Trust In The Franchisor? Franchise Business Review

Introduction

Patrick: Hey, Patrick Findaro here, a co-founder at Vetted Biz. Very excited to have on today Eric Stites, who is the CEO and founder of Franchise Business Review. He founded the company 17 years back, and has led the way for surveys, feedback, input from franchisees, and has worked with hundreds of franchise brands that are expanding in the U.S. and internationally. Eric, thanks so much for joining today.

Eric: Thanks for having me.

How Franchise Business Review Got Started

P: You’ve been in the franchise industry for some time. How did you enter into the franchising space, and what the impetus was for Franchise Business Review?

E: It seems obvious today when you think about review sites, from Glassdoor to Amazon. But 17 years ago, there was nothing like this in the franchise space. I had been with several franchise marketing companies and helped them reach out to franchise candidates. Everybody wanted to know the same. Is the training good? Is the support good? Are you making any money?

We kind of came up with this idea of surveying franchise owners and asking those questions. Because existing franchise owners get calls, every day from people that might want to buy into the business. But they’re busy running their own business, so they can’t always return those phone calls. We were working with Dunkin brands at the time.

Franchise Business Review: An Interesting Proposition for Franchisors and Franchisees

P: The average Dunkin franchise has 10 plus units.

E: They’re out on the road running from restaurant to restaurant. They don’t have time to call back people that are thinking about buying a franchise. Then, I started calling everybody I knew in the franchise industry and, said, “We want to survey your franchisees and share that information with candidates”. For the most part, everybody thought I was crazy.

P: Is it just because they thought, like, the collection aspect would take a long time, or why did they think you were crazy?

E: I think they were more concerned about what their franchisees might say. But we knew that the franchises companies were very competitive. That way, we came up with the idea of doing awards based on satisfaction. And in the next two months after announcing our first awards, we had about 150 brands participate in that process. Then it just kind of grew from there.

Franchise Business Review and the Feedback Loop

E: We survey everybody. And, what we quickly realized is it was, an operational tool first. Two-thirds of the companies that we surveyed, didn’t have great validation with their franchisees at the time. Times have changed significantly and I think a lot of franchisors are much more sophisticated today due to, private equity coming in.

Back then, not everybody was that great at supporting franchises. It’s changed a lot. And it’s been fascinating to watch that in the industry. I love franchising, there are great opportunities out there.

Patrick: It seems like the top companies are open to feedback and improving, and I’m sure your surveys help a lot. Also, just they’re more technology?

Eric: Going back 17 years ago, the tools that we think of today that everybody uses in the business didn’t exist. The feedback loop from franchisees is critical. And helping their franchisees be more successful is what drives us today.

Franchising has a Proven Model, But it’s Still a Work

P: What were some of the findings, on the operational side, that franchisees were upset with that the franchisor could address?

E: The biggest factor is that there’s often a disconnect between the franchise development team and the franchise operations side of the house. I think it’s important that the development team and the operation team are on the same page and that you, don’t certainly oversell. And I think that’s where franchising as an industry has done a lot of that in the past. It often seems a lot easier than it is, and as. But as everybody that owns a business knows, small business ownership is hard.

That’s where a lot of people get attracted to franchising, thinking, “I wanna own my own business, but I don’t wanna work that hard,” and so, franchising has it all figured out.

Having candidates understand that does take time. I think the other aspect of business ownership that challenges all franchise companies is that individuals that are looking to be self-employed have friends that own businesses and are successful. But what they don’t necessarily see is the 10, 15, 20 years that individual invested in that business to get to that lifestyle today. We can help you. Franchise companies are very good at helping with that kind of aspect to make them a little easier. But at the end of the day, you’re still the business owner and have to implement.

Franchise Brands: How to Supporting Franchisees

P: When you started Franchise Business Review 17 years back, it was the franchisor themselves selling the opportunity. And then at the same office, they were together, the operations folks were on the road too. And then also franchise sales organizations that are essentially outsourced sales efforts or franchising them.

E: There are lots of people that represent franchise brands today. And so, it’s kind of, candidates come in and become franchisees. And then it’s the ops team’s problem to support that person. I think the organizations are doing a much better job of having operations involved very early on in that sales process to educate candidates and to validate their profiles. We just came back from the IFA conference, the International Franchise Association Conference, and it was amazing how many people I spoke to.

Their operations teams have veto power on any new candidate coming into the system, which is great. These brands know who’s successful in their systems, what skills it takes, how much money you need to have to be successful.

P: And its long-term incentives are aligned. Because, if the franchisor is making most of their money on the royalties as opposed to the franchise fee, they do wanna sell to a private equity fund or IPO, the valuation is going to be significantly higher.

The Investment Process: How to Evaluate a Franchise Brand

E: There are so many stories of brands that sold to people that could afford to buy the franchise, but didn’t necessarily have the skill set to run it. I tell people when you’re looking at a franchise brand, you should feel like, it’s a recruitment process, and they should be analyzing you as a candidate, just as much as you’re analyzing them. And if it feels more like a sales process, then you’re probably in the wrong place.

P: That’s well said. , some of the best franchises they don’t even recruit, or there’s hiring from within like Domino’s Pizza, Dutch Bros Coffee. You have to already be in the ecosystem, and probably would have had to be already an employee and manager to even be considered to be awarded a franchise license.

Franchising Business Review: What Ownership Structure is Right for You?

Patrick: How do you see it in terms of hours worked, earnings? Because I’ve seen some of the reports you’ve shared on your site that have some pretty interesting insights in terms of how much money franchisees are making, or how many hours they’re working. Which hours worked seem much higher than I would have anticipated.

Eric: It varies significantly. There are a lot of owner-operators that just have one location and then there are lots of multi-unit owners that have a whole organization or team to support those units. And so it is, for franchising goes across lots of different industries.

If your dream is to own a business and make $50,000 a year and work 20, 30 hours a week, there are franchises that you can do that with. If you’re looking to own multiple locations and build an empire, you can do that and make millions of dollars. But you’re going to need a much bigger infrastructure and a team around you…