How To Buy a Franchise

Franchise Companies Tire Of Sluggish Economy: Expect More To Provide Financing In 2010

One of the nation’s premier franchise companies has decided not to wait for the economy to recover to begin selling more franchises. Money Mailer is taking matters into its own hands with a revolutionary finance program that will allow qualified candidates to join the franchise network for a mere four-figure investment!

How many more franchisors will take this same approach? Dozens! Particularly if they want to start selling franchises again in record numbers. If you’re planning to buy a franchise in the next several months, you may benefit from a similar finance program.

Record sales in 2009

Franchise financing isn’t anything new — The Dwyer Group has provided it for several decades, which is part of the reason the company will sell more than 300 franchises in 2009. But now more franchise companies will provide financing because they’re tired of slow-growth and dependence upon the U.S. Government to kick the economy back into gear.

Jaws fell open

Jenkins championed the finance program at Money Mailer and was thrilled when the company announced it at a franchisee convention earlier this month. “When our franchisees heard about it, I’d say there were about 300 jaws that fell open. We’re all very excited about it.”

Excited because he anticipates the company’s lead flow to multiply times four. In less than a week after the finance package was announced, Jenkins said he had received more referrals from existing franchisees than he normally gets in a year! Once the public learns about the program, inquiries will skyrocket.

A $7,500 down payment

While a Money Mailer license costs $37,500, qualified candidates will now be able to join the franchise company with a $7,500 down payment. Money Mailer will finance the balance and not require payments from the franchisee for two full years. The company will also provide a “launch package” that includes $20,000 in production credits paid to the new franchisee in the first year.

Until the economic downturn, franchise candidates frequently used a home equity line of credit to finance a Money Mailer franchise, but that option ended many months ago. “We had to control this situation (the lack of financing) to ensure our growth,” Jenkins explains, “and our management team decided to put this finance program in place. It will make a dramatic difference in 2010.”

Indeed it will, just as similar packages will make huge differences for other franchise companies providing they are bold enough, and financially stable enough, to provide financing to their qualified candidates.

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No Excuses! Get The Answers To These Three Questions Before You Buy A Franchise!

“Not long after I lost my job, a friend told me about this franchise. I looked into it and bought one.”

It may surprise you, but that’s how — and why — many people buy franchises!

Here are some other reasons that I’ve heard when I’ve asked people, “How’d you decide to buy a franchise?”

Crazy Excuses

“I decided I wanted to work for myself, not someone else.”

“A franchise broker showed me a half dozen concepts and I liked this one best.”

“It’s the ‘hottest’ business to be in right now and I wanted one.”

“My father told me it was a good business and he put up the money.”

“I had money in my 401k that I could rollover into my own business and I decided now was the time to do it.”

“One weekend I went to a franchise show, where they had many different businesses displayed, and I got to talking to a franchisee of this company and she told me that I should buy one. I did some research and decided she was right!”

And here’s the point

I could go on . . . but what’s the point?

Well, the obvious point to many readers is this: Those are all wrong reasons for buying a franchise. In fact, those aren’t reasons, they are crazy excuses. And they almost always lead to grave disappointments.

When people buy franchises for the wrong reasons — excuses or not — they usually live to regret it. Often times, it wasn’t the “hottest” business, and even if it was, the franchisee wasn’t cut out to own a business, with or without daddy’s money! Often times, these businesses fail and the franchisees lose their investments. Google will lead you to countless ugly stories about franchise failures!

3 questions you must answer

If you want to avoid becoming a sad statistic in franchise history, there are three questions you must positively answer even before you investigate a specific franchise concept. In fact, answering these three questions can keep you from spending time and resources looking at the wrong franchises, and they will ultimately help you invest in the right franchise, providing that buying a franchise is the best thing for you. (It’s not for everyone).

Frankly, it amazes me that so many people buy franchises without knowing these three points of information! But apparently, no one told them this information is important. (Or, maybe they’re okay with using crazy excuses!)

So here we go:

Know the success profile

1. Do you know the profile of a successful franchisee?

Do you know the values, skills and behaviors of successful franchisees? They’re not necessarily the same as the traits of a good employee, for example, or a good vice president or CEO. Just because you excelled in your Fortune 500 job, or you were Teacher of the Year, or a real estate tycoon, it doesn’t mean you’ve got what it takes to become a successful franchisee.

Oddly enough, many (and maybe most) franchisees can’t confidently explain the profile of a successful franchisee in their own franchise network! Some think they know it, but they’re not sure. Others say they know it, but they can’t prove it. Only those who are successful can be sure they’ve got it, but that doesn’t necessarily mean they can explain it!

Valuable advice: Even before you think about writing a check to pay a franchise fee, you need to be absolutely certain you can describe the profile of a successful franchisee in that specific franchise network.

Be sure you got it!

2. Do you possess the profile of a successful franchisee?

Do you have what it takes personality wise?

Do you have the values, skills and behaviors of successful franchisees?

Caution: Most people do not!

If you say you do, what makes you so sure? . . . And just to push the point — because, after all, we are talking about you risking tens of thousands of dollars when you buy a franchise — why should anyone believe you?

Better yet: Why should a lender believe you? (It wasn’t true a couple of years ago, but today your lender will want to be convinced of your chances of success before approving your loan).

And now the obvious question: Why should a franchisor believe you?

Obvious but, sadly, not necessarily part of the franchise buying process. Many franchisors won’t care about your profile. They won’t ask about it because they don’t know it’s important. Or, they just need to sell franchises — it doesn’t matter to whom. Even some franchisors are okay with crazy excuses.

Match it to the business

3.  Does your profile match the profile of the successful franchisees in the business you intend to buy?

This question is the most important of all. Let’s say you’ve identified the profile of a successful franchisee and you know you’ve got the same profile.

But for which franchise?

There are at least 2,000 — maybe 3,000 — franchise companies in North America. They’re all different. They don’t all require different profiles, but many do. For example, a successful franchisee in the hair salon industry, just to pick an industry, may fail in the hospitality industry, or the lawn care industry, just to pick two more. He may fail because he doesn’t have what it takes to succeed in that different industry. (Personality is by no means the only requisite to success — there are other considerations, including access to capital, location, and common sense, to mention a few).

Another ugly statistic

There are more than 75 different industries that use franchising as their method of distribution. So matching a success profile to an industry, and ultimately to one franchise company, is critical. Miss this and you’ll likely become one of those ugly franchise statistics.

Critical question: If you can’t define your own success profile and know that it matches the success profile for franchisees in a specific franchise company, why would you invest in that franchise?

I hope you said you wouldn’t!

Getting the answers you need

By now you may be asking: How do I find out which success profile matches which franchise company?

Answer: Ask the franchisor!

When you talk to a franchisor, and you’re about to make a buying decision, ask the franchisor to show you, or explain to you, the success profile for his or her top producing franchisees. Then, ask for the names and profiles of the top ten franchisees. You want to talk to them!

Ask the franchisor: What is the dominant personality profile of your top ten revenue-generating franchisees?

You’re not asking for an earning’s claim, so don’t let the franchisor duck your question. You’re not asking for revenue amounts, you’re just asking for a list of the top ten producers. You’re asking for non-financial information, which is absolutely essential for you to determine if you should invest your money in this franchise!

Reality: The franchisor may not be able (or may not want) to help you. As unlikely as this seems, many (maybe most) franchisors simply can’t provide the information you need! Some will tell you that profiles are not important, they don’t matter, and the company does not profile its franchisees. Others will say they’ve never profiled their franchisees and — they won’t tell you this — they don’t want (or they can’t afford) to invest the money to do so! Some won’t share the information with you because it’s not favorable to your buying decision!

Now what?

Ask those who know

Ask a company that profiles franchisees! Dynamic Performance Systems and Franchise Navigator are two that I suggest you check out. The latter features a new tool called Connect Me, which does the profile matching for you! Last I checked, more than 14,300 prospective franchisees had used this service!

More and more franchisors — especially those that care about the welfare of their franchisees (and the long-term viability of their brands) — are profiling their franchisees, and they will provide the answers to these critical questions because prospective franchisees, like you, are getting smarter. You’re demanding the answers. And you’re not going to settle for crazy excuses!

Demand to get what you need to make a good buying decision — the franchisors that want to sell franchises will comply with your requests.

Photo image by: Shmoomeema

If The Franchise Doesn’t Come With A Marketing Machine, It’s Not For You. Keep Shopping!

Marketing machines . . . that’s what separates successful franchisees from failing franchisees. As you’re evaluating franchise opportunities, be sure to look only at those that come with a marketing machine!

Major issue today: marketing!

I frequently speak to franchisees who represent many different businesses, and the overriding concern today among those who are failing, or struggling, is marketing.

• Where are the leads?
• Where are the customers?
• How do I get more customers?
• How do I keep my customers?
• How do I get customers to spend more money in my business?

Those are the questions and issues facing far too many franchisees today, which is why marketing is the most important component for you to evaluate prior to buying a franchise.

Some franchisors haven’t figured it out

Unfortunately, many franchisors either don’t know the importance of producing a marketing machine or they can’t afford to. Sometimes, in fact, the franchisor hasn’t figured out a marketing scheme, and their franchisees are in the worst situation. The saving grace may be that all these franchisors aren’t selling many franchises these days! Not all bad when you consider that they’re likely only to produce more unhappy franchisees.

Franchisors are easily distracted

It’s easy for franchisors to overlook the importance of marketing to their franchisees because there are so many other things that compete for a franchisor’s time and money: Selling franchises (well, duh!), training and support, site construction, managing the corporate team, funding the business, dealing with vendors, etc. When franchisors forget (and some just don’t know) that marketing propels franchising — that nothing is more important than marketing, especially to a franchisee — they fail to live up to their responsibilities as franchisors.

Protect yourself by not buying their franchises!

You want a franchisor to invest in marketing

Franchising is in a mess right now because too few franchisors are marketers, and too few franchise companies are providing marketing machines for their franchisees. And things aren’t going to get better until franchisors begin to invest again in marketing.

Look for the marketing machines . . . they’re out there! Ask existing franchisees: How effective is the franchisor’s marketing machine? If the franchisee looks at you like you’ve got two heads, you know to continue shopping! Don’t believe anyone who tells you that everyone is struggling to sell franchises today. Not true. Franchisors with marketing machines are doing just fine, even in these troubled economic times.

If you expect to do just fine as a franchisee, only buy the franchise that come with a marketing machine!

Just Released: FranchiseMastermind Interview Series

As you consider buying a franchise, learn from the franchise masters! Dr. John Hayes interviewed several of the most successful franchisors. Find out how they created successful franchise systems — follow their advice as you seek a successful franchise of your own. Learn from Don Dwyer, William Rosenberg, Jim Amos, Jim Bugg, JoAnne Shaw and others! You can immediately download and listen to their interviews. Click here

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Giving Franchising A Bad Name. Meanwhile, Here’s One Less Franchise That Will Be Sold!

One of my subscribers who used to work for IBM recently asked if I’d meet him for coffee because he was thinking about buying a franchise. Since he’s practically my neighbor in Frisco, Texas, it was easy to get together, but he probably didn’t expect me to tell him what I told him!

After he lost his job, where he made a neat six figures, he posted his resume on a number of online career boards and one day he got a call from a franchise broker from New York. Brokers scan those listings, looking for out-of-work people who might be interested in buying a franchise. (For me, that’s a tough way to make a living, but to each his own, especially in a recession. I prefer listening to my subscribers’ stories and responding with stories of my own.)

Why not to buy a franchise

My subscriber explained to me, “The broker told me that jobs are impossible to find in my industry, and he suggested that I buy a franchise.”

I could spend the next several weeks writing the lessons that emanate just from that one stupid statement! (I’ll also refrain from telling you the name of the broker, for fear that more reputable brokers might rip out his voice box).

Surely no one is dumb enough to believe that if you can’t find a job your solution is to buy a franchise! (Reminds me of Philosophy 101. Because the Marlboro Man was cool we should all start smoking?).

“I like having a job!”

I couldn’t wait to ask my subscriber, “Do you want to buy a franchise?”

He said, “I like having a job.” In fact, he recently got a job, though it pays considerably less than his six-figures with IBM. “I’m more of a guy who likes to hang out on the beach with my family,” he told me. “We bought some land in Mexico some years ago thinking that we’ll eventually move there and live the good life on the cheap.”

To which I replied, “You don’t sound to me like a guy who should buy a franchise.”

And he said, “But the broker thinks that’s my answer!”

Uh-huh. For $15,000 I’ll tell you that’s your answer, too! (On second thought, I only jest).

Where are 6,000 franchise concepts?

“The broker (he actually used his name) told me his company (he mentioned a major brokerage name) has reviewed 6,000 franchise opportunities and boiled them down to 600 that are worth buying. They’re worth buying, he said, because these companies include franchisees that own multiple units and they succeed at least 85 percent of the time.”

At this point I wanted to rip out the broker’s voice box myself! Another half-dozen lessons emanate from that nearly criminal statement! (I really dislike people who give franchising a bad name and who create win-lose situations whereby they win a commission and the franchisee loses money).

Six thousand franchise opportunities? I’d call the International Franchise Association and ask them where all those opportunities are, but it would be a waste of time. They don’t exist. Six hundred that are worth buying? Well, maybe, but not for the reason the broker offered. It’s nonsense.

Here are 3 you should buy!

So my subscriber continued, “The bottom line from the broker was that I should look at three companies.” He told me the names, two of which I recognized, though he wasn’t familiar with any of the three. He added, “I reluctantly agreed to be introduced to those companies.”

Reluctantly because he wasn’t really interested! But folks in Frisco, Texas (with some exceptions) are kind, gentle, and cooperative.

“And what happened?” I asked, in my not-so-gentle voice.

“The first one called me and when I told him I want to work in this market, he said this market was already sold. He got angry that my broker was wasting his time. He asked me which other concepts the broker suggested to me and when I told him he told me that the second concept was a horrible business and that he didn’t know the third concept.”

Franchisors trashing franchisors

“What did you think about the salesman trashing the other franchise company?”

“I didn’t think he needed to do that,” said my kind and gentle subscriber. “I thought it was odd. But he told me that since he couldn’t sell me a franchise he would help me stay away from a franchise that has a horrible reputation.”

“Well,” I offered, “he wasn’t totally lying. That business has a rocky reputation, though some franchisees have been happy with it. . . . Did the other two companies call you?”

“No!” said the subscriber, somewhat shocked.

“Not a surprise,” I said. “I used to generate leads for franchise companies and not even half of the companies ever followed up on the leads. It’s just one of those odd things about franchise sales people.”

One concept the broker didn’t know

Eventually my subscriber told the broker that he wasn’t really interested in any of the three concepts, and he elaborated that if he’s going to buy a franchise it needs to be something that he can work from home. He then told the broker about a home-based franchise that interested him.

“But he told me that he never heard of that business and that start ups are too risky. He wouldn’t recommend that I buy it,” my subscriber explained.

“Of course not,” I said. “He’s not going to recommend that you buy anything that he doesn’t represent. He wants his commission. After all, he spent hours on that career board culling through all those resumes to find you!”

Who’s the broker really helping?

“Exactly,” said my subscriber, no longer as kind and gentle. “Which leads me to wonder why anyone would work with a broker? If they’re only going to tell you to buy businesses that will pay them a commission, how does that best serve me?”

I laughed. “Yea, with 600 companies supposedly out there that are worthy of your investment, it would be difficult for a broker to represent all of them!”

My subscriber had already demonstrated one way to shorten that list. He said he wanted to buy a home-based business. That eliminated at least 80 to 90 percent of the opportunities, leaving him with no more than 120 (assuming there were 600 to begin with!)

Why local brokers may be to your advantage

Major brokers typically represent a hundred-plus concepts, but they may not represent competitive concepts, and they may not represent the concept you really want to buy. For example, if it’s a regional concept, available only in your area, the broker may not even know about the concept, let alone qualify for a commission. And if you’re working with a broker that’s many states away from where you live and want to work, you’re at an even greater disadvantage (which is why I prefer my subscribers work with local brokers).

However, keep in mind that some good franchise concepts refuse to work with brokers, so you’ll have to contact those companies directly.

But in the case of my subscriber, the real story is that he doesn’t want to buy a franchise. He wants a job! A better job than the one he has now. He may have expected me to encourage him to buy a franchise, but in good conscience I couldn’t do so. As I’ve said to my franchise audiences for 30 years, “Franchising is not for everyone.” It’s definitely not an answer for someone who’d rather have a job, even if he can’t find a job.

IBM will hire again!

As we left our meeting, I said to my prospect, “Keep looking for that better job. IBM will hire again! And don’t listen to the broker when he tells you that it’s impossible to find a job in your industry. He’s already proven that he doesn’t know much about franchising, or he’s just not willing to share the truth about franchising. No reason to believe he’d tell you the truth about your industry, if he even knows anything about it.”

We shook hands and went home. He satisfied not to be buying a franchise. Me satisfied that I had saved a subscriber from making a mistake and franchising from another catastrophe. Come to think of it, I may also have lost a subscriber — who would read my stuff unless they were interested in buying a franchise?

Photo image by: K-1000

If Franchising Is Your Backup Plan, Please Go With Your Other Plan! Get A Job!

I’m afraid the remnants of the recession and sustained unemployment will lead people down a path similar to the one this subscriber told me that he may take. Without revealing his name, he wrote:

“I am between careers. I was laid off in January from a 27 year engineering career. I’m trying to juggle two possibilities at one time . . .” (1) interviewing for jobs “when they do come up” and (2) looking at franchise opportunities.

Franchising as the backup plan

“I am continuing to research franchises as, frankly, a backup plan. . . I’d definitely like to get your opinion . . . .” He went on to say that he’d like my opinion once he “identifies that franchising is the right path” for him and when he’s ready to look at specific opportunities.

He concluded, “I’m currently working with a local office of (a franchise brokerage).”

My take on this

The saving grace is that the subscriber acknowledged that he has to determine that franchising is the right path for him. I trust he’ll do that before he invests in a franchise.

But if he doesn’t find a job in another 90 days, or more, it may be easy for him to make the decision to go with his “backup plan.” Suddenly, he’ll decide (perhaps with some outside pressure, i.e. a spouse, a broker, hungry children, friends, etc.) that franchising is for him. Forget that it was once a “backup plan” — it’s now the plan because, seemingly, there’s no other option.

It’s probably a mistake

And I think that will be a mistake.

If your “backup plan” is franchising, that’s probably not going to work. If it’s not your passion to own a business, it’s not going to work. It’s too difficult to own a business. There are so many decisions, challenges, transitions, pitfalls — if it’s not your passion to tackle these issues head on, don’t do it.

Bottom line: Franchising never makes a good “backup plan.”

Franchise misfits

Unfortunately, we’re likely to see a lot of misfits in franchising as a result of the current economic crisis. People have their backs to the wall financially. When their unemployment runs out and they’ve used up their savings — what are they to do?

Lots of folks who have a vested interest will tell them to “Buy a franchise!”

That spells disaster for them and for franchising. It won’t help franchising when these reluctant buyers, who never really wanted to own a franchise, fail and return to corporate America in a couple of years when jobs are again plentiful. The aftermath of failures and disappointments will further damage franchising’s reputation.

I could be wrong. Hope I’m wrong. But history tends to repeat itself!

Photo image by: cesarastudillo

Promises, Promises — And It Seems Only The Franchisee Is Forced Into Making Them

“They’re telling me that I’ve got to make all these promises to them. I have to operate the business according to their expectations, and in return they’re promising to do very little for me. How does that make sense?”

Isabel is back!

Yep, it’s Isabel again. On a rampage again, too. I love it when she’s angry because she pushes me right to the edge. Much better than dealing with a client who is afraid to challenge the franchisor; afraid to ask difficult questions.

All those promises

Isabel had just read Item 9 — Franchisee’s Obligations — in the Franchise Disclosure Document (FDD) given to her by a franchisor. “It’s several pages long!” she complained. “They not only tell me when I have to open and close the business, but what I have to wear, how I have to act, how much advertising money I have to spend, and the volume that they expect me to produce every year! Not only that, they put restrictions on the products and services that I can sell!” (The latter referring to Item 8 of the FDD).

Isabel didn’t think it was fair. Especially not after reading Item 11 — Franchisor’s Assistance. “That section is about a paragraph long,” she shouted. “They don’t promise to do much of anything for me, but they certainly plan to keep me busy and keep my hands tied, too.”

“Not funny,” she admonished

When I laughed at her last comment Isabel didn’t appreciate it. “It’s not funny, John. I’m so close to buying this franchise, but I don’t understand why they are making it so lopsided. Don’t they want me to become a franchisee?”

I apologized, but then I got right to the point to give Isabel her money’s worth.

Getting the straight scoop early

“Look,” I said, “would you rather they tell you what’s expected of you after you buy the franchise?”

“Of course not,” she said. “I want to know upfront what’s expected of me.”

“Well then, that’s what you got,” I continued. “They told you what you’re expected to do. And they expect these things of you — hopefully — because they know these requirements will help you build a successful business. I say ‘hopefully’ Isabel because not all franchises are created equal. Some of them don’t know what they’re doing. It’s your job to select one that does know what they’re doing. In which case, they won’t have you jumping through hoops just for something to do.”

Franchisor doesn’t promise much

“Well from what I can judge,” she shot back, “they don’t do much. This franchisor doesn’t make any promises other than to train me and provide support and a few other things. However, when I talked to them about Item 11 they told me they’ll actually do more than they promise. I don’t know if I believe them.”

“I don’t blame you,” I said. “However, look at it from their point of view. If they make promises that they can’t keep — even through no fault of their own — what’s likely to happen?”

“They’ll get sued,” she said.

Under promise, over deliver

“Exactly! . . . Remember, once you’re a franchisee it’s important to them to keep you happy. But until then, it’s better to promise a little and then deliver a lot. ”

“Yea, well that’s what they told me they’ll do. But when I told them I want it in writing, they said that’s not going to happen.”

“It won’t,” I continued. “They’re not going to change their FDD just for you. But Isabel, I think you’re making too much of this.”

“How so?” she wondered, now in her cordial voice.

Do your homework

“Well, it’s no different than what we’ve talked about in the past. You don’t take anything the franchisor says at face value. You owe it to yourself to validate it. And how do you do that?”

“Ask the franchisees!”

“Very good,” I said. “You’re a terrific student.”

“So when I interview franchisees I’m going to ask them if the franchisor does more than they promise in Item 11. And I’m going to ask them if they think Item 9 expects too much of franchisees.”

It’s a business transaction

“Great! Good questions. You’re right on track, Iz. This is a business transaction. The FDD isn’t intended to make you feel warm and fuzzy. It’s the cold facts from the franchisor’s point of view. It’s your job now to find out if their point of view satisfies your expectations and your idea of what owning and operating a franchise is all about. If it doesn’t make sense, you’re still in control. No one is going to force you to buy the franchise.”

“Thank you,” she said. “I’ll let you know what I discover.”

No doubt she will . . . and boisterously, too!

Read Previous Isabel Blogs

Is Franchising Indentured Servitude?

Figuring Out What You’ll Earn As A Franchisee Even When The Franchisor Doesn’t Tell You

Figuring Out What You’ll Earn As A Franchisee Even When The Franchisor Doesn’t Tell You — Part II

The Franchisor Spelled It All Out And Isabel Was Furious! She Screamed: “Do They Think Franchisees Are Robots?”

Why You Can’t Have It ‘Your Way’ When You Buy A Franchise. Get This: It’s Not A Democracy!

Join Me For A Coaching Session!

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Photo image by: Robert Snache – Spirithands.net

Young Couple Buys Franchise And Explains How They Utilized This Blog During The Process

New franchisees: Rob and Misti Reed

“What do you know about PuroClean?”

The question came from a concerned father who was looking out for his daughter and son-in-law.

First-time buyers

The young couple was planning to buy a franchise — and they had not owned one before. They had downloaded my report: 92+ Questions To Ask Before You Invest In A Franchise and had used it to build their own list of 92 questions! (Through the years, thousands of franchise prospects have obtained a copy of that report — always free! It’s still free to subscribers of this blog).

The young couple was now beginning the franchise discovery process and dad wanted to make sure they were getting good advice.

Tell them to do their homework!

I responded that I didn’t know the folks at PuroClean — I’ve not consulted with them or spoken at their franchise convention, for example (though I’d surely welcome the opportunity, especially now) — and I suggested that the young couple do their homework, compare PuroClean to other companies in the same industry, talk to franchisees (including former franchisees), dig into the financial opportunity, read and re-read the disclosure document, meet with responsible franchise advisors, attend Discovery Day, etc. — in other words, thoroughly research the opportunity before making a decision.

Several weeks went by and occasionally I’d get an update from dad, and then on July 20 I got word that the deal was done: Misti and Rob Reed had signed a franchise agreement with PuroClean.

Misti writing the check!

The thrill of a deal

For a blogger, it doesn’t get any better than knowing that someone visited your site, subscribed to your free blog, followed your suggestions, and found a deal they liked! I’m proud to have been a catalyst for this young couple, and I plan to follow their franchise journey, especially since I feel like I helped birth it.

Q&A: Misti Reed answers my questions

Rather than tell you the couple’s story in my words, I’ve decided to do a Q&A so that you can hear directly from Misti.

JPH: How did my blog help you? (May as well ask the selfish questions right away! And this may be a good place to remind my readers that I do not broker franchise deals; I do not sell franchises; I do not receive commissions or fees for selling franchises. My reward in this particular transaction is the opportunity to get this story and report it, boastfully!)

Misti: It was a great tool to reference during all phases of our research. This is our first time to purchase a business and it was helpful to be able to read the blog and review your webinars and articles. I look forward to the email updates and found the information was always easy to understand and very applicable to our needs.

JPH: After you downloaded my list of 92+ Questions, you then created your own list. How did that work?

Misti: Your list of questions was a perfect starting point to look through and decide which questions had already been covered and which I had forgotten. The (PuroClean) franchise representative was very impressed with how extensive our list was. Since this was our first time going through this process, it was comforting to know what was normal and acceptable to ask.

JPH: How did the franchisor respond when you presented 92 questions? It’s a lot of questions! I think some franchisors might get annoyed with the volume.

Misti: We did eventually get all 92 of our questions answered! Something I didn’t expect was that it was hard to cover a large amount of questions at once. We had weekly, one hour calls with our (franchise representative) and she had a set agenda for each week. She recognized that we would cover most of my questions throughout the process, therefore, rather than throw all of my questions at her at once, she asked that I revise my list each week after our call. . . . Some of the questions were covered very early in the process; a large number were covered when we received the disclosure document; and the remaining questions were covered during our validation calls and at Discovery Day.

JPH: How long did it take to do your homework and research the opportunity and then decide that you wanted to buy the franchise?

Misti: Our process took about six weeks. By the end of the first three to four weeks we had a very good grasp on the franchise opportunity and felt that most of our pressing questions had been answered. We started researching the franchise at the beginning of June, attended Meet The Team Day (Discovery Day) on July 20, and wrote the check that same day!

JPH: After looking at other franchises, why did you choose PuroClean?

Misti: Three reasons:

1. We wanted an industry that is as “recession proof” as possible.
2. PuroClean excels in its industry in the area of Customer Satisfaction, which was one of our “must haves.”
3. The margins! If properly run, this can be a very profitable industry.

They’re off to training

Misti and Rob will attend PuroClean’s 3-week basic training in August and then begin operating their business in Grayson County, Texas. Of course, along with their dad, I wish them all the best, and we’ll look forward to periodic updates.

Here’s what I appreciate most about the Reeds’ story: This is how it works! My job is to give you good information — information that you can trust and implement — and your job is to put it to work to your own advantage.

Congratulations to PuroClean’s new Texas franchisees!

Just Because The Franchise Marketing System Drives Customers To Your Door Doesn’t Mean You Should Buy That Franchise

If you own a business, you know there are “right” customers and “wrong” customers and while you may not (yet) know how to tell them apart before they become your customer, you know that the “wrong” customers deliver the least value and create the majority of problems in your business.

Who is a customer?

Customers (or clients), by the way, are not just the people who buy your products and services. They also include your employees, and if you’re a franchisor, they include your franchisees.

Be careful of expert advice!

So I read a passage on a blog that provided “some helpful hints on how you can spot a great franchise marketing system” and the first hint was this:

Customers are brought in the doors. This is what every business boils down to in the end, whether or not the marketing system brings in the customers. After all, that is where you make your profits.

Taking the express train to bankruptcy

And I thought to myself: Or that is where you lose your profits, your money and ultimately your business!

It’s not enough to drive customers through the doors of a franchise, or any business. You’ve got to drive the “right” customers through the doors! Most businesses, and most marketing systems, do not fulfill that objective. And that’s one reason why businesses struggle and fail.

So don’t buy the franchise because “the marketing system” drives customers to the door!

Happy franchisees make the most money

To wit: Some years ago the new CEO of a major retail franchisor asked me to help his franchisees attract more customers and ultimately generate higher revenues so that (a) the franchisees would earn (and keep) more money, and (b) the franchisees would pay higher royalties. Since the beginning of franchising, franchisors have known that franchisees who make and keep the most money are the happiest franchisees!

So I spent several weeks working with a few franchisees to find out more about their customers. Here’s what we discovered (and I mean discovered — neither the franchisor nor the franchisees knew this information beforehand):

• It cost the “average” franchisee $100 to get a new customer to come through the door (that included marketing costs and the required fee for the franchise advertising fund).
• The “average” customer spent about $10.
• No one knew if the customer would return — ever.
• If the customer did return — no one could predict when or how often.
• The “average” franchisee did little to nothing to bring the customer back again repeatedly (and you may be surprised to find out why).

Busy, busy, busy going out of business!

So while it appeared “the marketing system” was doing its job, e.g. the franchisees were busy serving customers throughout the day, in reality “the marketing system” was slowly running the franchisees out of business (and perhaps into an early grave)!

That and the fact that the franchisees were so busy, busy, busy taking care of all the customers “the marketing system” provided that they had no time to do the things that would have insured getting the maximum benefit out of their customers, i.e. increasing sales, increasing frequency, building rapport with key customers, gathering referrals, etc.

Who caused that fire?

As one franchisee told me, “From the time I open the door in the morning until I close it at the end of a long day, I don’t have time to do anything but put out fires.”

Going through my mind: Does that sound like an ideal franchisee? How long is that franchisee going to last? How much validating will that franchisee do for the company?

Upon examination, most of the “fires” were caused by customers and employees. Occasionally, even though they didn’t know it, the franchisee caused some of the fires!

Blame it on the franchisor, of course

You can be sure the franchisor was being blamed for the majority of the challenges the franchisees faced. Frankly, I would take the side of the franchisees on that issue (though it does no good to blame anyone, but rather to accept responsibility). The franchisor could have done a better job sooner! In other words, the CEO that hired me had only recently arrived at the company. To his credit, he quickly assessed “the marketing system” and knew that it was broken. However, this company had been operating for many years prior to hiring this CEO. Where were the marketing folks all those years? Where was the company’s leadership?

Why doesn’t this system work?

So what was wrong with “the marketing system” at this client company?

Simply, it was producing the “wrong” customers for the franchisees!

Even among customers there are stars

Through our continued research we further discovered that not all customers were created equal! Some spent more money than others and never, ever complained or started a “fire”! Of course, those were “the right” customers.

Problem was, “the marketing system” — which attracted franchisees, along with the company’s brand name — produced too few “right” customers.

Revealing more about “right” customers

Without giving away too much information (and revealing the company), here’s more of what we discovered about the “right” retail customers for this franchise business. They:

• spent about twice as much as the average customer
• returned 3 to 4 times a week
• owned a business, which existed within 3.5 miles of the franchise location
• were males (64%) and females (36%)
• had partners in their business (46%); most often, a spouse
• were between the ages of 32 and 62

Remember garbage in, garbage out?

Wow! With just that information alone we could create a new marketing system that would target the “right” customers! All others were probably “wrong” for the business. The all-important “marketing system” was targeting “all others”!

Ultimately, with the help of the company’s advertising agency, we created a new marketing system that achieved the goals established by the CEO and supported by the Franchise Advisory Council.

Careful of the advice you get

So I shiver when I see “advice” that tells you to buy a franchise where there’s a “marketing system” that “brings in the customers.”

That’s good advice only if the customers are “right” customers. If they’re “wrong” customers, you can plan on owning and operating a business filled with headaches, challenges, issues, “fires” and, ultimately, not enough money for you or the franchisor.

And why would you want to do that when there are so many good “marketing systems” out there?

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Photo image by: Sister72

“You Mean I’ve Got To Pay A Percentage Of My Sales To The Franchisor . . . Forever? . . . Why? And How Does That Make Sense?”

You guessed it. Isabel is back! (Scroll to the bottom of this article for links to previous Isabel articles and follow her journey as she hopes to buy a franchise).

And she’s got questions about the franchisor’s royalty fee.

Shouting about the royalty fee

Without doubt, it’s one of the financial (and sometimes psychological) stumbling blocks in a prospective franchisee’s due diligence.

“You mean to tell me the franchisor’s going to take seven cents of every dollar I collect from my customers? . . . They take the royalty out of my gross sales?” asked (actually, shouted) Isabel.

“That’s what I mean to tell you!” I shouted back. (Sometimes you fight fire with fire, even when you’re talking to a customer).

Royalty fees vary from company to company

Not all franchisors charge a 7% royalty, as you probably know. Some charge less; some charge more. And some charge a flat fee, i.e. $500 a month, or $800 per transaction. Most, however, charge a percentage royalty and it’s almost always against the franchisee’s gross sales, not the net sales. Whatever the case, the royalty fee will be clearly disclosed in the franchisor’s disclosure document.

“Well I think they ought to take their royalty out of my net sales because, after all, I might not make any money!” Isabel continued shouting.

Let’s speak rationally about royalties

“I understand,” I told her, now speaking calmly, trying to settle her down. “But it doesn’t work that way, Izz. By the time you back out all your expenses, including possibly even paying for your car, and your husband’s car . . . ”

“I don’t have a husband,” she snapped. . . .

“Sorry,” I continued. “I should not have assumed . . . .”

“He’s my boyfriend,” she added.

Getting down to the net money

“Okay, then by the time you back out the expense of paying for your boyfriend’s car, which I realize you wouldn’t do, but let me make a point here,” I hurriedly said. “There are lots of ‘lifestyle’ expenses that a franchisee might pay for out of their business revenue, and that’s not fair to the franchisor. Because by the time you get finished paying for expenses, your net revenue could be negative! Then the franchisor collects zero.”

“I wouldn’t expect them to get zero,” she said, calmly. “But isn’t seven percent of the gross a lot of money? . . . And” — getting excited again — “they’re going to collect it every month? For as long as I’m a franchisee?” Yep, back to shouting at me again.

What’s a lot of money?

“Maybe . . . yes . . . yes,” I said. “In other words, it may be ‘a lot of money’ but I can’t tell you that without knowing more of the details. How much gross revenue will you generate? . . . And yes, they’re going to collect the money monthly (unless the agreement specifies otherwise, i.e. weekly), and yes, they’ll expect to collect a royalty for as long as you’re a franchisee.”

How do they spend those royalty dollars?

Seven percent — any percentage as far as that goes — may be “a lot of money,” but franchisors have a right to collect it. They need to collect it, in fact! Because how else do they meet their financial requirements?

Franchisors have substantial expenses to cover every month. Landlords want to get their rent, employees want to get their paychecks, vendors expect to collect their money, the attorneys need to be paid, the franchise sales team wants its commissions, there’s airfare to pay, support costs to be covered, etc. etc. etc. You get the point.

Royalties pay for all that and more!

Cut to the chase with franchisors

I decided to cut to the chase with Isabel. “Don’t get too uptight about royalties until you gather more information,” I continued. “Have you asked the franchisor to tell you what they do with your royalty money?”

“No,” she said, sounding surprised that she could ask that question.

“Why not?”

“Will they tell me?” she asked.

Move on if they won’t answer your questions

“If they won’t, I’d suggest you look for another franchise to buy. Good franchisors will tell you. Take a look at their audited financial statement — it’s part of the disclosure document. Right there you can figure out how they’re spending those royalty dollars. You have a right to know this, and the franchisor doesn’t keep it a secret. Ask them to break it down for you. What do they do with your royalty money?”

“I hadn’t thought of that,” she said. “I’ll do it. I think it’s a lot of money, seven percent of every dollar I bring into the business.”

“No doubt it will be a lot of money,” I said, “but what do you think it costs to operate a franchise company? I already knew her answer so I quickly added, “It’s time you find out.”

“Okay, I will,” she said.

Royalties get reinvested in franchisees

I was on a roll: “Keep in mind that some of that royalty money should be spent on you! It’s reinvested in you.”

“How so?”

“Do you expect the franchisor to provide you with support?”

“Of course!” She was snapping at me again. (Granted, I deserved it for sounding dimwitted).

A franchisor’s support doesn’t come without expense

“Do you think they should provide that support free of charge? I know you don’t, Izz. But again, I’m making my point. If the franchisor employs someone who is responsible for taking care of Isabel, that’s important to know. And if that person is good, I bet Isabel wants that person to be well paid so he or she stays on board and continues to provide that valuable support. Right?”

“I get the picture,” she said.

Can the franchisor afford to sustain the business?

“I knew you would,” I continued. “You’re on the right track. Ask more questions about how the franchisor spends your royalty dollars. Make sure the franchisor is re-investing some of that money in you by providing support, training programs, creating new marketing materials, developing new product lines, creating new opportunities for you to sell more, etc. etc. etc.”

“I got it!”

“Go get ‘em, Isabel! . . . And don’t get overly excited. Royalties are part of the franchise model. If you can’t afford to pay them, then don’t buy that franchise. Better to find out now rather than after you buy the franchise! Franchisors aren’t stupid. They realize their model has to work for you as well as for them. It’s your job to ask all the questions now, to get at the nitty gritty of how the model works. Stay focused and you’ll get the answers you need. I’m sure of it!”

Royalties pay profits to franchisors

Oh, by the way, I didn’t have the chance to say this to Isabel — actually, I just didn’t want to brave it in this particular conversation. Royalties also include the franchisor’s profits!

Yes, franchisors are in business to make a profit. A good profit! (Again, look at the audited financial statement and find out how much profit). They make their profit off the franchisees’ royalty dollars. And we’ll talk about that topic another time!

More Isabel Blogs

Is Franchising Indentured Servitude?

Figuring OUt What You’ll Earn As A Franchisee Even When The Franchisor Doesn’t Tell You

Figuring Out What You’ll Earn As A Franchisee Even When The Franchisor Doesn’t Tell You — Part II

The Franchisor Spelled It All Out And Isabel Was Furious! She Screamed: “Do They Think Franchisees Are Robots?”

Why You Can’t Have It ‘Your Way’ When You Buy A Franchise. Get This: It’s Not A Democracy!

Photo image by: net_efekt

“You Can’t Fix A Loser” . . . Look Out: They’re In Every Franchise Network And They Seek More Miserable Company!

When I read the words this morning during a coffee break, I laughed. “You can’t fix a loser!” said Dan Kennedy, one of my long-time marketing mentors. He doesn’t mince words, which is one of those love/hate things about him. Kennedy makes it clear that he’s not interested in making friends, so you don’t read him with any expectations of having a drink or dinner with him. You read him purely because you want to get better at what you do! Losers aren’t interested in getting better.

Franchisees who get it avoid the losers

I laughed when I read the words because it’s something I would say, though I haven’t said it quite like that. And it reminded me of several passages in a book that I wrote not long ago: Get It! It’s about franchisees that have cultivated a millionaire mindset. They are successful because they practice a dozen distinct habits, including avoiding the “losers” in franchising.

“Losers” exist in every franchise network

Many of the franchisees I interviewed for Get it! told me of the importance of protecting themselves from — though they didn’t necessarily use the word — the “losers” in their franchise network. It doesn’t matter which franchise network, by the way. I’ve been interviewing franchisees and franchisors for 30 years and “losers” — define the word however you want — are in every network.

When I asked Steve Masry, a West Palm Beach, FL franchisee since 2002, what separated successful franchisees from non-successful franchisees, he didn’t hesitate: “Three things and only three things,” he said. “First is the least important: how much money they can get access to. Second: how they deal with problems — problems will occur daily. And third — this is most important — how they think.” Losing in business is a byproduct of negative thinking.

No naysayers allowed: only visionaries

Steve pointed out that his perspective had been developed through a period of pain. “(Other franchisees) think I’m crazy,” he said, because he distances himself from the losers, “but I know who I am and I have eradicated the naysayers from my life. You can’t be around me if you don’t share the vision, the passion and the joy.”

Steve continued, “What’s different about the unsuccessful franchisees is that when they face a problem, they think about everything that can go wrong. I think about solutions. I don’t think about problems until they exist. I don’t bury my head, I face the problem, and my first thought is usually negative, so I remove it and search for solutions. I know the solution exists and I’ll find it.”

Look out for contrary thoughts

He explained that “each of us” is the sum of our thoughts. “If you think bad thoughts — Oh no, there’s a problem, I’m going to run out of money and lose my business — then you won’t succeed. I remind myself every morning that I went from almost going out of business and filing a bankruptcy to (achieving success in my business). When a contrary thought presents itself, I remove it and replace it with the truth. That’s what you do when you’re unwilling to accept anything but success.”

In a similarly pro-active manner, Patti Robertson in Norfolk, VA — she and her husband are mutli-concept franchisees — told me, “The (franchisees) who are successful are the ones who take action, not the ones who are always complaining or worrying about things. We always take action . . . .” Losers, on the other hand, rarely do. They whine, they complain, they moan, but they do not take action for fear of changing their circumstances for the better.

He could tell the losers just by their voice

Mitch Cohen, a veteran business owner in Queens, NY, used to spend hours talking to franchisees in his network. “From the moment I picked up the phone and heard their voice I knew whether or not I wanted to talk to them,” he explained.

“When they started with, ‘How’s the market treating you?’ I knew it wasn’t going to be a discussion I wanted to have. I realize that misery loves company, but I don’t want that kind of company and I don’t want the misery. Why would you even ask, ‘How’s the market treating you?’ There’s just no sense having that conversation and it’s unfortuante there are franchisees who think like that.”

Losers lack clarity of thought and purpose

Franchisees may think like that because they suffer from a lack of clarity, explained Bob DeClue, a franchise entrepreneur in St. Louis, MO. “That’s the difference between successful and unsuccessful franchisees. Without clarify, the unsuccessful people can’t succeed. They don’t know not to quit. They don’t know it because, how could they? They quit! They have no clariity. They don’t udnerstand that the way to success is to never quit. If you don’t quit, you can’t fail. It’s just a different way of thinking.” Losers, on the other hand, like their way of thinking!

In Springfield, MO, J. Barry Watts is a positive-focused franchisee who said the Bible gives him no choice. “As a man thinks in his heart, so he becomes. I believe that,” Barry said.

“While I’m not as successful or wealthy as I’d like . . . the big question really is whether or not I’ve done the most with me? If I have, then ‘well done, good and faithful servant’.”

Losers can’t help you

Whether you’re searching for a franchise to buy, or you’re trying to figure out how to improve the franchise you own, this I know: Losers can’t help you!

In fact, losers don’t want to help you. They want to bring you down. They’ll tell you that franchising in general doesn’t work, or that the franchise they bought doesn’t work. They’ll tell you the franchisor is out to get them, that the concept worked in a different market but not their market — their market is always different — and this is wrong and that is wrong . . . .

Unfortunately, as I learned while I was first a franchisee then the CEO of HomeVestors, some franchisees do not want to Get It! They like complaining too much to win!

Avoid the losers in franchising . . . they will seek your company and it will be miserable. And whatever you do, don’t even think that you can fix them!

Photo image by: choking sun