Learn how to avoid the mistake of purchasing a franchise and immediately getting stuck waiting for customers to call you. Learn how to have big success from the moment you purchase a franchise.Sign Up to Watch
the yahoofinance of business
-What's up, guys? My name is Daniel McKenna. I'm the executive producer here at Thrive15. I also happen to be the president and CEO of a artificial turf cutting company. Business is slow. And today we're talking about hitting the ground running with your new franchise and how to start a business. Who is Terry Powell? You're going to want to check this. Specifically if you're getting into your new franchise, you're going to want to know how to get going as fast as humanly possible.
Terry has all the experience in the world when it comes to franchising and he's going to lay it out for you-- what you need to know to get going right away and how to start a business. Here at Thrive we believe that knowledge without application is meaningless, meaning you have to do something with what you learned today in today's lesson, otherwise today's lesson is going to be more meaningless than entering a competition to find out who is the world's most average man.
-Terry Powell. How are you, my friend?
-Clay, great to be here. I'm doing great.
-Hey, today we are talking about hitting the ground running with your new franchise. So this is for all the people who've invested in a franchise business model or maybe somebody who's on the verge of investing. You're kind of going, what happens once I'm actually starting? Day one, sort of thing. And so there's really four phases of business development for franchise owners, for franchisees. There's really four phases there. And so we're going to be discussing each one. And basically I'm going to start off with phase number one here.
Phase number one, I kind of call this the baby phase. But basically this is the phase where somebody has just signed the contract and before they see their first customer. Talk to me about-- I mean, if we can take me to that place, you can kind of imagine. I just bought one. And I just paid you. Just bought the franchise. And I haven't seen a customer yet. Walk me through what that phase is like, this baby phase.
-You'll have signed the license agreement and so now it's official. And all the elements that come forward as a result of now becoming a franchisee under that license will become available to you. And the beauty of it is that the franchisor has it all structured. So they'll be a pre-launch phase in those cases, where they'll prepare you for the initial training and ongoing training to be able to open your franchise business and how to start a business. So right away they're going to want to get some of the details of the way.
Right now you're just learning about the business, so it's building on your education and awareness around how to apply the franchise model for your own benefit.
-Correct me if I'm wrong here, and I probably am, but on the franchise disclosure document, I can see a table of contents of my operations manual. So I can see the table of contents for my operations manual before I buy one.
TERRY POWELL: Yes.
-But I can't actually see the operations manual until I buy one. Is that right?
-Yeah. And the operations manual will be a piece of that ongoing roll out. But also you're going to see in that disclosure document the curriculum and the process of what your training is going to be, which is launch.
-So there's a lot to know here. I could be learning new equipment. I could be learning my operations manual. I'm setting up a lot of systems. It's kind of-- I think I've heard it said, it's getting ready to get ready. Or what exactly? Is it kind of--
-You want to avoid that phase.
-You want to avoid that phase?
-That usually happens when you get a little bit overwhelmed and you shut down a little bit temporarily. You spend too much time looking to totally grasp or understand everything before you actually start letting the business model benefit you.
-So you really need take action here. You don't want to get stuck. Do you find that a lot of franchise owners are a little bit scared right here, where they go, uh oh. I just bought something. Do you see that? Or I just invested in something. Do you see that?
-Well, right before that point we call that the sweaty palms syndrome. And that's a checkpoint. We say, we tell people, don't become alarmed by that. We'd be more concerned if you didn't have it. And I once they've made the commitment and have been awarded the license, they shift over to how quickly and how abundantly can I get the information that I feel that I need to get the business and get the results.
-And I think we always have to keep in mind. We always have to mention this. We have to keep in mind. The franchisor is not really making any money until you are making money as a franchisee.
-Well, yeah. They're recovering some of the investments they had to make to be able to bring on and offer you a franchise. And now they're going to be putting the most energy and effort at that launch phase is when the franchisor is putting the most energy and effort, as are their team members, with the least amount of royalty coming in. Because you haven't even generated $1 in royalty stream.
-How much contact should a new franchisee be having with the franchisor at this phase in their business development? How much contact should we be having.
-Franchisee really doesn't need to be concerned about what that'll be, how much it'll be, or what the steps are, because everything is rolled out in a very strategic approach, paint by numbers-- or think of it about building a skyscraper. You want your business to be a skyscraper, but the foundation has to be built first. A lot of times they're going to want to jump to the second or third floor, when the franchisor's going to keep you focused on the logical sequential way to build on that.
-So if I'm a little bit overwhelmed, feel a little bit over my head, this is normal?
-Yeah. It's very normal.
-I just don't want to get stuck getting ready to get ready. I want to keep on taking action.
-Yeah. Just allow the system to work. We call it the Nike principle. Just do it.
-OK. So we're moving on to phase number two. This is the toddler. Anybody who has kids or maybe if you've ever been a kid, you know that toddlers they have to kind of learn to walk. They're just learning to walk. They tend to make a lot of mistakes, but they're taking action. You don't see a lot of kids getting dejected that they fall down often and then just quit trying. They just keep going here.
And so this toddler mindset-- in my mind, this is the phase that goes from the time where you've actually seen your first customer to really the point where you're starting to successfully make it through your first year. So it's kind of like, did somebody just walk in? Did we just have a customer? That kind of euphoria to the end of the first year. Can you walk me through some of the things that are going on, from a mindset perspective, during this first-- from the first customer to the end of the first year?
-Well, there is a lot of things to learn and a lot of surprises along the way. But all of them are orchestrated and understandable, from the franchisor perspective and from the education. But toddler is a great way to describe it. And we talk a lot about franchising being so successful, because they provide the guardrails.
And if a toddler's just learning to walk in our home, we also put up guardrails. We block off the stairwell, we put cushions around the hearth on the fireplace, because we know they're going to stumble. They're going to make some mistakes.
All franchisees make mistakes. The good part is there's no mistake you can make within the guardrails of that licensing system that will detract from your results. So the idea is be open to be making mistakes as part of your learning.
-And I will say, this is a huge reason why I love the franchise model here, from my own personal experience. I know I decided to buy radio ads back in the day with one of my first businesses. And we sold wedding entertainment to brides and grooms. Well, almost all the purchases were driven by brides. I bought ads on a talk radio station that had almost an all-male audience. And a lot of then.
So the ads just kept running and running and running. It was like about $8,000 a month. And I kept being like, when am I going to get a call? Well, because there wasn't guardrails, I had got pretty intense about it, and there wasn't any guardrails.
Where I see, a lot of times, when people buy a franchise, there's more guardrails in place, where they say here are a few marketing avenues that have been proven to work. Choose which one. We recommend this much, not that. More than this much, not less than this much. And there is enough guardrails where you're going to fall, but it's not going to be-- like, you're not going to a break a leg, usually.
-Right. It's not going to take away from the results that you can obtain.
-Now what are some of the joys and the challenges that the franchisees experience at this point? When this first-- in this toddler phase.
-Well in the first six months, we encourage new franchisees to spare us their brilliance. And the beauty of recruiting franchisees into a proven system, is you want to have people that have proven successes in their past careers.
-So they're knowledgeable, intelligent, well-meaning individuals. So they have a lot of things they bring to the table. And most of them want to share that as their brilliance to improve on the franchise system before they actually apply it. There is a lot of that that takes place naturally for many achievers, but it's something that can really get you off track. You really need to just settle in. Apply the Nike principle-- just do it. Follow the system, and spare your brilliance of ideas, suggestions, modifications, and things until after the six months.
-Now there seems to be a lot of eagerness and optimism during this phase, where there's kind of a-- not utopia, but there's a belief that things could be great. We could build a big business. We could open up multiple locations. There seems to be a lot of that energy there. What are some of the big, big, big issues that you deal with, despite the optimism, during this phase that are pretty common?
-Well, the most interesting thing and most common is that the franchisee, during this phase of determining to invest, puts together their idea of the best and worst case scenario.
-And then they come to a conclusion that they can deal with that transition phase during the first six months to a year.
-They also understand that there's going to be additional investments and things that they're going to continue to make while they're building that business. But interestingly, right after their-- after their first month or so, they start questioning that and wondering why it's not happening sooner. And they also get nervous about continuing to make the investments that it takes to get beyond that first six months. So they start to pull back.
-I'm going to give an example of what not to do here, because I've seen it happen first hand. I know of one particular situation where, in the franchise agreement, the person who bought the franchise is required to spend a minimum amount of money each month on advertising.
-And I think month one, they pulled their ads. They said we're not doing it. Month two, we just can't do it. And they weren't really honest with the franchisor and their financial situation in certain areas. So they pulled back ads. Well, then less people showed up. So then they pulled back staffing.
And then they had less than quality standards. And then it's a bad cycle. So really, this is when you probably need to be extremely-- I mean, the entire time in a franchise, you need to follow the systems. But specifically, this is when you really need to implement, with pig-headed discipline, these systems, right?
-Absolutely. And you need to stay true to the course of the plan, from a standpoint of making the transition from investment, and continuing to invest, in order to get a higher return. So if you start to cut back or you start to change that, then don't expect the same return in the same time frame.
-Now, we're going to move on to phase 3. This is what I call the teenage phase. And this that phase where you're kind of unruly. We think we know everything, but we know nothing. And I just did an informal, unofficial survey just walking around Walmart, and I discovered that about 99% of the teenagers there were not happy with their parents.
And I think in franchising, I see this a lot, where somebody has been in business now-- they've finished year 1, and now they're going-- you mentioned sparing us your brilliance in the first few months. Now we're saying, I've made it through a year. I know everything. And I'm going to just start making crazy changes. I'm going to reinvent the whole wheel.
Walk me through, in your mind, why you start to see franchisees get a little unruly sometimes after that first year and some of that teenage stuff going on. What do you typically see there?
-A lot of similarities to raising teenagers. When they start into that teenager age, they were very close to their parents. They were following a lot of guidance. And then all of a sudden, it's like something happened, and they know no longer really want to hear that advice or they no longer want to have a parent involved or even recognize the fact that they have a parent. A little bit of that occurs in a franchise, but fortunately, not at the 95%. Our experience is about 15% to 20-some percent of the franchisees struggle with that teenager type of mindset.
-And I think that the second phase-- we're talking about the toddler-- they're optimistic. They're euphoric about, this could be great. And now they start to get a little cynical-- like I bet you the corporate office is making a ton of money. And I think not everyone does that, but about 20% of people do. And I think it's important that-- I can just share objectively, having spoken at franchise conferences, it doesn't matter what franchise you invest in. There's always going to be about 20% that feel that way out. And I start to notice the mindset that could creep in of entitlement, that we're owed success from the corporate office.
Can you explain to me the danger of getting stuck in the entitlement mindset and maybe the mindset I want to have as I'm going through this teenage phase?
-Absolutely. And that's a great way to put it-- entitlement. And you typically find that that comes from those who have already started to modify or adjust the model and work outside the guardrails. They've gotten comfortable with 80% to 85% of the system pretty quickly. But there's that 15% to 20% that's outside their comfort level that they're starting to avoid or rationalize that that's not really important.
And when that happens, then the results don't come. Then they get that entitlement. Well, I did everything you told me I was supposed to do. I followed it to a T, and the results aren't here. This doesn't work.
-I will give you one example. I know in the insurance business, whether you're an independent agent for New York Life or Farmers or State Farm, whatever the brand you choose, there are systems. There are call scripts. There's ways to answer the phone, things you're supposed to say, things you're not supposed to say, ways you're supposed to present. And I notice a lot of people in the insurance industry specifically that will follow the prospecting process but not follow the conversion system.
And so in their minds, they're like, look, I have the uniform. Look, I have the office. Look, I have the poster. I have the sign. I have the auto wrap. I have the prospecting. I buy my leads. People aren't buying. And so you see that 15% of the conversion not being implemented, and it creates all the problems.
Is it pretty widespread for people to not want to do the whole system?
-It's fairly common. What really starts to happen in the conversion aspect is that every business has metrics. And the new franchisee starts to look at what's not happening more than what's happening. So they take their eye off the progress they're making and look for perfection or what we call the horizon of the perfect that needs to happen.
And they lose sight of the fact that those were already part of the metrics. Not every client is going to convert. Not every customer that you reach from advertising is going to come in the door. And those who come in the door, not everyone is going to purchase. So they start making that mean that this isn't working, when in fact it was already part of the metrics of what you need to go through to get to the success.
-And I want to share something. I'm certainly not a therapist, although I might need a therapist from time to time. But I want to share this.
In any relationship, there's going to be a strain. I don't care if you play for the best football coach in NFL, if you have the best husband and wife relationship. You're going to eventually disagree about something. And in the world of franchising, it's no different. You're going to disagree. And there's a little bit of a strain there. But the thing is, you have to have a commitment to seeing it through to get through this process.
How important is it for the franchise owner, the new franchisee, to be committed and have a lot of faith in the brand they just bought during this phase?
-Well, it's very important to have faith in what you've invested in or faith in anything you do. But the idea of it from a standpoint of what do you do from the standpoint of implementing and how do you follow through on that-- you talked about a relationship. If every relationship had the structure of a franchise, interdependent relationship, they wouldn't have the struggle.
So any time you have an issue with a relationship in a franchise, you can take a break, go back and look at the license agreement. And it thoroughly describes the relationship and what your role is as the franchisee and what our role is, so we can do a checkpoint. We can do a self-audit. We can look at that and say, OK, have I met my obligations as the franchisee, and has the franchisor met theirs, and then have an open dialogue and discussion about that.
Send us your email address, and our team of elite minds will get right on it.