Dashboard: How Much Money Can You Make Franchising?

Welcome to another 21 Hats dashboard. I'm Lauren Feldman and I'm here with Eric Stites who is CEO of Franchise Business Review which helps people who are interested in buying franchises assess the many opportunities that are out there. Welcome Eric. >> Thanks Lauren. Glad to be here. >> It's great to have you here. Tell me a little bit how uh franchise business review works. uh what's kind of your methodology for assessing the opportunities that are out there? >> Yeah, it's a great question. So, um we've been doing this 20 years and the in the best way I can explain it is we're kind of like the consumer reports of the franchise world. And so what that means is we actually uh survey individual franchise owners, the franchises um and ask them questions about their franchiseor and their satisfaction with the business. And so um like you know ratings and reviews of many things um it it's it's basically ratings and reviews of franchise companies based on owner satisfaction. Um, and like I said, we've been doing this 20 years and uh, we survey 30 to 40,000 franchises every year and um, publish publish the lists of the top franchises out there based on that owner satisfaction. >> So, obviously those ratings help anybody who's looking to assess the various uh, franchises that they might consider buying. Do you also work with franchiseors to help them? What do you do for them? >> Yeah, so basically um any company any any franchiseor can participate in our research at no cost. I mean we want it to be independent and open to anyone. Um most of the companies that do though uh buy the survey results from us so they can understand how they're doing supporting their franchise owners and how they can get better. And so um you know it's really it's it's a great operational tool for a franchiseor first to again understand how they can get better at their training and their support and their marketing that they're providing to their franchises. Um obviously they get a lot of feedback from their franchises as part of the survey process as well. So a lot of ideas uh and improvements can come out of that feedback. Um, and then you know on the on the I guess development side of things, if if they do have good satisfaction with their owners, it's a great tool to help prospective franchises, you know, get a better understanding of of, you know, how franchises feel um about about the franchiseor and and kind of that, you know, validating um the brand. And so, you know, not unlike, you know, Amazon reviews or Google reviews or anything else, um, franchise business review is the, you know, the review authority of of franchises. And, you know, I I think there's really nothing more important um, to think about when you're getting into a franchise brand is, you know, what do the what do the existing franchises have to say about their franchiseor? and and so it's really uh it's it's really a great tool for that. >> How did you get into the business? I guess I'm kind of curious whether you saw the gap the problem uh the gap between franchises and franchisors and thought there might be a way to address it. >> Yeah, it's a it's it that's a great question. I mean, 20 years ago, um, when I started, I was working for a franchise marketing company that that was helping franchise companies generate, you know, leads for, you know, people that wanted to open their franchise. And, uh, one of the one of the brands I was working with at the time, uh, it was actually Dunkin Donuts. Um, they they had great interest in, uh, from from people that wanted to open their franchises. Um, but they were having trouble uh with their franchises uh returning phone calls and kind of validating the brand for them. And they had great validation. Um, but you know, as any business owner, franchise business owners are very busy. And so, you know, the average franchisee in a in a system like Duncan, you know, might get, you know, dozens of calls each week from people that are thinking about or dreaming about opening opening a Duncan franchise. And so, you know, we kind of put our heads together and we were like, uh, you know, everybody wants to know the same things. Are, you know, is the training good? Is the support good? Is the marketing good? Are you making any money? Um, and so why don't we just survey those those owners and uh, you know, and share that data with with candidates. And so that was kind of the the light bulb moment. Um, and then we quickly realized that it needed to be, you know, independent third party, like it couldn't be something that the brand did internally in in order for candidates to believe it. So, um, long story short, I quit my job and, uh, hung out the franchise business review shingle and, uh, been doing this, uh, 20 plus years now. >> Wow. Good for you. When I was a Cub reporter, one of my first jobs as a business reporter was at the Columbus Dispatch in Ohio. And I just in in looking for things to cover, I just realized that there Columbus was kind of a hotbed for fast food franchises. And I I hadn't really appreciated this previously, but it was it was because Wendy's came out of there and did really well and made a bunch of people, investors, a lot of money. And for a while after that, anybody with any cockami idea could raise money for a fast food franchise in Columbus. Uh I'm just curious. That's the only situation like that I've been aware of. It was really fascinating to me, especially following the the crazy ideas that didn't work out. Uh but is that something that comes and goes in the industry? Have you seen other examples of bubbles and you know hot streaks and things like that? >> Yeah, for sure. For sure. And it's it's it's common um you know there are kind of these hotbeds of franchising uh headquarters around the United States. Uh towns like Minneapolis and Atlanta uh Denver for sure. Um and you know it's it's people jumping from one concept and starting a new concept and um you know Minneapolis uh was big in in uh hair cutting um Regis which is one of the biggest hair cutting companies in the world is based there and you know that's spawned a number of other brands um and that that's true in the fast food industry. It's true in in many different industries and um you know the I get the question a lot is like Eric what's hot in franchising today? What's the >> that's my next question Eric. >> Yeah. What's the hot new concept? Um and you know my gut is always you know kind of like you know do you really want to invest in what's hot? Because what's hot is probably really trendy as well. And so you might have a good, you know, couple year run, but um, you know, I I I tend to be more attracted to those industries that are kind of steady and and and recession resistant and, um, and proven over decades that that they work. And so, you know, certainly there's lots of, uh, new concepts every day popping up in the food sector. Um, lots of people obviously think, you know, think about food and franchising kind of handinand, but what they don't realize is how many different sectors um, really there are out there in the franchise world is if you think about any type of business, whether it's, you know, I know you've you've got several uh, business owners on your podcast and, you know, from picture framing to uh, construction to real estate. um you know all those industries also have franchise companies um operating as well and so you I think that's the biggest thing that people find out when they start looking at franchising is that there's there's so many different types of opportunities beyond just just food. Um, and again, I like to, you know, focus in on, you know, those brands that have been around for a while and and have a proven track record and, you know, it it's a service that's, you know, going to be here 5 years, 10 years down the road. >> So, I hear your caveat and that investing what's in what's hot may not be the best strategy, but I'm still kind of curious, what is hot right now? >> Yeah. Yeah. Well, um, you know, again, like I said, food is, you know, there's lots of new concepts popping up in food and, um, when you think about kind of like the fresh alternatives, um, to, you know, like the I think Chipotle kind of started that and Chipotle is not franchising. They're they're corporate owned, but um, lots of concepts have kind of popped up following that type of model. Um, you know, Dave's Hot Chicken you may be familiar with. Um, that that popped up out of Los Angeles a few years ago and just exploded um and recently sold I think for a billion dollars. I think I read that. So, >> yeah, grew grew very quickly. I mean, a few years back um yogurt, frozen yogurt was a huge there every every corner on in every city in America had yogurt shops popping up left and right. That was like 10 or 15 years ago, wasn't it? >> Yeah. Yeah. And you know, and unfortunately, a lot of those um are gone. And so um you know, fitness is another industry that tends to be very very trendy. And so like there's different types of fitness uh categories or fitness uh concepts popping up here and there. And you know, but some stand the test of time. When you think of like, you know, Gold Gym is still around. Planet Fitness has been around for several decades and and so I think you know that's that's generally what I tell people is like you know yeah you know hot might be good but you know I I like the the steadier more uh you know more recurring businesses that have been been around. I mean certainly another another industry which a lot of people don't realize is franchised um is home care, senior care um and that's been booming for over the last decade obviously because of the aging population and so um you know that I would say that's a very hot industry and and potentially very lucrative as well. >> Do some of these chains manage to succeed even when things cool off? for example, are there frozen yogurt chains doing well right now? >> Yeah, it's a great question. I think, you know, it really v or varies, excuse me, from market to market. And so, um, I think and and that's where a lot of franchise companies often get into trouble is, you know, they they start in their home market and kind of expand from there and and they've got a very secure footing in that market um and and can do do well. um you know regardless of what may be going on in the economy. Um but then a lot of times they'll go to grow and you know instead of you know just expanding regionally they'll jump you know maybe from the east coast to the west coast or um you know from the north down to the south and they they end up with you know a bunch of units or locations spread out all over the place. And you know that gets complicated um both from an an operations and support uh perspective but also just from a branding and marketing standpoint um when you have that kind of more saturated um exposure in in a single market. it it's good for for all the franchise owners um versus, you know, having one person here in California and one person here in Massachusetts and another down in Florida. And um it's a lot, you know, it kind of spreads things out too thin. >> I'm sure you get asked this question all the time. I'm not sure if you can answer it, but I'm gonna try. >> Sure. >> Um >> how much money can someone make in franchising? Is it possible to answer that? Yeah, that's a great question. You know, I just gave a talk this weekend out in Los Angeles at the franchise expo there on this exact topic. Um, and my first slide answers the question. >> Really? >> It's $142,000. Um, and uh, yeah, so >> that's a very definitive answer. >> Yeah, it's kind of it's kind of a joke. Um, but it's it is based on on data. So, as I said, we research tens of thousands of franchises every year. Um, one of the questions we ask them is what is their pre-tax income? So, that that 142,000 is kind of an average of all the franchises that we survey. >> And do you think is that salary? Is it salary plus profit? Do what does that represent? >> So, it's basically any money and or profit that they take out of the business. So, Got it. >> Um, yeah. And small business owners pay themselves in different ways. Some take a salary, some just take a draw, some, you know, obviously take it more out in profit. And so basically, it's it's the amount of money whether it's salary uh or or bonus or or uh draw or whatever they take out of the business as their pre-tax income. Um, the reason I guess that number is not all that useful is it's an average of all the franchise owners that we survey. And so, you know, we survey single unit people. We surveyed, you know, people that own 10, 20, 30 locations of some brand. Um, it's people that have been in business for 20 plus years as well as people that are just getting started. And so, you know, it's it's really all over the map um as far as, you know, the the industry and that, you know, how long you've been at it and and that sort of thing. And so, while it's a starting point, um I I definitely don't want to give uh your listeners the idea that you can buy a franchise and start making $142,000 next year. Um, you know, in some systems that may be true, but you know, for the vast majority it it will take you uh time to get there. >> For somebody who is just getting started and thinks this is a uh something they would enjoy doing, something they would be good at. Can you guess at what a reasonable expectation would be for that kind of person just starting with one one purchase? I mean, you know, the advice I give people is, I mean, you know, again, it's hard to generalize because every industry is so different. Um, sure, you know, if you think of the service industry, when you open up for business, um, you have to go out and and start getting customers. And so, it takes you a lot of time to kind of build up that clientele. um versus like in the food industry oftent times when they have a grand opening uh their their business you know they open the doors for the first day and and their business comes flowing in and and they have sometimes their highest sales at grand opening. So it really varies uh depending on the brand and the industry that you're looking at. Um, the thing that I, you know, I also, one of the other things people often ask me is like, you know, somebody's coming out of corporate America and they're like, "Eric, I make, you know, 200 grand, you know, a year. I need I need a franchise that I can make 200 grand out of the gate." And, um, and those types of opportunities are very, very few and far between. Um, you know, the exception, I guess, is, you know, if you have a lot of capital and you can open multiple locations very quickly, then that's a that's kind of a different scenario. But, >> you know, for the average person that's looking to open um a franchise business, say a a service business, whether it's senior care or pet services or child services, whatever. Um, I generally say as a good rule of thumb, like don't plan on, you know, paying yourself or taking any money out, um, at least for the first 6 months, if not, you know, year. Um, you're going to want to put that money back in the business and and reinvest it in the business. Um, now having said that, you know, that's not always realistic for everyone. You know, they have to pay their living expenses. And so, you know, certainly the ideal situation is if you're, you know, have a spouse or a partner um and you can live on one salary while while the business is getting up and running. That's that's a great opportunity. Um it may require you if you're not um in that situation, you may be required to take a larger loan to kind of cover some of your um living expenses as well. Um but yeah, I I tend to tell people, you know, don't expect to take money out of the business. um for a a good period of time. And and that's a great opportunity too when you're doing homework on different franchise concepts is talk to other franchises in that brand and ask them, you know, what their experience was as far as how quickly the business ramped up and when they were able to take some cash out. >> Can you give any guidance on when you believe it makes sense to buy a franchise versus starting your own business? Yeah, it's a great question. Um, you know, because I, you know, I'm very pro- franchising. Um, but, uh, it's not for everyone, for sure. And so, uh, franchising is is kind of, uh, you know, the the the cliche and kind of the saying around the industry is it's it's being in business for yourself, but not by yourself. Um, so certainly it comes with >> or if you want to put it even more in slightly demeaning terms, it's sometimes referred to as people buying a job. Yes. Yes. I mean, in in some cases, but I I I don't think that's really a fair assessment. >> That's what that's what I wanted to hear. >> Yeah. So, you know, it's basically a business with guard rails. So, you know, at the end of the day, um, in a franchise system, you you own the business. You know, they're the the franchiseor is licensing you their brand and and their operating procedures and all of that, but you you own the business at the end of the day. um you know any employees that you have they work for you they don't work for corporate um and ultimately you know you're building an asset just like any other business owner that you know you'll be able to hopefully sell for a profit um you know down the road and so you know again it's based on that relationship with the franchiseor so you know when you go to sell your franchise the franchise the franchise brand has to approve the new person that's buying that business, but um you still can sell it and and sell it for a profit. And so it's it's just, you know, the the type of person that's um a little bit more entrepreneurial and kind of likes to do their own thing and doesn't isn't so good at, you know, maybe following directions. I mean, those those types of people um >> that's true of a lot of entrepreneurs. >> Yeah. Yeah. they tend to not be great uh franchise owners just because they're they're trying to reinvent things and and not just follow the system. Um, and you know, the best franchise owners are those that, you know, are creative certainly, but you know, they're smart enough to understand, hey, you know, there's an operating plan here and a playbook here, and I just need to follow the system and do what everybody else is doing. you know, and that's really um you know, aside from obviously the brand name and the marketing and all the support that you get in a franchise, um having access to that network of other franchise owners is huge because, you know, you can pick up the phone and call anybody in in your network that's operating the exact same business and you can compare financials and you can talk about challenges. again, not just like you do with with all the people on your podcast, but you know, these people are operating the exact same business. So, when they're comparing, you know, food costs or employee costs or, you know, insurance things, um, you know, all those things are kind of more apples to apples within a franchise brand. Um, you know, the other analogy, um, or not example really that I like to talk about is, um, in COVID, um, when you think about the impact that had on many small business owners and how many small business owners had to scramble and and pivot to figure out, you know, how to survive. Um, many franchise brands thrived during COVID. And again, think about it. you you've got the support of a a large brand behind you. Um, a lot of experienced operators out there. They they were much faster at pivoting um and in kind of doing that research and figuring out curbside delivery or, you know, delivery at home or whatever it was to get through COVID. Um, as well as like even uh navigating the the the PPP loans that the government was getting out. uh you know, a lot of those went to franchise companies first because they were the first ones to kind of figure out how to get that for their franchise owners. So, >> it's it's great to have that corporate support behind you. Um but again, you know, you want to make sure that you know not not every franchise is created equal, for sure. And so, you want to make sure that um you talk to many franchises and ask them, you know, what their experience has been with the franchise brand that you're thinking about. Do you believe that franchise owners are in fact entrepreneurs? >> I do. I do. Um, you know, and and I'm sure people debate this. Um, but, you know, I think it definitely, uh, takes, you know, when I think about entrepreneurship, um, I think about a a couple of different things. I mean, certainly risk is a part of that. Um, and and not being >> a big part. >> Yeah. not not being afraid to take a risk. Um, and but you know, betting on yourself and and certainly owning a franchise business, you know, comes with a big risk and you're betting on yourself. Um, it's, you know, you're not starting the company from scratch. So, you know, I'm sure there's, you know, true entrepreneurs out there that that built their company from scratch that would be like, "Oh, no, franchising is not, you know, that's not entrepreneurship." Um but but I I disagree. I mean I think that um a lot of franchises are very entrepreneurial. Um and I mean and the stories are amazing. I mean, I met a guy a few years back um that came to the c came to the US as an immigrant um started working um in one of the fast food chains as a dishwasher. Um and then ultimately worked his way up to, you know, general manager of that location and then the owner of that location um helped him buy that location when he was ready to retire. And that gentleman went on to own hundreds of fast food franchises. Um, and so great great success story. Again, I don't want to just talk about fast food because there's so many other opportunities out there, but um, you know, franchising it is a great opportunity for folks that, you know, want to own a business, um, but don't necessarily um, either have the idea or the energy to start one from scratch. Over the years, I've bumped into a handful of uh franchise chains that had a policy that they would not sell a franchise to anyone who hadn't worked as an employee in in in the company in the franch uh in or one of the franchises. >> Yeah. >> Has that is that something that is is catching on or has caught on or is widespread or is that still pretty rare? Yeah, I mean I I say it's fairly rare, but I mean certainly it is encouraged. I mean most um most brands do require you as a new franchisee. So you know once you become a franchisee as part of training um you'll often go and work for one of their franchise locations. Uh you know it might just be for a week or two. It's not necessarily um being an employee for a long time. Um certainly, you know, when I tell people when they're doing their homework on various brands, I I tell them if they can have an opportunity to go shadow a couple of franchises either in their local market or, you know, nearby local market, uh that's certainly a great opportunity to kind of understand, you know, the ins and outs of the business and and what it's like to actually run the business because, you know, the important thing, you know, aside from owner satisfaction and the investment and the financials and all of that stuff. I mean, you need to find a business that you're passionate about and excited about because at the end of the day, like if if you're not excited about this business and doing whatever it is, you know, you need to do uh to be successful, like you won't you won't make it. And so it's important to really understand, you know, within a a specific franchise brand, you know, what what are their top performers doing on a day-to-day basis because it's often very different than the product or the service that they may be providing. Um, I mean, I think fast food in that case is a great example. You know, it's not, you know, the the franchise owner is not preparing the food and and all of that. I mean, they're managing a great team that does all of that. Um, and there's a lot of, you know, people management to and operational management to make that happen. Um, other businesses, you know, you as the owner are going out and, like I said, building a clientele in your local community. So, it's a lot of sales and marketing and and networking, you know, going to better business uh meet or chamber of commerce meetings and other business meetings and and nights and weekends and that sort of thing to kind of build out your business in in your local community. Um, but you know, that might not be a great fit for somebody that doesn't like, you know, talking to people and networking and sales. Sure. you know, you might you might want to then look at, you know, business that's a little bit more focused on, you know, an operator or operations. And, you know, and the other thing in in the franchise business is you can always hire for, you know, the skills that you're not necessarily the best at, but you just have to keep in mind that, you know, obviously the more you hire, the the more money that's going out the door to support those employees. And um you know there that kind of reduces what will be left over for take-home at the end of the day for you as the business owner. >> What's the least amount of money you might need to get started with a franchise, you know, for the price the franch the fee the initial fee cash on hand? >> Yeah. Yeah. No, it's a that's a great question. I mean, there are franchises out there. Um there's a couple of uh brands that we do a lot of work with that are in the travel industry. Um and the initial investment is under $10,000. Um and you're basically a travel agent selling um vacations and cruises and and that sort of thing. And it's a work from home concept or work from anywhere concept. Um you know, you you if you've got a computer and a and a phone um you can do that business. And so, um, you know, there's there's lots of, uh, lowcost, uh, we we define low cost as investments under $100,000. Um, but, you know, there's lots that are, you know, well below that in the, you know, 25, $35, $50,000 range. Um, and I think the other important piece to keep in mind, too, is, you know, that the there's the total cost of the business. Um, but that doesn't necessarily mean you need to write a check for that full amount day one. Um, again, because of, you know, you might get a loan and finance some of that. Um, or maybe you have some savings that you know, you can you use to get into that. But, you know, if you think about it's very similar to buying a house, right? So, um, you know, if you buy a half million dollar home, you're not writing a check for a half million bucks. You're financing it over time. And in many cases, you know, businesses are financed, you know, they might put, you know, 25 30% down, um, but then finance the rest over time. And and again, that it's all over the map from industry to industry and what what those requirements are. Um it's it's just a great opportunity to again talk to franchises and find out what their experience was and because as you know um and and all your listeners know is the worst thing you can do is be under capitalized when you go into a business and you know it might be a great business but if you don't have enough money to to keep it running um it it it will fail ultimately. So that's that's the worst case scenario and and we certainly coach people to say, you know, make a make a plan A and a plan B and and then also have a backup plan to, you know, get additional capital if you need it. Um because, you know, when you're running low on capital and you've already spent $100,000 on a new business, you know, oftentimes that's not when bankers really want to talk to you. Um, you know, if if you're uh thinking about getting into business and you haven't made that investment yet, um, certainly bankers will be very interested in in talking to you and talking through lending options um, and financing options. But you you definitely want to make sure that you're properly cap properly capitalized and uh, and have a backup plan because, you know, not everything goes as planned as we know. And so there's, you know, sometimes costs that pop up that you didn't think about or didn't know about or, you know, maybe it just takes you longer in your market. Um, you know, it's good it's good to have some backup options. >> Is that the biggest or most common mistake you see people making, not having enough capital on hand at the beginning? Yeah, I think I think that as well as, you know, um and and kind of combined with that is taking money out too too soon. So, you know, instead of reinvesting uh in to grow the business and spending money on marketing um and in sales or whatever it is that that really drives the revenue side is that people start they start making a little bit of money and then they start you know the first thing they do is they increase their salary. Um and so you know certainly the franchiseor would advise you against that and good franchiseors will will kind of tell you what you know what their kind of guidelines are but you know once you own the business they can't stop you from you know I mean obviously they have usually requirements for the amount of money that you need to spend on advertising but um you can you can take out whatever you want for a salary and and that may put the business in jeopardy if you take out too much too soon. >> How about looking at it from the other perspective, that of the franchiseor? We've had a couple of uh people on this podcast who have at one time or another considered trying to franchise uh their business. Um I don't think any of them actually did it, but they did at least think about it. >> What what what makes uh a business a good candidate to to franchise? >> Yeah, it's a great question. And I mean certainly um you know number one is you know a good strong business model. Um and unfortunately there's a lot of kind of you know I don't want to say a lot but there's there's some shady franchise concepts out there that you know the business model never really worked all that well and they're still franchising it and you know and they're not successful and the franchises are not successful. So >> they they couldn't get the model to work so they decided to franchise it. >> Yeah. Exactly. Exactly. But um so you know if you've got a good strong business model I mean that that's um you know in in demand for whatever the product of the service uh that you offer is is is good. Um that's that's certainly a good starting point. Um I think the biggest thing to understand as a potential franchiseor is you you're going into a new business. So, um, you know, whatever whatever the business is, um, let let's use the the framing business because I know that's that's something that your audience is very familiar with. >> That's true. >> Um, you know, when you become a franchiseor in the framing business, you're no longer in the framing business. You're in the franchise business and your franchises are now in the framing business. So your job as the franchiseor is to train, support, build the marketing and the research and the product development for your franchises. Um, and so, you know, I think a lot of people get attracted to the the franchise model just because they're like, "Oh, it's a it's a great way and an easy way to make a lot of money >> and you you can grow quickly and somebody else is supplying the capital." >> Yeah. Yeah. I mean, that's certainly the benefit of it is, you know, you you can grow a lot faster because it's you're using other people's money. Um, but like I said, you know, as the franchiseor, if if you're not investing in, you know, strong operations and strong marketing programs and strong technology and all those pieces that are going to make your franchisee successful, um, the the brand will, you know, quickly implode and and we see that a lot. I mean, there's a lot of, you know, every every year there's, you know, three 400 um emerging franchise brands that that pop up um and they'll get to, you know, 10, 15, 20 uh units or locations open um and they'll, you know, kind of implode or hit the wall and and then a lot of people will just be like, "Ah, this franchising thing is too complicated. I don't want all these people in my business. I'm going to stop franchising." And so, um, you know, it it's important, I think, as a as a business owner if you're thinking about franchising your business is to understand, you know, what it takes to be a successful franchiseor. It's a it's a big investment. I mean, just the just the legal, you know, aspect of of becoming a franchiseor and putting together the franchise agreement and um your your franchise disclosure document and the marketing and support and the operations materials. I mean, it's it's several hundred,000 just to to become a franchiseor um and sell your first franchise and it will be, you know, several years before you recoup that investment back. Um, for sure, even if you're growing at at a at a pretty good clip, >> I think that has surprised a lot of people. I mean, I think the the popular imagination is that you sell a franchise, you know, you sell 10 of them in the first year and, you know, it's all gravy. Um, uh, several hundred,000 that's that's for just the the legal work, the structure. >> Yeah. Yeah. >> Wow. >> Yeah. No, it's it's it's not an inexpensive endeavor these days. I mean, to do it right. I mean, you know, there's there's cheaper ways to kind of experiment, uh, if you will, around it. You know, you you can if you've got a business and you want to try, um, you know, opening multiple locations. I mean, I, you know, that's that's always the advice I give to a potential emerging franchiseor. If you think your business is is replicable and and potentially good for franchising, you know, why don't you as the franchiseor or you as the business owner open, you know, the first couple of units outside of your market um and prove that you can replicate it before you start, you know, doing it with other people's money. Um, you know, again, that that's not always realistic for everyone, but um, if you've got a good business and you've got good systems, then, you know, I think that's a great way to kind of test the waters. And and a lot of good new franchise companies will do that is they'll they'll open five or 10 just as corporate stores uh corporate locations and then their first franchisees will buy those locations um over periods of time and then you know and they'll grow from there. >> Is it even possible to franchise if you haven't opened uh multiple locations and prove that it can work in more than one place? >> Yeah. No, I mean I I I like I said, I was just at a franchise expo this weekend and there was, you know, several franchiseors there that don't even have their first franchisee yet. Um, and they don't even um, you know, most of them have at least a corporate business, but, you know, there's there's some people that start franchising with just an idea. >> Wow. >> They haven't opened it themselves. So, >> that seems scary. >> Yeah. And you know and and I think that especially when you're talking about franchising I mean franchising the idea of franchising is supposed to be you're investing in a proven business model with all these right >> systems and operational procedures behind it. And so you know when you're talking about a new emerging brand you know you're not going to get the same kind of level of support and operational experience that you get with you know certainly a more mature brand. Um and you know so you'll you know and that's I think going back to your question about how entrepreneurial is franchising. Um certainly in an emerging brand you can be a lot more entrepreneurial. Um you know if you get into a you know a McDonald's or a Subway or something that's been around for decades and you know has thousands of franchises you know they they've kind of figured it out. you're going to be you're going to be less entrepreneurial in those larger systems for sure. >> I think one thing that stops business owners from franchising along with the cost that you've just described and the complication is the fear of from from reading all the stories I think most of us have read about the tension that tends to arise between franchisors and franchises. Uh there's a lot of litigation. Uh is that inevitable that tension? >> No. No. Yeah. And I mean, you know that, you know, the the the thing about franchising obviously and it, you know, you're you're in business, so you're talking about money. And so, um, if you're a good franchiseor and you're realistic about the the financial expectations of the business and you've got a a proven system that works and you're providing your franchises with, you know, the support that they need, the training that they need, uh, I mean, you know, we if if you go to Franchise Business Reviews website and you look at some of the brands that are on our awards list, I mean, these are brands. Many of them have been around for for decades and you know they've never been sued by their franchises and so it's not inevitable for sure. Um, you know, where franchiseors get into trouble is, you know, when they're kind of over overselling and underdeling and, you know, they're setting expectations of, you know, you're going to do x amount of sales and, you know, it turns out that you're really not going to do x amount of sales and, you know, and then the franchisee gets into trouble financially and starts, you know, when when people get scared, you know, if you're not not what doing making the money that you thought were going to be making, you know, that's that's when they start changing how they perform in the business. And so they stop investing in marketing or they stop, you know, hiring new employees to grow and they're, you know, they're just scared and and then that just kind of spirals and and compounds. So, you know, it's certainly um you know, whenever you're dealing with people in business, um you know, there's potential tension, but um again, if you're a fair operator um and you're setting realistic expectations with your people and you're doing all the right things, um you know, there's there's a lot of great case studies of amazing brands out there that have, you know, grown fast, grown very large, and you know, and have not had any issues with their or or limited issues with their franchises. I mean, you know, you can you can argue with your franchises about many things. I mean, you know, might be uh whether the the logo should be red or whether the logo should be blue. I mean, as as as you grow, I mean, certainly you're going to get a lot more opinions about your business than than you would as a single, you know, business owner. But, >> sure, >> um, you know, that that can also be good, too, because it can help the brand, you know, change and and grow with time. I mean I that's that's another big component of of franchising is that you know every business obviously has to evolve and change constantly and and a lot of people get into franchising and they just are like stuck on what they invested in at the time and they don't want to reinvest. They don't want to evolve. They just want to keep doing what they were doing and they don't want to change. And so that can be problematic um for both franchises and for franchiseors that are trying to get their franchises to you know move along and and grow with the system. So um but again I think it's it's easy to do it right or I should say it's it can be done right. Um it may not be easy but >> right >> it's certainly been done. >> Eric I suspect I could talk to you all day. Uh, I really enjoyed this. Unfortunately, we're out of time. Um, but Eric Stites is the CEO of Franchise Business Review. Thank you so much for taking the time, Eric. >> Yeah, thanks for having me and uh I hope some of your listeners uh, you know, take take franchising seriously, whether they want to be a franchisee or or franchise their business and become a franchiseor. >> Well, if they're interested, they should check out the franchise business review. Thanks again, Eric. Thank you. Have a great week everyone. [Music]