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Scott Greenberg: The Next Level Franchise Business Speaker (2024)
Written by: Patrick Findaro
Last Updated by
Marina Longo: January 20, 2023
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I Want The GuideThis article is based on the video featured above, originally recorded for Vetted Biz Youtube Channel.
Contents
P:— Patrick Findaro here, co-founder at Vetted Biz. Very excited to have on Scott Greenberg. I finished reading his book just about a month ago and reached out over LinkedIn to have him on. I learned a ton from his book and his insights on the mentality that wealthy franchisees have, to grow their systems, have a better personal life, make more money, and be really, truly fulfilled, and what sets them apart from franchisees that haven’t been fulfilled and aren’t making their monetary goals and family goals, etc. So, there’s a lot to unpack there, that was probably a bad summary of everything that the book encompasses, but very excited about Scott Greenberg, author, speaker, and essentially helps franchisees grow and grow financially, but that’s not the only aspect as we’ll get into today. So, Scott, thanks for joining today.
S:— Yeah, I’ve been looking forward to this, Patrick.
Introduction
P:— So, maybe you could give a little introduction about yourself for those that haven’t read the book yet. A little bit about your family and upbringing, and how you entered into the franchising arena.
Scott: Sure. Well, I grew up the son of a serial entrepreneur. My father had all kinds of businesses growing up. Some were franchises, some were not, some were success stories, some were cautionary tales. So, I watched his journey and I felt his journey. And in any given year, I would know how well his businesses were doing based on the quality of Hanukkah gifts that we got. So, one year we all got Sony Walkmans, which I’m aging myself here, dating myself, so I knew that businesses were going well. Another year we all got manicure kits, like nail files. I’m like, «Daddy, get a job.» But my father always did these things and so for me, it was very normal. But when I got married, my wife was the daughter of a college professor who’s had two jobs his entire life. So, the idea of, you know, getting into a business I knew nothing about, to her was like absolutely crazy, for me it was normal.
And so what happened was I was doing motivational speaking for a number of years, talking about, you know, resilience and peak performance and leadership. A lot of people in my audiences had more leadership experience than me, and that always bothered me. I didn’t wanna be one of these talking heads who just, you know, repeats these cliches. So, it bothered me, and I saw an airline magazine ad for a new franchise called Edible Arrangements. We had nothing like that in Los Angeles. I thought, «This is really cool». And the idea of a franchise was great because I didn’t necessarily know, you know, what kind of business I wanted to have, but I figured they could teach me how to do it, but also could be a laboratory for me. A place to try out concepts I’d been sharing on stage to see what works and what’s ridiculous.
So, I did it and very quickly I learned how much what I was saying on stage did not translate to the real world. And so, that helped my business a little bit, but my business really helped my speaking because it gave me truth, and it gave me an opportunity to experiment. So, you know, I had to unlearn a lot of things and really hit the reset button, but I still had the income from speaking. So, that gave me the opportunity to be curious and to experiment and really figure out what works. So, through a lot of time, a lot of mistakes, we figured it out and got better, and better, and better. And then we built the number one location of Edible Arrangements in California. Then we took over one of the worst and we turned that around out within a year using the same tactics and things that I learned from the first business.
And then, I started getting invitations to speak to other franchise systems about what their franchisees can do to be successful. And I always interview a whole bunch of them before every presentation. I still do this to this day. So, over the years I’ve either surveyed or met with and interviewed thousands of franchisees. I hear their complaints, their questions, but I also see the best franchisees, you might call wealthy franchisees, and I see what they all have in common. So, all my work is about helping franchisees understand what great franchisees do to be successful, and the good news is it’s all things that could be replicated. So, my work is, I’m brought in to speak to franchisees or to work with franchisees one-on-one to help them understand the mindset and the tactics that enable them to succeed.
Edible Arrangements
P:— And before you opened Edible Arrangements, got to the second location, had you ever managed people? Because I imagine you went from, you know, being a solopreneur and having these speaking arrangements to then having to manage a bunch of people overnight.
S:— I had. Not the way that publicly would’ve given me a lot of credibility, but through really valid experience. When I was in high school, I was in student government, like, you know, class president and that kind of thing, which involved leading a lot of people, immature inexperienced people, but I still had responsibilities. Proms had to get planned, things needed to happen. So, I did a lot of that, and then I got hired by a student leadership organization to help run camps and train people to do… So, there was some experience, but it wasn’t necessarily in a business setting where you have those kinds of metrics and the same kind of pressure where the stakes are very high. So, I knew something about it and academically I knew plenty, but I really hadn’t invested my own money and gotten my hands dirty and experienced that to the extent that I think would’ve been helpful in those early years. That’s why, you know, running my own businesses was so vital for me to have that credibility and experience.
P:— And when you’re doing these surveys, talking to thousands of franchisees, what do you think is the number one, two questions that you ask, and what they respond with is super telling on kind of where they fit on the scale of what being a wealthy franchisee or potentially a lesser performer?
S:— The questions that yield the most useful information would include, what about this do you find most challenging? Why do you believe the people who are successful are successful? And then when I’m talking to the successful people to ask them the same question and to hear their responses. You get a lot of assumptions when you ask these questions, a lot of accusations. When people are struggling, often there’s a tendency to blame. Blame the franchisor, blame the economy, blame the pandemic, you know, it’s a human instinct, people get in their own way. It’s not that these things aren’t real, but they don’t really tell the whole story because for every excuse someone gives me as to why they’re not successful in franchising, I can find another franchisee in the same system, same circumstances, but they’re killing it because they have figured out in those circumstances what could be done differently. So, it’s a lot about asking about performance, their beliefs about performance, what their challenges are, I like to inquire about the relationship between franchisees and franchisor to understand what that culture is like. All that usually produces some very insightful information that I can then work into my presentations.
How can you tell if your people are happy?
P:— And before you decided to move forward with Edible Arrangements, did you interview franchisees? Did you understand how happy people were with that franchise system or how unhappy they were?
S:— Yeah, so part of it I got right, part of it I totally got wrong. The part I got wrong is I saw the ad for Edible Arrangements and I thought, «Okay, I’m interested in opening that franchise.» I didn’t talk to any other franchises. Like I should not… I mean it worked out really well for me, but I would never recommend that approach to someone else. But before signing on the line, I did interview a lot of franchisees. And they gave me a list of people to call, but that’s like, you know, asking a job applicant to provide references, they’re not gonna give you names and phone numbers of unhappy people. So, I called the people on the list, but then I just…because I speak and travel, every city I was in, I visited a local Edible Arrangements and I stopped by and looked around, tried to engage the manager or if the owner was there, people who corporate didn’t necessarily have on the approved list of people to talk to, I talked to those people as well. But, you know, I always tell people when I’m advising them when they’re going through that process, the validation process, just, it’s like going on the internet. You can’t just read one or two reviews, you have to kind of weed out the crazy people, and you also be careful with those calls about, you know, are you asking questions…their opinion. Like, do you enjoy it? Are you glad you did it? That’s subjective. Much better questions are…
P:— You don’t know their scale of enjoyment versus dissatisfaction.
S:— Their temperament, their values. It’s better to ask questions like what did this really cost you? You know, how much does your location matter? What does the company do to promote culture? You can get more objective answers. So, I did ask a lot of those kinds of questions and so I felt good by the time I pulled the trigger.
P:— And how long were you a franchisee in the Edible Arrangements organization?
S:— A little over 10 years.
P:— Okay, it’s a solid run.
S:— So I didn’t make the decision to sell soon enough, and, you know, I had a great 10 years, really glad I did it, but when the time came for me to move on, but in order for me to sell, I had to re-up at the 10-year mark. So, I had long enough so then I could go through the process of selling them.
Which would be some reasons for opening a second location?
P:— Interesting. So, yeah, for those that are listening, usually franchise agreements are 10 years sometimes or 20 years or five years, but usually 10 years is standard. And, I mean, there are systems…we started talking about, offline, like Burger King and big brands that most franchisees are multi-unit operators and they’re having like 5, 10, 100 locations, but there’s other franchise systems where you have just, most of the owners are operating just one single unit and can scale potentially through that single unit but the model’s different. What led you to opening that second location, or I should say taking over a struggling location from someone that was in your area?
S:— A little bit of fear, a little bit of ego, and a little bit of ambition. The fear is that someone else would take over the location, it was our neighboring store and they were underperforming, which is…it’s mixed, like you think, «Well they’re underperforming, well then it’s great.» But the problem is every customer who they anger, you know, for everyone that says, «We’re gonna try your location because they’re terrible.» I’m wondering how many are just gonna be turned off by Edible Arrangements altogether. But their sales were low and they called me first because we have this top location, but I was concerned that someone else would come in and build it up, and that might cut into our sales. So, part of it was, you know, I didn’t want FOMO, I didn’t wanna miss an opportunity. The ambition part was yeah, I wanted to make more money, the ego part, I’d go to the Edible Arrangements conventions and I would see the ribbons that people have hanging for their name tags, and there’s always one that said multi-unit operator, and they were the cool kids.
So, I spent a hell of a lot of money to get that ribbon, but I also wanted the experience like, you know, I never thought I was gonna get rich just running a franchise. The purpose of it was a secondary stream of income in addition to the speaking business. So, I never needed to open 20 though I think with Edible Arrangements, a lot of brands, opening a lot of units is really smart and that brand is in particular. But that wasn’t my goal. My goal was to learn and to, you know, get things I could use on stage. So, part of it was, «Can I open one brand new and build it up? Then can I take one that’s struggling and turn it around?» That would give me the credibility to answer the questions, do I really know what I’m talking about? If not, what’s it gonna take? So, I got that information and so I was able to achieve those goals and then the time came it just felt like it was good for me to get back to fully committing to speaking and helping others. But admittedly, yes—
"Overcoming Adversity Speaker"
P:— I can’t imagine what percent of speakers go through what you did. You seem like one of those method actors that really go into character and live in a desert for like three months to really…
S:— Well, the truth is, most speakers, they accomplish something first, then they go out and talk about it. And not that I had, I mean I started off as an overcoming adversity speaker. When I was in my 20s, I was going to film school and I was diagnosed with cancer and so I had to drop out of film school. But actually, during chemotherapy, I noticed all these different cancer patients who, and some of them, equally sick, but they had different reactions, different mindsets, and I saw how much that affected their experience. And film school, they always trained us to pay attention to the human condition. So, you can tell others the story. So, I noticed those differences that made me curious and that’s why I was attracted to franchising. In a way it’s the same, I mean not to compare running a franchise to having cancer, but it’s all these people in the same circumstances making different choices or reacting differently. That was fascinating for me, that was consistent with the things I was talking about as a speaker. But yeah, I wanted to get some more experience so I could get up on stage and actually have some substance and not just be someone who’s regurgitating the latest pop culture personal growth book.
P:— Yeah. And it’s like 10 years of material that you were living day in day out, so.
S:— Yeah. And honestly, just as when I’m doing straight-out motivational speaking, not necessarily for franchise but for other businesses, there’s so much of what I experienced during those 10 years that can be generalized to other businesses or other areas of life. Because running a franchise, it’s an emotional journey as much as a financial one. There’s some universal concepts there that I think are useful for all of us.
How can franchise brands be more selective?
P:— And from dealing with other franchisees, because I remember from the book, you know, there was a benefit of having everyone know in LA County that Edible Arrangement exists, that you can order it as a gift whether you’re a company or, you know, real estate offices, and kind of like putting it on the map and colluding together with other franchisees to further promote and have a pooled marketing expense, but there were some franchisees that didn’t want that, some that were on board. Any advice for kind of franchisee collaboration and like…so kind of everyone rises together instead of too much competition between the franchisees?
S:— Sure. A lot of that has to do with franchise culture. You know, really great franchise cultures encourage collaboration, encourage the community. A lot of brands don’t bother with that and they pay a price for it. Because franchisees can be competitive, especially if there’s territories, you know, that kind of thing, we weren’t just a storefront. Most of what we did was, you know, delivery and there was some shared space. So, there was some competition there which in some cases kind of held us back. I think in most cases a franchisee is best off being collaborative. Don’t get into franchising if you’re not interested in being part of this larger thing. You have your business but you’re part of a larger brand. And if the brand does well, it lifts up all the franchisees. Not just in terms of their individual sales, but the value of the individual businesses. If the brand is strong, someone’s gonna, you know, wanna buy your store for more money down the line. So, I think that that collaboration is really important and you can save money with purchasing, certainly save money with advertising, and emotionally you can also just be there for each other.
P:— And how can franchise brands be more selective in having those wealthy franchisees that already have the mindset, coming into their system, instead of converting the mindset, which we can get into that later too?
S:— Well, I mean for me you have sort of raised a question that it’s sort of a sore point for me in the franchise world. I believe that you’re not just a franchisor, you’re not just building a brand, you are building a culture. And there are some times where development people who will just sell to anyone and then once the person buys, then they get pushed to operations and the operations then have to deal with whoever they brought in. To me, the best brands are selective and they’re exclusive, but they know that opportunity is not for everyone. Some brands, you know, I had one person, she works in the sales product development said, «You know, we don’t turn anybody away, we’re here to build a business», and they have had sort of big mission statement, why would they wanna deprive someone of not being part of the mission? Because it’s not a good fit, it’s not good for everyone. And your worst franchisees are gonna bring down the brand. And so having the stomach to say, «Gosh, we love your money, but you’re not a good fit for our culture.» If you’re willing to turn people away and say no, especially in those early years where those franchisees are really meaningful, that takes some discipline.
So it’s having a long-term vision and really wanting to build something with legs. Not every franchisor is willing to do that. So when I advise franchisors what to look for, is they should be selective. Like it shouldn’t be easy for you to walk in just because you’re financially qualified, because if they’re gonna let anybody, you know, if they’re gonna let you in without really vetting your personality or sensibility, well that’s how they’re selecting other franchisees. And those franchisees are gonna be bad for your business because people are gonna be talking about their experience there and they’re gonna post about it. So, I think for franchisors it’s about just having the discipline to hold out for the right people and, you know, just like hopefully you wouldn’t marry the first person who has a romantic interest in you, I don’t think you should sell a franchise to anybody who’s interested or has, you know, not if you really are playing the long game.
Honor your agreement
P:— Yeah. You may have a really good point, like kind of everyone having the same mission and objective where… You have a bit of an agency issue where you have the franchise development person that might be getting compensated on the franchise fees coming in, and then his colleagues might be compensated on total system-wide sales like year over year growth, and other categories that… You know, ideally everyone’s kind of working towards the same metrics. And we see time over time analyzing franchises that on the item 21, the ones that have much more royalties collected and it’s going up year over year as opposed to franchise fees collected, tend to have pretty good systems and people are happy to be, you know, part of those franchise systems.
S:— Yeah. You know, real estate agents don’t have to live in the homes that they buy. So, it’s easy for them to broker them. And so it’s not…and I think a lot of development people are great, and so they’re growing their organization, which is good for, you know, franchisees individually generally speaking. But I do think there’s something that’s ethical here because you don’t wanna set someone up for failure. They’re dipping into their life savings, I just think it’s wrong and I think that ethically a franchisor needs to get a franchisee’s back. And if you don’t care about ethics and morality, okay, maybe just care about money. What’s gonna make you the most money in the long term is really building the right system with the right people, not bringing a bunch of people in who’re gonna drive you crazy, and who are going to be bad for the brand.
P:— Yeah. And it seems like long term, whether their incentives are a nice cash flowing business and having this franchise brand that gives nice cash flow or potentially selling the business years later. And I mean, valuations are super high right now, you know, people are selling their franchise systems for like 20x, 25 times EBITDA. So, no one’s gonna pay that if you have a high churn system and you’re not getting a very nice royalty stream that keeps going up, so.
S:— Yeah. You also want franchisees who are gonna validate, who are gonna tell other prospective franchisees, «Yeah, this is a great brand, it’s a great system.» If you’re bringing in the wrong people, they’re not gonna talk, they’re not gonna perform that way, they’re gonna blame the franchisor, and they’re not gonna say great things, they’re not gonna validate well. So, I just think that, you know, as franchisors grow, they need to have that long-term vision and, you know, and resist the urge to get those quick easy franchise fees. Believe me, I understand in the beginning, when they’re not having positive cash flow, I understand the temptation, but you gotta do it right from the beginning.
P:— Is there hope for those franchisees that aren’t «wealthy franchisees yet» to kind of convert their mindset and become wealthy franchisees?
S:— I think there’s hope for some of them. For some, there is not. That’s not what people wanna hear, but the ones who aren’t, they’re not gonna read my book anyway so I don’t care. Most franchisors, either formally or informally they’ll break down their franchisees into subgroups. Usually it’s three groups but sometimes it’s more, but three groups. They have their high performers, they have those who are just struggling, and then those who are in between. I think for those who are in between, that’s the greatest opportunity for franchisors to lift them up, to make them more like those, what I call wealthy franchisees.
The struggling franchisees, it’s not that it can’t be done, but they’re so draining of time and energy, and resources that you end up neglecting that middle group and other people. So, not that franchisors shouldn’t make good on the promise, there’s a franchisee agreement so they have to provide a certain level of support, but the energy and time it’s gonna take to really totally convert their mindset is just not gonna yield as many benefits as working on those mid-level people who just need a little bit more push, a little bit more encouragement, a little more perspective. So, I tell franchisors, you know, don’t neglect the struggling franchisee, you don’t wanna get sued, you know, honor your agreement, but your best time is spent on that middle group, and definitely reinforcing the top group. But I do think that a mindset can be enhanced, and I’m brought in to help do that. I mean, I very much think that that is a real thing, but the question is where are you most likely to get results? And I think it’s with that mid-level group.
Where to focus energy
P:— Where to focus energy and, I mean, that will essentially move the bell curve over if that middle group is performing better, and then the bottom 10%, like other franchisees could acquire those stores, franchisors could buy them back, but yeah, I mean it doesn’t really make sense to focus on the worst performers that pay the least in royalties and have the least likelihood to convert to being in the middle or a top performer.
S:— There are people who probably should have never been in the system and helping them exit the system, especially if they’re gonna exit willingly, you might be doing them a favor because now you’re gonna avail them to other opportunities where they might be a better fit.
P:— Any suggestions on the interpersonal side? So, for those that are maybe going into business for themselves for the first time, leaving the corporate life, just like conversations with your spouse, and maybe your spouse is employed and has never been an entrepreneur and comes from a, you know, a family similar to your wife where, you know, the father had just two jobs and that’s kind of all she knew in this case. But kind of curious to see if you have any suggestions there or any experience to share on kind of just communications with a spouse as you decide to go into business ownership.
S:— For me it was earrings. I said I’ll buy you earrings if you just let me…It’s actually not true. My wife really kind of put me through the wringer and she should have because I was a bit impulsive as I imagined, so it was great. I read some data recently that show that one of the top predictors of how well someone’s gonna do with running a franchise business, is how much support they’re getting from their family. And so, I do think it’s a family decision. It’s not just buying a business, you’re buying a lifestyle, you know, so if you have a spouse who’s not necessarily very supportive, that might be really useful. And again, my wife was really important because she forced me to ask important questions, to answer important questions that I hadn’t been asking up until that point. But if they have concerns, they might be legitimate, there might be reasons not to do it, that maybe you can’t afford it, but maybe you don’t have the capital, that maybe you can’t afford the risk. I mean, there’s a lot of things that are there.
But having said that, I think to run a business you have to be scrappy and you gotta sell. And so, the first person you have to sell might be your spouse or might be a family member. And so the way you’re gonna sell them is by being persuasive, but also by having data, by having the backup plans, by having really good reasons to do it. Other than that I’m not a marital counselor, and I’m still, you know, wanting to make sure I do right by my wife and my marriage. So, I may not be the best person to ask of that, but I do think if you can get your spouse’s support, that’s great, and there’s a difference between their support and their involvement. My wife is very clear, «All right, you can do this, but I am not going to be part of it.»
Coaching franchisees
P:— I’m not rolling up my sleeves when an employee doesn’t show up.
S:— Right, you know, and part of it says if this goes down, it’s on you, but also, she didn’t want a threat to her lifestyle. I was the one interested in running a business that wasn’t her interest, but for us, it was very good for our marriage to go through that process of making that decision together. And I really had to listen and take what she said seriously.
P:— I mean, I imagine there was kind of a fluctuation and you had somewhat flexibility with the speaking assignments, but at one point did you essentially have two full-time jobs where it was like the franchise and, you know, the speaking assignments, or how did you kind of manage that?
S:— Well, you know, there’s time and then there’s sort of mental-emotional energy. So, I was committed to really being present in the business for the first couple of months. So, you know, I had worked very hard on my speaking schedule to kind of give me time to do that, but I knew I wanted to get back on the road speaking. So, from the very beginning, I had to create leaders in my employees. I had to put systems in place, I had to make sure that while I was present there, that it wasn’t dependent on me. That was hugely important, I think, that every franchisee does it. We’ve all heard the expression that you’re not just running yourself, you’re not buying a business, you’re buying a job. And I think it’s okay to run things yourself, that’s what you want, but the idea is that it’s something that is scalable.
So, from the very beginning, the plan was for me to not be there. So, there wasn’t a role where this is, you know, I do this myself unless it’s something I could do from the road like bookkeeping or other kinds of things. But for daily operations, I made sure from the very beginning that I hired great people, treated them well, and then trained them to lead. From the very beginning, they knew that I was not always going to be there, but then I made sure there was lots of communication, and cameras, and things so that I could work remotely. So, you know, in the first couple months, yeah, it was a huge time burden and focus burden trying to do the speaking thing while also running the businesses, but once I kind of got the systems in place, then it was sort of more of an emotional thing just based off of what was coming up. So, I’d be on the road speaking and then I’d get a phone call about a crisis, or an opportunity, or something that was there and it was a lot. But it was good for me because it forced me to delegate and it forced me to think big and to really focus on growing the business and not just running a business.
P:— That’s well said. I’m part of an entrepreneurial organization and that’s a big focus. It’s like not working in the business but working on the business like more at the higher-level strategic and making those bigger decisions that kind of move it to the next step.
S:— Well I talk about that a lot too when I coach franchisees. I ask them, you know, what’s your time worth? And we actually come up with a number, and the easiest way to do it is, you just think of a number, how much money you’d like to take home from your business, what they think they’re worth, divide it by 2,000 hours, which is 40 hours a week, 50 weeks a year. Most of us are working harder, but just go with that number, and then you’re gonna figure out that’s your hourly worth. So, every hour you put in the business, you ask yourself, would you pay someone else that much money to do it? Would you pay someone else that much money to be sweeping the floor? You probably wouldn’t. So, if you wouldn’t then you probably shouldn’t be doing it yourself, pay someone else, but then take that hour you’re not sweeping and use it on marketing, use it in going out in the community, use it on the bigger things that matter, and kind of thinking in those terms sort of helps you figure out not just what to do, but what not to do. And that’s one of the observations I made when I wrote my book about wealthy franchisees. They’re very deliberate about what they don’t do, what they delegate to others, knowing how valuable their time is.
«How can I grow with this company?»
P:— Yeah. And in the book, you had some really interesting analogies of just wealthy franchisees, you know, they take the time. Like one guy took the time to go skiing and would take a call from the slopes, but you know, he had systems in place, and then you had the non-wealthy franchisee working 70 hours a week like, and over leveraged and just not being able to make ends meet. But it seems like the unwealthy franchisee was probably doing way too much and just wasn’t able to do the outreach that was more strategic and focused on, you know, cleaning the kitchen and dealing with minor issues.
S:— Yeah. It’s not that there’s anything inherently wrong with working 70 hours a week if that’s your choice. The idea is to have the choice. Like I met a couple, they run three franchises and they really run it themselves. They have just one assistant manager who assists them in all three, but they’re there but it’s because they love it and that’s what they want to be doing. So, great. But the idea is to have the option because you can make more money but you’re not gonna get more time, you know, time is an account…
P:— So, you would say the wealthy franchisees are much more deliberate with their choices and how they spend their time.
S:— In fact, Patrick, in chapter one of the book, the way I define wealthy franchisees is people making good money, but they’re also in control of their time, meaning they have choice, and that they have quality of life. If you don’t have all those three, you’re not a wealthy franchisee. So, all my work is about helping people understand how to accomplish all three of these, and tons of people do. Franchisees I interviewed who own 60 locations still only have 24 hours in the day just like the person who runs one. But they’re smart about how they invest their time and those are the people who are taking the most vacations and going to the most volleyball games, you know, to watch their daughter play because they put those systems in place, their time is valuable.
P:— Yeah, I have the section open, quality of life, and yeah, that was a big point that you hit on. And then, I mean, some franchise systems are really like you’re buying yourself a job and there’s no real…you can’t grow out of it. You’re gonna be capped at like 100k, 120k and you’re working 50, 60 hours a week, and there’s just not enough margin. Like how can prospective franchisees avoid those franchise systems so that they can kind of have more control over their time, and make those choices whether they scale up or scale down in terms of hours, instead of having a job that they just bought?
S:— Yeah, simple. Don’t buy that franchise. I mean, if that’s not what you want then, you know, that’s a good thing to figure out, it’s like, «How can I grow with this company? What’s the potential, what’s gonna be required of me?» I know of one massive brand we all know of, they represent themselves as a franchise, but generally, the policy is that number one, you don’t own it, they own it, you’re buying the right to run it. And number two, you have to run it yourself that you can’t be a, you know, sort of an offsite operator. You kind of have to run it yourself, and generally, they only allow you to operate one. So, you’re literally buying yourself a job. Now, for a lot of people, it’s a great job, they wanna do it…
«How can I grow with this company?»
P:— That can be great. Yeah, making 200k, 300k year.
S:— It’s really not a franchise though, especially because you’re not buying an asset, you don’t have anything to sell in the back end. So, you’re literally buying yourself a job, which for some people is a great purchase. It ain’t for me, and it’s not for most people I meet who are getting out of one thing to get into franchising, because you’re right, there’s a cap on how much you can grow and the fact that you have to be there putting in the hours. You know, I didn’t buy a franchise because I wanted to work, you know, I wanted to have choice, I wanted to, you know, to get other things. So, I think if that’s not for you, don’t sign with that kind of franchise.
P:— Yeah. And I think the key was you validated, you spoke to franchisees that the franchise brand introduced you to, as well as just franchisees that might be happy, might not be happy. And I’ve heard of stories…even yesterday, on an interview, of a franchise system that was selling an opportunity as really passive and that you only have to work five hours a week. But then he validated it with franchisees and it was like 20, 25, 30 hours a week for at least two years. And it seems like unfortunately, not enough prospective franchise buyers take the time to meet with existing franchisees, or even ideally some former franchisees that have left the system.
S:— Yeah, well these days you buy anything, you look at reviews. You look at what other people are saying. It’s like, I have my list when people come to me. I had someone came to me for coaching, he was interested in buying a franchise, who wanted my advice on what to look for. And, you know, I have some pretty specific criteria as to how to vet a franchisor, and the question is, do they measure franchisee satisfaction? Franchisee is the customer. The consumer, I look at as the franchisee’s customer, but franchisees themselves are the franchisor’s customer.
P:— Yeah, you’re the client customer.
S:— Right. So, what is the franchisor doing to measure franchisee satisfaction? You know, there’s companies like, you know, Franchise Business Review, which are awesome. There’s others, but are they even measuring franchisee satisfaction? Best brands do, and if they’re not, why not? For me that’s huge. I wanna see unit-level profitability. I go on LinkedIn, I see franchisors brag about how many units they’re selling. Well, good for you, but are you keeping your promise to franchisees? Are they making money? If you’re growing locations but they’re miserable and unhappy and the business is going well, well that sucks, that’s not cool.
P:— I think it’s like a scale too, because every time I go on LinkedIn it’s like the scale, like the worst kind of things that boast about how many franchises you’ve sold, and then there’s one of openings but doesn’t actually mean they’re successful, and then there’s the more positive metrics like systemwide, same store sales growth year over year, and there’s metrics that mean something and others that don’t really, frankly.
S:— Yeah. But even that, Patrick, is based off of gross sales. You can end up selling more, you know, having more higher gross sales but less profit, which basically means you’re working harder and you have less show for it. So, it’s not that it’s not an important metric, I mean at least it shows that there’s demand there, but I wanna see the profitability because I’m not in it for work, I’m there to make money and I shouldn’t have to have 10 locations to make money. I wanna make sure the franchisor is supporting me with bottom line sales, not just the top line sales from which they’re collecting royalty. And a lot of great brands hire people whose whole job is to help franchisees with those bottom line sales with profitability. So, that’s something else that I’m looking for.
And then I’m looking for culture. Does the brand have a strong culture? There’s great collaboration among franchisees and with the franchisor. The leaders of the organization, you know, what’s their background, how well they do? Do franchisees like them? Is it a family that owns the company? Is it a CEO who works for a larger institution? Is it private equity? You know, these things matter. So, anyway, that’s the kind of stuff that I look for in a franchisor, and that’s how would I advise other people to look for. Not just, you know, the promise that you’ll be in business for yourself but not by yourself and we’ll make your financial dreams come true and the usual stuff.
P:— Yeah, what we’ve all said before. And I know you do a lot of conferences with franchise brands, and I can imagine the amount that you’ve learned from the executives of these franchise brands, the owners, and then the franchisees. Any big takeaways for those franchise executives or founders, presidents that are tuned in, and how they can have just a nicer culture, a better culture where everyone rises up?
S:— It is a great question. Yeah. So, first of all, commit to doing it. Really…don’t pay lip service the idea of culture, really be deliberate about it. You know, it’s great if you have a mission statement or value statement, but you need to have policies and activities to operationalize those things. And the way I define culture in my book is, number one, you have a clear set of beliefs where everyone’s on board. So, that’s the same value system, same mission, the same perspectives on things, and then rituals that support those beliefs. That’s what religions are, right? It’s a set of people who share the same beliefs but then rituals that support those beliefs. So, having a great franchise convention is a ritual that supports that belief. Some brands I work with, you know, the CEO might have a podcast every week where it’s like motivational tips, helping people with the mindset. Qdoba, I met one franchisee who every week has…
P:— That’s a great brand.
S:— Yeah. So, one franchise family night where all their employees, they have a potluck. The owner doesn’t buy the food, it’s a potluck, it’s a ritual that helps them see each other as human beings, not just as coworkers and it creates more cohesion. Franchisors need to do the same thing, to create rituals that create bonding. That there needs to be transparency, and where it’s not just policies and contracts that bond people together, but actual human-to-human relationships. And so, it’s committed to each other’s success, agreeing how we’re going to communicate, and really doing right by franchisees and also demanding that franchisees do right by the franchisor, because everyone’s entitled to make money. Everyone’s entitled to respect. But the best way to build a great culture is to bring in the kind of franchisees that you want who are gonna support that and not take that away, so.
P:— I like it. Well said, Scott, I really enjoyed today’s conversation. I’ll leave a link to your website and anyone that might benefit from having you, bringing you in to help their franchisees on the franchisor level, and bring you in as a speaker, or as a consultant to do more comprehensive work, I’ll leave a link so that you can reach out to Scott. And again, thanks so much for joining.
S:— My pleasure, thank you.
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