Latest / The SmallBizChat with Melinda Emerson / How to Franchise Your Business with Alicia Miller

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How to Franchise Your Business with Alicia Miller · The SmallBizChat with Melinda Emerson

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  3, 2, 1, 0, ignition.
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  Lift off.
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  Ending small business failure.
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  Welcome to the small biz chat podcast with the number 1 small business expert, Melinda
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  Emerson.
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  Melinda's goal is to end small business failure, and she'll give you the information
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  you need succeed and live the life you dream of.
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  Now here's your host, the small Biz chat lady herself, Melinda Emerson.
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  Have you subscribed to the small bizchett podcast?
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  Well, it's time every Wednesday we offer listeners bite sized actionable tips to start
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  and grow a successful small business.
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  And just 20 minutes or so a week you can get a ton of insight and resources to propel your
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  business forward.
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  Be sure to subscribe to the small beachhead podcast today.
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  Now it's time for me to introduce my guest, Alicia Miller.
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  And she is the author of this brand new book called Big Money in Franchise.
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  And I can't wait to talk to her She is, the director of the emergent, excuse me, the
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  Managing Director of the emergent Growth adviser.
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  She helps new franchise brands launch strong from from the start.
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  She also works with mid stage brands seeking.
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  Private capital so that they can accelerate their enterprise growth.
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  And you have to check out her new book anywhere books are sold Alicia, welcome to the Small
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  Bishop Park app.
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  Thanks.
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  Nice to be here.
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  Alright.
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  So let's jump in.
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  Tell me how the world did you learn so much about franchising?
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  Well, I started as a multi unit franchisee myself.
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  I left corporate America and wanted to run my own business.
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  And I think I think that's a lot of people come into franchising that way as they start as a
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  franchisee when I I grew that business and sold it and, transitioned into more consulting work.
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  And that's when I started work with founders who had started their brand and were looking to
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  grow.
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  And sometimes they were looking for capital partners as well.
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  Alright.
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  Alright.
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  I actually know your stories.
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  I'm a back you up.
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  I want you to tell us what you bought and what you did and what time frame under which you did
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  it because I it really knocked my socks off when I first heard the story about you.
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  So I came into a tutoring franchise called Sylvan Learning.
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  And this was a business that was in distress.
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  These were, 11 units that were owned by an owner that had overextended himself.
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  Basically.
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  And I took those over and turned them around, worked with the team to build it back up.
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  And then in about 5 years, sold it off.
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  So I You know, I I love the tutoring business.
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  I love child services.
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  I loved working with families.
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  But I was in it to turned the business around.
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  I saw that, you know, it just needed some some TLC and some extra capital to get it back on
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  its feet, and and that's what I did.
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  It's a It's a great brand and that brand actually was just recently sold, to a private
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  equity backed, platform.
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  So, it continues to grow and do well.
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  Alright.
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  So most people do not start out in franchising by buying 11 units.
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  I'm I'm thinking I'm thinking that's, like, rare for people That's true.
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  I I want to give you your flowers in person.
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  Okay.
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  So I'm like, listen.
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  If you want 11 franchises, And then you grew them exponentially to the point where you were
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  able to sell them in 5 years for, mega profit.
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  Listen.
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  You are the consultant that I want.
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  Okay.
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  Well, that's that's all I'm saying.
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  Alright.
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  So let's let's jump in here.
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  What factors should entrepreneurs consider when they're trying to determine whether or not
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  their business would be good as a franchise?
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  Sure.
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  Well, 1 signal is, has anybody asked you, is this a franchise?
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  If your own customers like what you're doing enough that they say, they can see themselves
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  actually running this business.
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  That's a good signal to listen to.
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  If nobody's ever asked you that, I would, you know, I would question whether or not you've
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  really created something that's getting customers excited.
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  Right?
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  You've gotta have sustainable customer demand.
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  It's gotta be profitable at the unit level.
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  You've gotta be, you know, growing, and it's gotta be unique enough in the marketplace that
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  you're building a brand for yourself.
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  I mean, look, There's lots of burger concepts.
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  There's lots of ice cream concepts and cookie concepts and so on.
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  There's gotta be something unique about your brand that keeps customer coming back to you.
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  We talked about that earlier, the brand building piece.
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  So that's where you've got to start.
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  But then also things to think about once you become a franchisor, You are now running a
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  franchise business.
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  You are now running your restaurant.
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  You're not running your cleaning, you know, business or whatever it is it was.
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  You're now in the business of franchising and your entire role has transitioned to supporting
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  your franchisees.
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  You've gotta be sure you actually really wanna do because that's a very different job than
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  running a bunch of restaurants, for example.
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  So so think about that.
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  And then make sure you've really proven that the model work in different locations and that
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  you've got training and support documented so that you can teach other people that's really
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  what you become trained the trainer.
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  Right?
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  You're gonna teach other people to run this thing.
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  And if you're in the business every day and it's only succeeding because you're way down in
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  the weeds, in the business, and that's probably not gonna be so easily teachable.
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  So you gotta start there.
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  So what are the typical Like, if I want to start going through this process, like, when,
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  you know, what is the initial feasibility study?
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  You know, like, like, how do I kinda Okay.
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  I wanna do this.
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  What do I do first?
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  Well, the first thing is you need to start working with advisor who do nothing but advise
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  emerging brands on how to do this.
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  You're winging it on your own is not gonna be a a good strategy.
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  There are attorneys and consultants and salespeople who do nothing but work with
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  emerging brands.
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  So that's a good place to start.
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  And there's lots of, ways to find those people.
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  We could talk about that a bit later.
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  So after you think about, you know, is your model something that can be franchise the
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  process is fairly straightforward.
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  You need to document a big attorney, don't just hire your uncle who does real estate.
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  You know, you need to find someone who does franchising, as they're living to help you get
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  set up correctly, you need to put together your business plan of how you're gonna grow this
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  thing.
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  Keep in mind, there's 4000 active franchise brands, it's gonna take you a while to grow to
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  the point where you hit what's called, royalty self sufficiency.
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  So that means the royalties you're collecting from franchisees cover your corporate expenses.
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  Okay?
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  So for most franchises, that's about 50 units.
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  So you're gonna be selling franchises for a while before you hit the point where you can
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  pay that for all that corporate support.
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  So you've gotta be well capitalized.
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  You're gonna make sure that you've got enough money to keep this thing going while you're
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  building the business.
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  And then, you know, once you have come up with your business plan, you've also gotta come up
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  with a sales and marketing plan.
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  How are you going to reach prospective franchisees?
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  What are you gonna tell them about the business and why they could be successful in it?
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  All of these things are are steps in the process you need to go through before you ever
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  start selling a single franchise license.
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  Alright.
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  Well, let me ask you this.
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  So where do I go find these consultants and lawyers that I need?
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  Sure.
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  First place to start is you need to Get involved with the International Franchise
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  Association.
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  So franchise.org is the trade association for franchising.
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  It's based in Washington, DC.
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  There are lots and lots of resources there, including a supplier list.
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  So you can search by consultants and attorneys.
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  You should go to expos and IFA events to start learning from people who have been in the
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  business for a while.
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  Franchising is a really big community and family, and people are very good about sharing
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  what's worked and what hasn't.
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  So don't try to learn this on your own.
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  Go learn from other people who've been through it.
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  And of and get that shortcut avoid making mistakes.
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  And then franchise times is sort of the big publication that covers franchising every
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  April, they've got an issue called legal Eagles that does nothing but talk about, attorneys
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  that understand franchising.
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  And they're you can go online and you can see which attorneys work on the franchise or side,
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  which work on the franchisee side, and you can see what their specialties are, such as working
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  with emerging franchise brands.
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  Those are good places to start.
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  Alright.
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  So I have to ask you this.
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  How expensive is this whole product number?
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  I just heard you say gotta sell 50 of these things before my resources will pay to before
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  my profits will pay for all the back end support I'm gonna have to have to support these
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  new franchisees.
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  But how much money do I need to have upfront to invest in this concept to, you know, just to
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  even hire the initial ultants that you're talking about.
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  Sure.
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  So it's probably gonna cost you around a 100 to a $150, 000 just to get the basic documentation
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  in place.
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  So that's the franchise disclosure document that your attorney will help you draft.
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  And your basic operating manual and training manual, you're gonna need to hire help to get
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  those done, as well as potentially hiring some support.
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  So you're not course, doing everything yourself.
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  Now the way so there's 2 things to consider.
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  First is you've gotta have enough capital also for your self so you can pay your own rent and
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  your mortgage and your car and whatever you're doing personally.
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  You've gotta have that money set aside.
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  You can raise money from family and friends, for example, or go potentially get an SBA loan
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  to get this thing launched, but it you will be much better off if you make sure you've got at
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  least a few corporate units running.
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  Right?
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  So you've got this concept.
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  Let's say it's a restaurant or let's say it's a cleaning business.
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  Don't rush to start selling franchises based on 1 unit.
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  Okay.
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  You'll be much better off, and it'll be a much healthier start if you have a few corporate
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  units because you're gonna need the cash flow Plus, it helps validate the model to make sure,
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  you know, when other when new franchisees are coming into the system, they can look and say,
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  okay.
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  Well, here's what the corporate units are doing.
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  You only got 1 unit that's not as credible as if you had 5.
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  So, that's where I would recommend starting is before you launch your franchise business, add
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  another corporate unit, maybe add 2 more corporate units.
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  Then you'll have some cash flow.
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  You buy yourself some time.
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  You can forward more staff.
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  Because you're already gonna have bench strength built from the team that you've got
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  helping you run the corporate units.
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  So you can borrow from those resources to help you get the rest of the business launched.
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  Alright.
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  Last question before we go to break.
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  What are some of the common challenges in pitfalls that people face when they're getting
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  started as a as a franchise.
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  Sure.
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  Usually, they move too fast.
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  They're undercapitalized, and they pick the wrong franchisees to begin with.
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  And that's if the model works.
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  If the model doesn't work, then another common problem is they haven't really tweaked the
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  model enough to make it a successful model.
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  It's self that other people can then adopt and be successful.
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  But those first 5 or 10 franchisees will make or break your franchise.
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  If you just let anybody in who's willing to sign the franchise license, you don't really
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  know what kind of operator they're going to be.
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  You need to really think about who can be successful in this type of business.
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  Are we looking for somebody who's a salesperson?
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  Are they an operations person?
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  Either way, they need to be wired to sort of follow your system.
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  But, you know, if if being successful in that franchise requires you to be really great at
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  sales and building a great sales team, customer facing team.
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  And you're an operations person that hate sales, Okay.
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  That's not the franchisee you want to recruit.
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  So you've gotta be really careful about who those 1st franchisees are because their success
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  is what builds the rest of the system.
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  I appreciate that advice more than you know.
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  You're watching the small bench chat podcast, and we will be with more right back.
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  Hi.
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  I'm Melinda Emerson, the small bus lady, and I wanna welcome you to smallbizladyacademy.com.
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  Your go to resource for women entrepreneur.
• 12:52
  Whether you're just starting out or ready to grow, we've got thing you need to succeed from
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  expert interviews to live coaching sessions.
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  Our platform offers practical tools strategy to help you build a profitable small business.
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  Join our vibrant community of like minded on nurse today, and take your business to new
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  heights.
• 13:14
  Visit smallbizladyacademy.com
• 13:17
  and
• 13:17
  start your journey.
• 13:20
  Welcome back to the Small Bishop podcast.
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  We're talking franchising with Alicia Miller, the author of the new book big money in
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  franchise inc.
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  Alright, Alicia.
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  I gotta ask you, how do you figure out what your initial franchise fee should be?
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  That's actually fairly straightforward.
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  You you can have access to all sorts of other franchise disclosure documents.
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  The state of Wisconsin Go to their franchise website.
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  It's easy to find on Google.
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  You can download any FCD that's up there, and you can see what other people are charging for
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  their fees.
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  So pull, you know, competitors in your space, see how they charge, how they structure their
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  fees.
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  But it's pretty straightforward.
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  Most charge a 5 to 6 percent royalty.
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  Some do a flat fee, but usually a percentage of revenue is what's charged.
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  The average franchise fee up front is a $30, 000 to $60, 000 for an average territory, and
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  the average national marketing fee is about 1 to 3 percent.
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  So you can start there as your baseline, but as you start to plan your business, you need to
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  look at what other your competitors are charging in that sector.
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  And how they how they arrange territories.
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  Right?
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  What they chart?
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  Is it by population?
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  Is it by something else so that you can know kind of what perspective franchisees might be
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  thinking about in other, adjacent opportunities.
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  Alright.
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  And now once I get my community, let's say my first 5 to 10 franchisees.
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  How do you foster a sense of community within your franchise network?
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  Yeah.
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  It's really important.
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  Those those relationships, franchise things all about relationships.
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  So this needs to be front and center for your management team all the time.
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  It starts really at the top.
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  Is this are you building a collaborative community?
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  Do you have a management team that involves franchisees in big decisions?
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  Do you factor them into your thought process at all.
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  You're setting the stage for what the the collaboration looks like.
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  You can't ask them to be collaborative if you're not even collaborating with them.
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  So start there.
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  Recruiting right in the first place is really helpful.
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  Right?
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  So you wanna bring in franchisees who are Collaborative by nature who like being part of
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  a team, wanna be part of a family, who openly share best practices, And then give them the
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  tools so they can share.
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  You know, everyone's busy in working on their business, give them online resources, give
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  them, you know, workspaces where they can go online host, you know, monthly or weekly deep
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  dives in particular parts of the business, you know, do marketing 1 week and operations next
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  week.
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  Put together a franchise advisory council so that you have a mechanism to get that
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  franchisee feedback on a regular basis.
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  And then get them together in person at least once a year.
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  It helps if you do regional meetings or small meetings as well as kind of a larger meeting
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  at, you know, those relationships that you develop at conference can can bridge the gap
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  and can really help people solve some of their own problems.
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  They'll openly share solutions without always coming back to the franchisor, for a solution.
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  And and as you know, in franchising, some of the best ideas come from the field.
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  So having, you know, your ear to the ground and always being talking to your franchisees,
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  you'll get some great information from them.
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  Well, I think you true.
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  You can always get good ideas from the front line if you take the time to ask them.
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  So I agree with that advice wholeheartedly.
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  Last question for you, what is the best business advice?
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  What is the best business advice that you have ever been given?
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  That's easy.
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  Just never stop learning.
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  This whole book that I wrote on private equity, I didn't start off in franchising thinking I
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  would be looking at private equity for goodness' sake, but private equity has taken
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  over franchising has affected competition and has really accelerated a lot of even emerging
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  brands.
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  I didn't know anything about it, but I studied it deeply and, you know, worked out what was
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  going on in the market.
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  And but I did that through networking and really studying the market.
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  You it's never too late to learn a new thing.
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  People come into franchise often mid career.
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  And they've invested themselves very deeply in a corporate sort of a role or a very different
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  role.
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  And coming into a new thing like franchisings intimidating, don't be intimidated.
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  There's there are tools to get yourself up to speed.
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  There's an entire community of franchise people to help you learn what franchising is and what
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  good franchising is.
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  And then within the brand that you choose, you've got the community within that brand as
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  well.
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  So you will if you invest in always learning, you'll get up to speed and you can take
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  yourself in a whole new direction.
• 17:58
  I love it.
• 17:59
  Thank you so much for being here.
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  Thanks for listening to the Small Biz chat podcast with Melinda Emerson.
• 18:11
  Subscribe to this podcast wherever you listen to podcasts and join us next Wednesday for more
• 18:16
  fantastic information and interviews.
• 18:19
  You can find more sources and small business success strategies by visiting Melinda's
• 18:24
  website succeed as your own boss.com.
• 18:27
  Thanks again for listening, and we'll see you next week.