or even necessary to ‘give’ on the first franchisee, maybe even on the first few. But be careful. If you are giving a bigger territory, are you really setting that franchisee up so that there is no chance of you putting someone into the same market and putting local brand awareness 100% on their shoulders? Are you offering a refund clause that you can’t really afford, from a capital cost of onboarding stance? Make sure your attorney is involved here and be careful. And again, don’t be afraid to say no and walk away.
My Podner in this episode is Tom Portesy and he’s going to talk with us today about how to maximize the return on your investment at a franchise expo, how to avoid the pitfalls, and best practices that will help you represent your brand in the best light.
Tom Portesy Intro
Get to know Tom Portesy
Topic Segment: Maximizing the Franchise Expo
Topic Segment: Quick Draw Questions
TOPICS DISCUSSED IN THIS EPISODE:
What is a franchise expo
Short history of the expo
How to manage realistic expectations of an expo
Know your objective
DOs and DON’Ts at an expo
Take advantage of the free training offered by MFV
Mike Pollock give us tips on how to build a franchise development system for your franchise. But it was more than just that because we also talked about how to take a warm lead through the process to close the deal.
Rebecca Monet of Zoracle talks about how to utilize Psychographic Analysis, or personality profiling, to assist in franchisee selection and help franchisors select franchisees who will more likely fit into the corporate culture and who are more likely to be the best performers in the system.
Time Stamps 00:02:33 – Segment 1 – Get to know Rebecca
00:21:06 – Segment 2 – Psychographic Analysis for Franchisors
00:50:30 – Segment 3 – Quick Draw Questions
Segment 1 – Get to know Rebecca Recorded on at the Franchise Expo West, Denver Colorado
Born in Au Switzerland
She is NOT related to Claude Monet
Grew up speaking High German (Swiss German) in the house. Lived on a dairy farm as a child. Parents were Baptist missionaries.
Moved to the United States when she was 14 years old.
Moved to California in 1984 as a single mother to seek her fortune.
Founded her first business in 1994, Noodle Metrics
Co-founded her second business called Proven Match in 2009
Founded Zoracle Profiles in 2013
Segment 2 – Psychometric Assessments for Franchisors How franchisors can use psychometric assessments to improve franchisee performance.
To a franchisor, granting a franchise is very much like getting married, with very little courting in order to “get to know” their partner.
Personality style questions are not used at Zoracle because there is less than a 3% correlation between personality and performance.
The science of the process is not in the questions themselves, rather how the participant orders certain words into a hierarchy of preference that is weighted on the back end. This gives clues about motivation, drive, and the decision making process of the participant.
The psychographic analysis is not fool-proof but there are mechanisms in place to report out inconsistencies in the answers of the participant.
Startup franchisors with no existing franchisees can still benefit from a psychographic analysis tool.
A psychographic analysis tool will help a franchisor in the following ways:
Better quality franchisee and faster ramp-up
Greater franchisee satisfaction, better validation and less litigation
Reduced cost to support
Reduced cost to recruit, support and train franchisees
Stronger franchisee compliance and retention
Increased franchisee performance and profitability
Segment 3 – Quick Draw Rebecca’s favorite book – The Autobiography of Benjamin Franklin
PC and iPhone
Doesn’t watch TV – doesn’t own a TV
Working on her master list of movies that her friends helped her create in order to learn more about Americana culture.
IFA – Dentate YES!
Hobbies: golf, painting, cooking
Dog person: Bernese Mountain Dog
She used to be a car collector – 1967 Cougar
In a time machine, she would go to 1955 when cars were sexy
She has wanted to be a psychologist her entire life