Latest / The SmallBizChat with Melinda Emerson / How to Choose A Winning Franchise with Joel Libava

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How to Choose A Winning Franchise with Joel Libava · The SmallBizChat with Melinda Emerson

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  If you've done the due diligence and one part of due diligence is spending a day with the
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  franchisee, if you're gonna buy or redesign and not spend the day with a franchisee of that
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  franchise concept.
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  How would you ever know what your role is gonna be?
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  You need to spend a day.
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  You know, do a little of the work.
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  Do some observing.
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  It it makes sense, but a lot of people don't do that.
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  3210 technician, liftoff,
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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 Burt, Melinda 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 to succeed in 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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  Hi, everyone.
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  I'm Melinda Emerson, the small biz lady.
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  America's number one small business expert, and I'm excited to welcome you to another edition
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  of the small biz chat podcast.
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  We have an amazing show in store for you today.
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  And if you are interested in a franchise, The thing is you gotta figure out the the right
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  franchise, a winning franchise for you.
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  And so we're gonna talk all about that.
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  Now here on the small bitch step podcast, our mission is to end small business failure.
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  We are a peer to peer mentoring show And we bring in expert from different angles to give
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  you advice.
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  And the goal is always to help you take your business to the next level.
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  Now the small biz chat podcast can be seen on my small biz lady Facebook page and it can also
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  be seen on my small business lady YouTube channel.
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  So if you're watching us, please leave a comment please subscribe to my channel and, of
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  course, share it with others so that other people can get the benefit of all of this
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  parties that right now, you do not have to pay for it.
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  So with that, I am so excited to introduce today's guest.
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  His name is Joel Lavava.
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  He is the franchise king, and he is a franchise veteran with 20 plus years of experience.
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  He's the author of 2 books on how to buy and research franchises.
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  In addition, he is a franchise owner advisor working one on one with people who want to
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  explore franchise ownership in the safest way possible.
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  He also owns and operates the longest running blog in franchising, the franchise king.com.
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  Joe, welcome to the small business chat podcast.
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  Thank you, Belinda.
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  Great to see you.
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  It's been a few years.
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  It's been more than a few, but we're not gonna tell anybody.
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  Right?
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  Yeah.
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  So I know your story, but everyone else does No.
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  Tell me, how did you become the franchise king?
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  Thank you for asking.
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  Sometimes when I'm quoted in publications, I'm referred to as the, the so called franchise
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  game or the self title.
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  I didn't come up with a name.
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  After I was in business for a while and I became independent and I was not a broker
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  anymore.
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  I was helping people and I ran into the head of, one of the largest chambers of Commerce in
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  in Ohio.
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  And I was in an event and I walk in and from across the room, I hear, here comes the
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  franchise king.
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  Looking around, right?
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  And he was talking to me.
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  So I went to the thing and it kinda stuck in my head and I talked to a buddy of mine, Jim
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  Cooper, who's, who's kind of a branding guy in self in, in Cleveland.
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  And he said, dude, you've got to trademark that name.
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  That is awesome.
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  You need to get a crown I mean, you go all out.
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  So I called my attorney a couple days later.
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  I trademarked the franchise king bought the franchise king dot dotcom domain.
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  And, the rest is, is history.
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  So that that's how the name came came about.
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  And, you know, it was at a time when becoming a personal brand was really starting to get
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  important.
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  I've had the the website for like 15 years, the the domain, the name for like 17 years, it's
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  really, really important, nowadays to help differentiate, ourselves as small business
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  owners, as entrepreneurs,
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  Oh, I know a little something about that too as the small business lady in America's never went
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  small business expert.
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  And I and I get asked the same thing.
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  And I'm like, Google it if you wanna know how long I've been called that.
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  Anyway, so so let's talk about franchising.
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  I mean, how many franchise concepts are available nowadays in the marketplace?
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  There are, as of now, well over 4000 with, a 100 plus new ones coming on board every year.
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  There's a lot of choices.
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  Wow.
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  So what is the average buy in cost.
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  I mean, is that even a fair question to ask?
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  Sure.
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  I always tell people about a 175,000 or so initial initial cost.
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  That's about right.
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  I mean, you know, like a hotel franchise is is 7,000,000 dollars, $10,000,000, $15,000,000 and
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  maybe a service franchise or consulting franchise is a $100,000 or less.
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  So it's a it's a good range.
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  $175, $200,000 is fair.
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  So I know that you talk a lot about it being important to find the winning franchise.
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  And and what do you mean by that?
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  I define winning not only as a business you can make a really nice living at, but winning when
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  it comes to getting support from the franchisor.
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  That's what you're paying for.
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  That's part of what you're paying for every month in a royalty agreement.
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  That it's an ethical franchise that the the CEO and the executive team, they get it.
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  They they really try to do the right thing all the time with with their brand and their
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  reputation.
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  And that other franchisees are are similar to you.
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  You know, it's it's really important to kind of be in the right culture.
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  So that's what I call winning franchise.
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  And and it needs to be a win win for both.
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  For the franchise or who came up with a concept who's the true entrepreneur, and the
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  franchisee, the person who has purchased the the concept and is using this the the business
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  system to his or her advantage to leverage it to make money.
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  Now I have often heard people say that if you wanted to buy a food franchise, which is is
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  that you have to be have the capacity to buy 3.
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  Like, they won't even sell 1 anymore that you have to have the capacity to buy 3.
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  Is that the case?
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  And if so, what does that look like in terms of your liquidity?
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  Like, do you have to have, you know, be be 2,000,000 liquid?
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  Like, how how do you even approach something like that if you wanted to buy a you know,
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  Qdoba Grill or something, you know, one of these big popular food franchises.
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  Right.
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  I'm I'm working with a a franchisor right now.
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  I'm just doing some some, content marketing, some writing for them.
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  It's called Twin Peaks and it's a, like, a lodge.
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  It's like a sports bar kind of lodge.
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  And, you know, it's it's quite expensive.
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  It's it's a big building and they do encourage you to buy more than 1.
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  They want multi unit owners, but not all at once.
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  So so if you're gonna look at a, in a, in a full service restaurant, that that cost, you
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  know, in in that $750,000,000 range.
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  First of all, you need to have over $1,000,000 net worth.
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  Liquidity, a couple $100,000, I would say minimum, but that's, you know, that's a big,
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  big concept.
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  That's a big franchise.
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  But for like like a commercial cleaning or or let's say a residential cleaning franchise.
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  You know, the the entire additional investment 140 or $150,000.
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  So if you have a net worth of 6, $700,000 and you can come up with 50 or 75,000 of your own,
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  before going, you know, getting a small business loan, you should be fine.
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  So that so that is how people are doing it.
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  So they are being able to qualify for SBA financing for an SBA Oh, yeah.
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  Oh, yeah.
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  Yeah.
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  Good credit, decent net worth, collateral.
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  Yes.
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  So now what are some of the downsides to franchising?
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  Cause everything's not roses.
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  I know of a lot of people who have bought franchises, and I saw them 2 years later, and
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  they were trying to sell their franchise.
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  I know people personally, this is having to.
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  So So talk to me about the downside of it.
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  Oh, I found out the downside of it when I was a franchise broker consultant.
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  My late father helped me get into the business.
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  He he he saw something in me that he thought I would make a really good franchise broker.
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  So, I would match people to franchise as and get paid a huge commission for doing so.
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  The problem was some of the people I was helping, actually more than some of them were
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  going out of business.
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  In like a year, year and a half.
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  And and the guilt set in, and that's why I left brokers.
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  That's why I don't do that anymore.
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  I I I actually, I I get paid for my expertise up front as opposed to getting something in the
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  back.
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  So I'm, I'm as straightforward and and, as as as vanilla as possible, put it like that.
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  I don't care what franchise you buy.
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  As long as you do it in a safe manner, and and that's what I teach.
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  The the the one big kind of franchising is for someone who who never really was comfortable
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  following rules and all of a sudden is in the system following rules in a 380 page operations
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  manual.
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  It's not a good fit.
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  I have a free quiz on my website people can take.
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  And I graded personally myself.
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  I've done almost 7000 of them over the last 15 years and I graded myself.
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  And it's a great to see if you would be a match or a franchise?
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  Are you gonna follow the rules?
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  Are you gonna do this?
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  You know, are you willing to do it?
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  And and this isn't something that you wanna just try You know, I yeah.
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  I'll sure.
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  I'll follow the rules.
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  No.
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  You must commit to it before you write a check for 50 or a $100,000.
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  You don't want any surprises.
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  So that day when I say it would be the biggest downside is there were a lot of rules and it's
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  not for everybody because of that.
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  One of the biggest things that I've
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  seen is people go
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  from having, a knowledge job in corporate America.
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  Let's say they're HR executive or let's say they're a salesperson.
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  And then they start running a business that's a 7 day a week retail franchise.
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  I I have seen a a a friend of mine went for being an HR executive and bought a, a Rita's
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  water ice or something like that.
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  And and and then, like, didn't have any kids and didn't like kids and teenagers were her
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  employees.
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  You know what I mean?
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  Like, and and and and I and I remember I saw her 2 years later and she was like, oh my god.
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  I'm back in corporate America, and I'm so grateful to be back.
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  I hate it.
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  My business, I hate these kids.
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  I don't know.
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  You know, and I was just kinda like, why in the world would you quit a $200,000 job to go do
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  that and you didn't research it enough to know what it was like to be the person that had to
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  put the key in the door and lock and unlock.
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  And I see a lot of that.
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  Like, I see because corporate folks tend to have the net worth, I think they, like, people
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  go after that group of people, but I don't know that that group of people is ready, you know,
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  to lift a £50 bag of sugar at the back door because that's where they dropped it off at.
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  You know what I'm saying?
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  And I've seen this go sideways for people.
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  Quite a bit.
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  But so so I guess my my question of that is, what do you have to know about yourself before
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  before signing up for this for this process because it I heard that the scariest contract
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  you'll ever sign in your life is a franchise contract.
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  So help me understand, you know, sort of like what you have to be thinking about, you know,
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  before making that transition.
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  Well, I've had people call me before they've signed their franchise agreements.
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  Like, it was on their desk and like Joel, you know, are you sure I should do this?
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  No, I'm not.
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  You know, you know, this is on you.
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  It it, you know, it's in a big adult thing, but If you've done the research the way that I
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  suggested, we've gone over everything.
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  You know, you gotta there there's a point where you have to trust your gut.
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  If you've done the due diligence, And one part of due diligence and this goes through exactly
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  what you're talking about, Melinda, is spending a day with the franchisee.
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  If you're gonna buy a redesign and not spend the day with a franchisee of that franchise
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  concept, how would you ever know what your role is gonna be?
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  You need to spend a day.
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  You know, do a little of the work.
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  Do some observing.
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  It it makes sense, but a lot of people don't do that.
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  And you're right.
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  Downsize executives are are a great target for a franchise business, but the ones I work with
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  tend to have been involved in deals and mergers and acquisitions where they've run divisions.
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  They know from the top down what it takes to manage and and operate a business.
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  So they're coming from a different place, but but I do get what you mean.
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  You know, if you're gonna open an ice cream store or or any type of food franchise and
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  you've never been in that business It's a it's a rude awakening.
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  You have 15 employees.
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  Some of them, you know, haven't even reached puberty, you know, and it's like, how do you
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  deal with them?
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  You know, there's no shows, etcetera.
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  So the way to do it is by spending a day and also by calling existing franchisees and asking
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  them specific questions on what it takes to become a successful franchisee of that brand.
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  Alright.
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  Last question before we go to break.
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  Pros and cons of using a franchise broker.
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  I mean, I guess from what you said earlier, it doesn't sound like, everybody not might not be
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  a fair dealer in that business.
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  So talk to me about about, you know, how do you go about getting the education you need before
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  signing these contracts as people put in front of you.
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  I think you should have asked me that question after the break.
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  You know, there are pros and cons to working with a franchise broker.
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  Just like in any business, it's 80 20.
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  20 percent of the franchise brokers are good people They care.
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  They want you to only buy a franchise that makes sense for you.
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  And whatever they make on it, they make on it.
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  They don't necessarily point you to ones where there's bigger commissions.
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  On the opposite side of that are people that don't know a thing about franchising and became
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  franchise brokers because for only $25,000 they were able to do so.
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  And they're spending money buying leads every month.
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  And all of a sudden, they're in this thing for 50 or $75,000 and they're just trying to sell a
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  franchise.
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  So they're throwing stuff against the wall hoping that this one person will buy a
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  franchise so they can make some of their money back.
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  So it's 80 20 like anything.
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  If you're gonna use a broker, this isn't tough folks.
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  Put the broker's name in Google see what comes up, put their name in Google followed by the
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  word fraud lawsuit, see if there's any baggage.
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  It's real simple and interview them like you would, anyone else.
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  That's great advice.
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  Joe, tell me why do franchises fail?
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  Is it location?
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  Is it not following the people's system?
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  What is it?
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  Cause I've definitely seen it happen.
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  It's it's usually not one thing, Melinda.
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  It it may be the location.
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  Sometimes, a franchisee will say, I know the perfect location for this business.
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  So somehow he or she convinces the franchisor or the real real estate department at franchise
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  headquarters that this is the location.
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  So they open it, and it is like, what happened?
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  Where's all the traffic?
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  Research needs to be done and a franchisor with a with a real legitimate real estate department
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  will only go for the best locations and will disagree with the franchisee because when it
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  comes to location, both parties need to approve of it.
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  So location is one is one reason why franchisees fail.
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  The biggest reason, not enough money you know, they're not thinking ahead of not only did they
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  need expenses to run the business, but all of a sudden since they're not working in corporate
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  America anymore, they need money to run their living expenses.
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  If their if their spouse or partner isn't working, you know, it's real tough to run both.
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  So that has to be talked about in advance.
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  So I would say the money part not having enough money to go through that first really difficult
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  year And second, it it can be location.
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  A poor location can sink a franchise business fast.
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  Now I know one of the things that you teach people is they need to look for an easy to
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  implement system.
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  Okay.
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  What do you mean by that?
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  Because that could mean anything to me.
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  Think about how many technology businesses could become franchises.
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  Not many because technology is always evolving.
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  It's complicated.
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  Some of it is really hard to explain to the end user.
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  That's not the kind of business you want.
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  You want something that is simple to implement where there's a system in place where you don't
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  have to explain to the market what your product or service does because they kind of know
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  already.
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  Eurus just need to be better or more different than anything.
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  Simple is best.
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  What how can a franchise provide a fairly predictable path to profitability?
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  Do they really disclose all the information that you need to know for that to happen?
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  One of those frustrating parts for would be franchise owners is to find out how much
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  they're gonna make.
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  I teach that, but the the way to do it is really not to talk to franchise headquarters
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  because they could only disclose so much.
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  You need to talk to the existing franchisees who already are working the business, they're
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  living the business.
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  And if you ask the right way, they will tell you how long it took to get the breakeven and
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  and how much money they're making on average.
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  You just have to ask the right way.
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  In other words, don't make it your first or second question.
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  You know, warm up a little bit.
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  I love it.
• 18:26
  I love it.
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  Alright.
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  And what is the best advice you can give somebody thinking about wanting to buy a
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  franchise business?
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  The best advice is when you're doing your research and when you're searching for that
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  perfect franchise, steady and slow.
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  Slow and steady.
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  Don't make a quick decision.
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  It might take a month and a half, 2 months, 3 months to go through the entire process.
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  It's okay.
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  It's not a race.
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  I love it.
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  Thank you so much for being here with me on the small business chat podcast.
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  Thank you to the franchise king, Joel Lovela.
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  I have screwed up your name.
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  He's got a great website, the franchiseking.com.
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  And thank you all for joining me for this episode of the small Bishop podcast.
• 19:13
  If you're working on your digital marketing skills, be sure to check out Small Business
• 19:18
  University for the month of November.
• 19:20
  All of my online marketing courses or 50% off.
• 19:25
  All you have to do is use my code SBL 50.
• 19:29
  And all of my courses are 50%.
• 19:31
  And I never do this, so y'all better get on it.
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  Okay.
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  Now the mission of the small bitch chat podcast is to end small business failure.
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  I'm Melinda Emerson, your host.
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  And I will leave you with this.
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  You never lose in business.
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  Either you win or you learn.
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  God bless everybody.
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  Thanks for listening to the small biz chat podcast with Melinda Emerson.
• 19:55
  Sub scribe to this podcast wherever you listen to podcasts and join us next Wednesday for more
• 20:00
  fantastic information and interviews.
• 20:03
  You can find more sources and small business success strategies by visiting Melinda's
• 20:07
  website succeed as your own boss.com.
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  Thanks again for listening, and we'll see you next week.