Pete and Nat have worked with so many franchisees that they are starting to see some common mistakes newbies make when they start their business.
This episode provides the 10 most common issues they see and what to do to avoid them and make sure your launch and growth is successful.
Pete: Well, welcome Nat to the podcast
Nat: Well, thanks for having me, Pete.
Pete: Oh man, I got to tell you, is it the beginning of February or what? It's going to be a high of three degrees or something like this? Sunday. So super bowl Sunday, we got the big game, it's going to be a high of what? Three degrees or something like that?
Nat: I'm looking forward to it, you know what I always say, right? No such thing as bad weather, just bad gear.
Pete: Well, from Minnesota, so I agree with that 100%, right? Didn't ever slow us down. So you were probably up at the crack of dawn shoveling this morning because we got snow last night.
Nat: Yes. I was out there at 6 a.m., so slept in a little bit.
Pete: Ah, all right, so not bad. I still haven't figured out how to get my kids to snow blow yet.
Nat: Yes, my 16-year-old he thinks snow blowing is cool because I just let him snow blow now. So he was like, dad, can I do the snowblower? I'm like, oh well, okay if you're really careful.
Pete: Yes. No, that's good. I never quite instilled that with my kids, so I made a mistake somewhere, so that's good.
Nat: Yes, it all works out.
Pete: Yes, absolutely. Speaking of working out, one of the things that I thought we'd talk about today is the ten common mistakes people make when they invest in a franchise, so kind of when they start out. What do you think? Good topic for us to talk about today?
Nat: Yes. I think I probably could have written that book.
Pete: Yes, I know. You learn the hard way, right? So from our standpoint. So when you think back, when you bought your comfort keepers franchise, right? Name one of the mistakes you made as a new franchisee.
Nat: I think the one thing that comes to my mind, even though ironically, I was aware that I'm writing this big check, right? For a proven franchise system. But I think one of my biggest things was kind of trying to reinvent the wheel or just testing, like trying to do things different ways.
Like realistically, you're literally paying for a proven sales and marketing system and proven product or service. So you don't have to reinvent the wheel, which is kind of the beautiful thing. So for me, really just reinventing the wheel or kind of wasting my time doing some of that.
Pete: Yes. So not leveraging the resources, like if they had a brochure, you go create your own brochure, opposed to using their brochure. Something like that?
Nat: Yes. Instead of like talking to people and generating sales, screwing around generally figuring out a brochure, and also, you're paying for that. Whether it's three, those things can be like three to ten thousand dollars, which is insane.
And it's like, well, they have a brochure that hundreds of locations used successfully, so I don't. In hindsight, I wouldn't, all I would do is just sales, talk to people, business development, and use the tools that are already there.
Pete: Okay, well, let's talk about that, right? So I think another mistake people make is they invest in a franchise, but they don't follow the system, right? You get really smart people that they invest in franchises, and they think they know better than the system.
And bottom line is you're investing in it for a purpose, they've already figured out what the product or service is, who the customer is, where to find that customer, that's that point, the people to hire. I interviewed an executive he invested in a window washing franchise, and he got going, and he was terrible at it.
The partner contacted him and said, what are you doing? And he goes, hey listen, I know business, I've run divisions of companies. And they said we understand business, just follow the system and you'll be successful. Starts following the system, and it's not like in the top 10 of the network.
Nat: Exactly. Franchising is an implementation game, it's not really invent or be creative. I try to cover that early with my candidates that come from corporate if it's important to them that their business is a creative outlet and they can come up with the logo, and they want to be able to offer different products and services and all that.
I'll tell them point-blank, franchising might not be the best for you because franchising is really an implementation game all day long.
Pete: Yes. And I think as long as you follow the system, you can always make it better. I mean, I think of my buddy that owns the salon suite concept, right? He noticed that a lot of the people leasing the spaces were taking their towels home every night and washing them, dry and bringing it back.
And so he went out and bought a bunch of towels, hired a towel masseuse. And basically delivers the towels to them every day. And this is something extra, it's not part of the business model, but he made it better.
Nat: Right, yes, totally.
Pete: I know another common mistake people make is that they really don't leverage the support from the franchisor or the other franchisees because you got that whole network of other franchisees.
And I think, for example, if your closing rate, you're going out there and doing estimates for something. And your closing rate is below the systems rates; they don't go back to the franchise and say, hey listen, what do I got to do to increase it? What skills do I have to improve? Help me figure out how I improve my closing rates? It's crazy to me.
Nat: Yes. The nice thing about franchising is your interests really are aligned because they want you to sell more because they're going to make more royalties. So they'll literally a lot of times do whatever they possibly can to help you be successful, but sometimes they don't know that you need help, right?
Pete: Yes, you got to raise your hand and stuff like that. And then you've got that whole network of other franchisees that are out there, and you call your buddy that's a franchisee in a neighboring state and say, hey, what are you guys doing to deal with this? And really kind of leveraging that whole infrastructure of other franchisees.
Nat: Yes. I know you're not very competitive, Pete, so like if there happened to be like a group of franchisees that kind of posted their numbers, I bet you wouldn't have to be number one, would you?
Pete: Oh, well, I will do anything I can help to others, but I certainly want to be the very best for sure.
Nat: Yes. Well, that's one thing I love about franchising, too, is because you can kind of benchmark against other locations, right? Everybody pretty much has the same territory, right? Based on whatever the demographics are. And so if you can be chasing the number one guy, and hopefully you get there, right? As the new guy.
Pete: Yes, absolutely. I mean, and the nice thing is you've got a lot of data, right? By comparison. So I think that's pretty cool. I think another mistake people make is they hire the wrong key employees, and I think that's true of any type of business. But especially the franchising, if you pick the wrong people, that can be very painful.
Nat: I am totally guilty of that too, and kind of in tandem with that. I am guilty of cheaping out. You're like, oh, like this is a new business, so I need to kind of save my dollars, right? And so I'm going to hire the $36,000 person instead of the $50,000.
And then three thirty-six thousand dollar people later, you're like I should have just hired the damn fifty thousand dollar person, and I probably would have had twice the revenues and a lot less heartache because it takes so much time to onboard new people at the administrative level.
Pete: Yes. I think it's wise to spend extra time picking the right person from a standpoint because it comes back and spades for you when you pick the right person. Do you do any kind of personality assessment tests or anything else like that?
Nat: Definitely. That's one little trick I've learned over the years. And it doesn't really matter which one you do; I do one called CVI; I don't even remember what that stands for at this point. But it kind of has four quadrants, and it helps you understand if somebody's more like entrepreneurial, or if they're more like kind of like more detail-oriented. Kind of where their strengths are.
Because then as you're starting to hire two, three, four, five people what typically at the office level with senior care, you have a small office team and then you have all the caregivers. But for the office team, I do the personality test because you want to make sure we're kind of complimenting each other; that way, you don't drive each other quite as crazy.
Pete: They talk a little bit about that in the book, traction, right? About having the right compatibility amongst your team.
Nat: Yes, I think that's the game-changer. A lot of the corporate guys I work with, I noticed they're pretty good at team building. And kind of like I don't know if they naturally kind of figure that stuff out or they were taught it over the years at corporate, but the team is everything.
And there's also that concept of a lot of people are leaving corporate because they don't like it, or they're having a rough time, they don't like the culture, whatever the reason. So when you're starting your own franchise, you actually have the opportunity to build something that you want to be a part of.
And I don't think you can really underestimate that, because all things being equal, why not hire people that you really enjoy hanging out with and working together, because at the end of the day it's your business, right? So I think just building that team that you can win with is just a lot of fun.
Pete: Yes, I agree. And I think the other key thing is you can hire the right people. But another mistake people make when they invest in a franchise starting out is they don't lead that team. And you have to be a leader; you have to lead your business or mind your business.
Nat: Yes. And people also get like stuck like doing all the day-to-day, and then they have a hard time delegating. So I think kind of taking that step back and being a leader and working more on the business, rather than always in the business, is super helpful too.
Pete: Yes. So I think about like that whole idea of working on the business supposed to in the business. I think of a guy that essentially had gone and invested in; it was a junk removal franchise, right? And he invests in this junk removal franchise, and I call him after a month; I said, what are you doing?
He goes, oh, I'm on the truck, I'm learning the business. And I think that's awesome, right? I call him after two months, and I said, what are you doing? He goes I'm on the truck. And I said, what are you doing on the truck? You can pay somebody 12 bucks an hour to be on the truck. You need to be out there building the accounts, all that kind of stuff.
So I certainly believe you got to really kind of focus on not getting caught up into doing whatever. I mean, I give everybody a copy of the book Emeth revisited because it has a great story about that girl that loved baking, and she opened up a bakery, and she ended up doing every job and about killing herself.
Nat: Right. I mean, the franchise is so good with the systems and the processes you're able to train your employees to do the work. I think really your job is to spend time, but I think of franchising is hyper-local. So I think spending time in the community, engaging the community and building those relationships. Because ultimately that's where you're going to win, is building those relationships and business accounts.
Whether it's business to consumer, business to business, and that's a lot of fun, being involved. A lot of the guys they were traveling 70, 80, 90% of the time. It's like they actually sometimes don't even know who's in their community. It's like a weird like what? Like my territory is like this five-mile radius?
Pete: Yes, it is. It is a hyper-local. And I learned that being the son of a Ford dealer and the grandson of a Ford dealer. And my dad taught me very early that you have to be involved in the community when you have a small business, it's the cornerstone of local business.
Nat: Yes, totally.
Pete: Yes. And whether it's being part of the chamber of commerce or doing other things, you've got to be shopping at the other businesses, right? At least when I grew up, my dad's like, hey, you're not going somewhere else, you've got a shop where we have our business because we hope that they shop in our business.
Nat: Yes, 100%. It is like kind of that shop small type mentality, right?
Pete: Yes. I think a little bit about; another mistake people make is they don't mind their business. We talk about leadership but also minding the business. This one couple they invested in a franchise, right?
They get the business going they're open for three weeks, and what do they do? They go to Europe for a three-week vacation. And they leave their business to their employees and access to their checking account.
Nat: Ooh.
Pete: Can you imagine what happened, right?
Nat: That actually would probably, well I don't even think that's a top 10, because hopefully not a lot of people like turn over the finances. But in my opinion, I don't know if you ever turn the finances over to employee.
Pete: Yes. Well, that you never turn over marketing, right? You never turn over your chequebook or kind of the marketing responsibility; I think those are both keys.
Nat: I think everybody's got a couple of hours a week to do payroll or pay bills.
Pete: Yes, or you can certainly hire somebody to do payroll if it's too much for you, right? It's pretty inexpensive to have payroll being done.
Nat: I think most franchises right now like with, I know in senior care you can do your payroll in 15 minutes because it's all automated. So it's just like click.
Pete: Yes, it's pretty easy. I mean, we use automated payroll, so I think it's pretty cool. What about this idea as we talk about it? One of the mistakes, and I saw this when I was with ford. Like when guys would become a ford dealer, that they don't have enough working capital, they start out with not enough working capital.
Have you seen that a lot where people they just underestimate how much capital they need? And that can be real trouble; if you run out of capital, you're done.
Nat: Yes. Most people seem like they ultimately find the money, but I think a safe rule of thumb is it's going to take you twice as long, and it's going to cost you twice as much as you think it's going to cost. So if you stick with that rule of thumb, usually, you'll definitely be in a little bit better position. I know you like to say kind of keep some powder dry, right? You kind of have that concept?
Pete: Yes, and I think that's right. I mean, if you got extra capital, you got flexibility, right? Once you get tight on capital, it's a pretty tough proposition.
Nat: Right, yes. You want to be properly capitalized and make sure, that's why it's important you figure out what business is the right fit for you, and being properly capitalized, in my opinion, is probably one of the top three things for selecting a business in the first place.
Pete: Yes, absolutely. And I think one of the other things that you see when people start out is they try to grow too fast, and they add infrastructure. Think of trucks or locations or people before they need it, right? So maybe I've got a junk rule franchise, and I got one truck, but I'm not fully; it's not the capacity yet, and I go get a second truck.
I've got that cost, but I don't have enough volume to put through that truck, right? So sometimes, you can use your working capital too fast from standpoint of building that growth before it's ready.
Nat: I totally agree. I think that made me think of something that can be a game-changer for people, and it's really to pay yourself first. So whatever, you're going to build your pro forma, but make sure you put in there what you're going to pay yourself and your family. I know people that never prioritize their own income, and ironically they end up just working for everybody else.
And it's like a pass-through, so like you said, instead of be careful not to add capacity or trucks or things until you really need it. And another way to kind of safeguard against that is if you are paying yourself a good amount or taking profit-sharing out of the business. Even early on, it kind of help force you to figure it out, basically. Because then there's not a lot of extra money rolling around.
And you have to get more sales in order to add capacity. Franchise, I love franchising because you get that corporate so often, and plus, with your peer group, you'll have different spreadsheets, and it's just like so numbers-oriented. And so okay at this number of sales, you should have this employee, this employee.
And then as it has all these mile markers and benchmarks. And I just would; I think if you follow that to the T, you almost can't go wrong because it's proven time and time and time again.
Pete: No, I think that's right. They put a system in place where you get to a certain amount of capacity that triggers ordering another truck or a person. But sometimes your ego gets in the way, right? You want that second truck. More people say, hey, I got two trucks, and so sometimes you can be a little bit too much, too soon.
Nat: I do think that is probably one of the top ten, so you have to be careful.
Pete: Yes, absolutely. So again, you kind of talked about not reinventing the wheel, leveraging those resources. So I think that's another one, where people spend money where they don't need to spend money. Whether it's coming up with that brochure or things like that. I mean, I think that's a big deal.
Nat: I had a guy that bought a certapro painters, and I have so much respect for him. A lot of guys would go out and buy like the $70,000 truck, right? And put like the wrapper on it and everything. I thought it was genius, he went and bought, it was like a jeep wrangler, and it was like ten years old and wrapped it up, and it was like not even $5,000.
And I'm like that is, it's kind of like has this vintage vibe, right? But it's like, talk about, because all that upfront overhead kind of, it takes you that much longer to get to break even and profitability. So I think being smart squeezing the nickels. If you have a retail, like you don't have to do like the flagship, you can go a little smaller, go a little cheaper, and then just really make sure you're taking care.
Like Jimmy John's, Jimmy John's is so crazy. You go in there, and they're like constantly cleaning and wiping down like that's what I like. Keep it tight, keep it clean, customers like it, and you keep your overhead as low as possible.
Pete: Yes. So franchising can be a great mechanism to become an entrepreneur, right? You follow the system, process, procedures. The key thing, though, is leveraging that, and not trying to reinvent the wheel, and doing the things you need to do, which is lead the business, drive, pick the right people, leverage the marketing.
And I think a little bit about marketing, right? So one of the things that I think people make a mistake is that they launch their business, but they don't spend enough money to properly launch it, or they don't spend the launch budget they need to do, right?
They try to cheap it a little bit. I think that's one of the biggest mistakes because you need that momentum. And anything you can do to drive that momentum early is huge.
Nat: Totally. When you're a hyper-local business, a lot of your business is driven by referrals. So early on, like it's important to get as many customers as you can because all those customers know other people. So it's like you have to really hustle because it's kind of like that compound effect.
If you can accelerate at the beginning, that then starts to accelerate down in your future because it's just a multiplier. Everybody knows somebody, they're telling people about your business. You're getting reviews online and on and on and on. So big momentum, I love momentum, the big MO.
Pete: The big MO. I know you've created your own businesses, you've kind of come up with the ideas and launched businesses. Do you apply that? When you're launching it, do you kind of put a lot of extra power? I mean, you literally drive it when you're starting out to get that momentum?
Nat: Yes. I think you can either build it slow and painfully, or you can build it fast and painfully. And I kind of prefer the fast and painful, because then you get the profitability a lot faster.
Pete: Yes.
Nat: Just get it over with, rip the Band-Aid off.
Pete: Yes.
Nat: Pedal to the metal.
Pete: Yes, pedal the metal. Speaking of pedal metal, I got to go snow blow. So from my standpoint, I think we've got some great stuff here today. So thanks very much for sharing all your stories.
Nat: All right, well, have an awesome rest of the day.
Pete: All right.