The investigation process for a franchise is one of the most important steps a candidate will take. Finding the right franchise when looking to own a franchise is difficult and a consultant will help.
Nat and Pete describe the process like dating, from searching for a match to the first call to closing the deal.
In this episode they take you through the process they use with their candidates and talk about their experiences when they became franchisees.
Nat: I think part of why franchising is so successful is because you get corporate executives a lot of times that have been successful. But once you write that big check, it's like it really holds your feet to the fire.
Like there's no turning back and all those, it's like you have to be successful. And I always, I know you get tired of me saying this, but I think past performance is a good indicator of future performance.
Pete: Welcome to the hire yourself podcast. If you're ready to take control of your destiny, build wealth and live life on your own terms, this is the place for you. Each week, Nat and I will talk about business, franchising, and personal growth to help make you more successful. All right, Nat, I'm super excited for today's podcast.
I was thinking about okay, what are we going to talk about? And I had a candidate ask me a question yesterday, and I thought this would be a great topic, right. So the candidate I'm talking to them, they go well, why would I, if I'm looking at franchise, why would I use a franchise consultant? I thought to myself, oh my, we've got a lot of work to do.
Let's talk about why you need a franchise consulted to kind of help you through the process of investigating franchises. You want to talk about that today?
Nat: Yes, let's talk about it. I think franchising, it's definitely like exercising a new muscle. Like it's something people never have done, they're going to be, it's going to take a lot of time and work to kind of strengthen those muscles and understand all the jargon.
How do you, like when people come to you, what's usually their mindset? What do you see?
Pete: Well, a lot of executives, right? That are into a transition, or they've got a lot of pain, and they're trying to figure out what their next path is. And it may be a combination of another executive role in a franchise, or might be just escaping the corporate world or putting a plan in place to be able to do that.
I think the hard thing is that when you've been in the corporate world for 20, 30 years, you really have no experience of investigating franchises. And there's a lot of noise out there, you'd agree there's a lot of noise, a lot of people talking about franchising, and there's over 3,800 franchise companies out there today. So how do you find the right franchise or the right match?
Nat: Yes. I feel like a lot of people, sometimes they're driving around in their car, and they see things. Like Chick-fil-a or there's this Andes custard or just things that kind of hit their top-of-mind awareness because they actually see the locations, and they're like this looks like it's being successful.
And so then next thing I think they do is then go to the website, and kind of type in how do I franchise XYZ franchise, and put in like hey, give me a call, I want to learn about franchising. I've got I've had guys before they're like oh yes, I wanted, I put in for chick-fil-a or some of these other ones, and they're hoping to get a phone call back.
What they don't know is that there's 10,000 guys in front of them, and at that point, I don't know how rapidly they're trying to expand.
Pete: Well, I've always kind of said if you know the name of a franchise concept, then you probably already missed the opportunity where you live, right? That's the kind of way it works. So there's different ways, so I think a lot of people today everybody goggles stuff, right?
So I'm thinking about investing in a franchise, I Google franchising, and there's all these sites that list all these different franchise concepts, and you can put your information in, right? Those are nice, they can give you some information, but there's a price to be had with it, right? Because I mean basically they got your information, and now you're on a list, and your name can be sold and stuff like that.
So when you're done, most likely, you want to get rid of your phone number, your email address because you're just getting hammered. So sometimes that's a good way to do it, but maybe there's a better way where to your point, where you identify something you like, and you can contact the franchise company directly.
Nat: Do you remember, I don't know if it was like 15 years ago, that old lending tree commercial that was on TV. And they're like banks compete for your business, and you see, it's like literally the commercial was a guy putting in his your name and email and phone number and all of a sudden there's like a bank, they're all coming to compete.
That's kind of what I think happens, a lot of times on these franchise portals where you're kind of like checking boxes, and you're like oh yes, I want a little more information and put in your name and email, all of a sudden your inbox is going ping, you've got mail.
Yes, and a lot of automation with that stuff too. So it's just like you're going to kind of get bombarded, and it's crazy out there.
Pete: Speaking about barded, I went to a, I don't know if you've been to a franchise show, where they hope, there's 100 franchise companies in a convention center. Have you been to one of those before?
Nat: I have, and that is completely up for grabs.
Pete: Well, because you and I are involved in franchising, so I just wanted to go experience, I want to go. So I checked in, and I went through the thing, and I purposely walked right through the middle of the aisles, right? I tried not to have eye contact.
I wanted to kind of see it, I want to walk through and see all the different franchise concepts, but I didn't want to engage anybody. I'm not kidding you; I thought somebody was going to tackle me.
They would literally come out in the aisle, and they were like trying to engage me, and I mean, it was like kind of scary. They were really aggressive, and not all companies are that way, but I felt like I was being fed to the sharks in that situation.
Nat: Yes. Definitely, like when you think about franchising being very process-driven, I felt like last time I went to a show.
They definitely had like a process, they're trying to engage you, they had their iPad and trying scanning your name badge, so they can start sending you spam and everything. Get back to your car, there's like stuff tucked underneath your windshield wiper. It was like, holy cow, this is crazy.
Pete: There was one franchise company that was literally standing by the elevator in the parking deck trying to sell franchises.
Nat: Well, that was probably the guy that didn't want to pay the fee to be in the room.
Pete: Yes, I couldn't believe it, right? And so I thought that was very interesting. So good is going to the shows or going to some of these sites and stuff like that, and then your point better is maybe going directly to a company that you've got interested in, right?
Nat: Yes.
Pete: But I always tell people that if you go directly to the company, you're going right into their sales funnel, right? So bottom line is there's nobody helping you through the process. They're going to take you through their sales process, but nobody's kind of there helping you with a set way to do it.
Nat: And they're going to be super focused on selling you their franchise too. Kind of like when you walk on the Toyota car lot, they're figuring you want to buy a Toyota, they're going to sell you a Toyota.
Pete: Yes. Why'd you have to say Toyota? You know I'm a ford guy; why would you say Toyota? I know you're a mini guy, but why would you say Toyota? But anyway. So the third way, and I think it's kind of the best way, is we're using a franchise consultant, like you and I, right?
And you and I have been through the training at Franchoice in the franchise investigation. So we're experts on the process. We're not experts on any specific franchise, but more so the process of evaluating franchises.
And so maybe we spend a little time talking about what is the right process for somebody to go through, to investigate a franchise.
Nat: Yes, I think that's perfect. And for me, when I bought my first franchise, I didn't know about franchise consultants, right? So I just, I kind of was at the better scenario where I saw something, and I researched it and ended up buying it.
And I certainly wish I'd looked at some comparable, kind of like you would if you were looking at houses. It's like, hey, let's look at a bunch of comparable.
So I think the first the biggest thing that I learned through that is that it is really important to kind of focus on the fit of the franchise. So I think what I will try to do a lot right at the beginning is just gather a lot of information and do a lot of listening and note-taking.
A lot of times, I kind of describe it somewhat similar to like an executive recruiter or headhunter, where you're trying to understand your background, your work history. Kind of like what would be a good fit for you and your family, what your goals are. Your ability to properly capitalize a business. What geography is important, or what kind of community connections you might have. A lot of times, franchise is going to be hyper-local, and so all those things really play into it.
Pete: Yes, certainly. I think a little bit about the whole process, and it's like getting married, right? It's one of the biggest decisions you can make in your life, getting married and having kids and buying a house and investing in a franchise, that's a big decision. And it is a mutual approval process, right?
So it's really important to your point that you have a franchise consultant that can help you figure out what's important to you? If you are going to invest in a franchise, what characteristics are important to you?
What do you want to accomplish with that? So how do you do that? With your candidates, how do you get to know them? What's your process to get to know them, to understand what they're looking for?
Nat: I think we're doing a lot of listening; these days, we're doing a lot of zoom calls. So we get some face to face, so that's always super helpful and just trying to spend the time with them, to understand what's important.
Taking them through a process, a questionnaire, looking through their resume or their CV and just trying to understand what their work history and background is, and all that.
Nat: Yes. So I use a consultation call, about 75 minutes. It's a conversation where I can ask any question, and I get to know them. And to your point, understand, hey, how involved do you want to be in the business? Do you like managing people? Do you like sales? What type of sales are you interested in, right?
And where do you want it and stuff like that? So a consultation call, getting to know what you're looking for is really important. Okay, so you you've got an inventory of what you're looking for, right? And then the idea is a franchise consultant can't do the due diligence for you, but they can go help find franchises that may align with what you're looking for, right? And connect you with them.
So they're in many cases not selling franchises, but more so a connector. So you take an inventory, you do your consultation call, then what do you do next with your candidate?
Nat: We generate like a franchise model, so kind of our core assumptions of what we're kind of working together. Like what I'm pulling out of you as the candidate, what I'm hearing. So then we'll write up that franchise model, just to kind of for confirmation of those assumptions.
And then once we kind of have that hammered out, then I always go and do a custom territory check. Once we figure out the brands and the capital investment, and what would be a good fit.
Then what we have to do is there's 3,800 franchises, so we have to start figuring out what the forks in the road are and narrowing that down. And ultimately try to end up with three or four franchises that might be a good potential fit.
Pete: Yes. And I think the nice thing is you and I are involved with Franchoice, right? We're affiliates or part of the Franchoice network. And the good thing is they've been around for 20 years, and they've been screening franchise companies, so they're very good at screening franchise companies.
So we have the benefit of leveraging the franchises that they've screened. And making sure that they then align with what our candidates are looking for. All right, so you've basically done your consultation call, you've written the model. You've went and looked for franchises that align. Okay, so then what do you do next?
Nat: The next meeting or phone call is actually my favorite one; I call it the franchise introduction call. So that's where we kind of will share the specific companies that I've been able to find. And also, kind of why I think they might be a good fit for you as a prospective franchise owner or buyer. So just take like a 30,000-foot level view and kind of hit the high points, and explain.
Pete: Just an executive summary, just a high-level review. You don't get any kind of numbers, right? It's just a high-level overview of the framework.
Nat: Yes. It's kind of like if you're looking to be semi-absentee manager-run type business, then there's certain businesses that are going to kind of meet those criteria. Or, if you're looking to be more hands-on, there's businesses that are going to meet those. So just kind of like fitting those together, and explaining my thought process, and getting you connected.
And then, the next step is actually for the franchise companies to reach out to you directly for a one-on-one phone call or Zoom meeting these days. And then just kind of get you connected, get you talking. It's kind of like a first date. Basically, we're talking about that mutual elimination a little earlier.
Every call is kind of like a first date, and if things go well, you know, thumbs up, let's schedule the next phone call. Usually, I tell people you can expect to talk to the franchise companies once per week, and they usually give you a little bit of homework in between.
Pete: Yes. I think the franchise investigation process that we use, right? Generally, it goes anywhere. We'll call it eight weeks; it could be four weeks, could be twelve weeks, it doesn't matter. It's the process you go through. So the first big step when somebody's connected to a franchisor is the introduction call, right?
And your point, that's the first major call out of four major steps, where literally you get to know the franchise concept a little bit more. They give you a more detailed description. They certainly answer your questions. And number three is that it's the relationship side, right? They're trying to decide are you going to be a good franchisee for us?
And you're trying to decide, hey, do I want to be partnered with them? And so the introduction call is to your point, almost like a first date job interview, right? Where you got to be engaged, you got to be on time and stuff like that on both sides because it is a mutual approval process.
All right, so somebody goes through this first call, and they go. I still like this concept; it's still interesting. What's the next step in the franchise investigation process or something?
Nat: Yes. I find it varies a little bit from franchise to franchise company, but a lot of times, what I see is they'll send out their franchise disclosure document, and a lot of times, I'll call it the FDD, so let's send out the franchise disclosure document. I always tell my guys don't get too stressed out or overwhelmed about that.
Usually, it's a two or three-hundred-page document. The cool thing about franchising is it's heavily regulated by the federal trade commission, and every franchise every year has to file this disclosure document.
So that kind of gives you and me as consumer's protection. So in there, there'll be like an item seven that talks about the startup cost. So item 19 that may or may not have earnings claims or some numbers in there. So there's all kinds of good stuff in there.
Pete: Yes. Twenty-three items, and again they're over a couple of hundred pages long. And what I tell people is when you're looking at three franchise concepts, don't try to read them cover to cover, right?
Now when you narrow it down to one, then you have to read them cover to cover. So it is an important document, they're going to want to review and answer any questions that you have. But they are overwhelming, right? But they are designed to ensure that you're an informed investor.
Nat: Yes. Even in there, there's an addendum that has a list of every franchise owner in the system. So you look at like McDonald's is a pretty big document. So there's lots of tools in there for you to kind of start to do some research. But I think again it's kind of like focus on the fit at the beginning, see if it's something that you might be interested in doing. I always kind of feel like I always kind of smile.
For me, the fun part of this is bringing franchises that maybe somebody would have never thought about, and then them being, you know, I always check to make sure they're open-minded. But assuming they're open-minded, you always try to throw in at least one or two that may be kind of outside the box they maybe never thought about.
And it's just the fun part for me is then a week later, I have a phone call, coaching call with them. Hey, how'd your calls with the franchisors go? And it makes me smile every single time.
They're like, I never thought I'd be interested in this, but I really liked it. So it's just like it's a fun; I think those overview calls and just kind of starting to get into the nitty-gritty is a fun process.
Pete: Yes, absolutely. And I agree with you, right? I always ask people to keep an open mind. Because the one that you go ah, I don't know about that one, a lot of times is the one people invest in. So you do have to keep an open mind. All right, so you get through the FDD, the third big step, as we know, is validation, right?
And this is the time to talk to existing franchisees without the franchisor present, right? To me, it's the most important part of the process. This is where the rubber meets the road; this is where you find out if franchisees are happy and if they're making money, right? And you know validation is done in two primary ways.
So the first way that you can use in terms of validation is a lot of franchisors do group validation, right? So they'll have one franchisee on the phone, and anybody can call in. Any candidate that's interested can call in, and this is super-efficient because the franchisee only has to do one call instead of 15 calls.
It's sufficient from the candidate's standpoint because they get this their questions, but they also get the benefit of listening to other people's questions. And the franchisor likes us because some of them will record the calls and say, hey Pete, here's three prior recorded calls and call in every Tuesday for a live one, so it's a very efficient way. But the second way is my favorite way, and those are one-on-one calls, right?
And that's when you get the list of five or 35 franchisees, and you can call anyone you want, in as many as you want. But the idea is these are one-on-one calls, and I find them to be much more personal. And if you can build rapport, you can really kind of dig in and get some great information.
Nat: There's a lot; like I said, there's a lot of tools and resources. I always try to tell; I tell my guys talk to as many franchise or franchisees and do as many validation calls as you can. I liked what you said about that's where the rubber meets the road.
You know, if you can establish some reports with some of these guys, I mean they'll be pretty open with how they're feeling about the support at the corporate level or ongoing support. How they like the marketing, the website call center, like all that stuff, you get them talking about.
So there's really a lot of tools for people to be able to do the research. I actually, I'm thinking out loud, but a lot of times, I tell my candidates, what we want you to do is enough research upfront. So like nine months, 12 months, 18 months down the road there's no surprises. And really, the way you do that is by doing these validation calls.
Pete: Right. And some people only need to do three, and others need to do 15, right? It depends. Did you do validation calls when you invested in your franchise?
Nat: That is a really good question. I was 29 years old, and it seems like it was a long time ago at this point. I don't think I did; I wasn't really coached. So what I did was I reached out to the franchisor directly and going through that sales process.
I remember this disclosure document, and then I hopped in my car, went to Dayton for discovery day, which we can talk about. And then basically, and actually I think yes, and then pretty much, yes, I don't think I did do any validation call.
Pete: So the benefit of having a franchise consultant is they would have kind of told you?
Nat: 100% yes.
Pete: All right, perfect. All right, so you do the validation, and again that's the, I think, the most important part. The last big step in the process is the discovery day, which you were just mentioning, right? So you're feeling good about a franchise company, they're feeling very good about you, and they invite you out to the corporate headquarters prior to COVID-19.
And so you go out there, and it's your chance to meet the leadership team, and meet the support staff, and see the operations. Like when my wife and I were looking at the junk rule franchise, we actually went out to San Francisco, got to meet the leadership team, and spent part of the day on a junk truck night.
My wife did not much like being on a junk truck moving junk. But the idea was that this was more about the relationship side, the discovery day, than it is about getting a whole bunch of new information, right?
Nat: For sure.
Pete: Is this a good match from a standpoint?
Nat: I think of it like you kind of get to see what you're investing in or buying, because when you go for discovery day, or on discovery day on zoom these days, but you get to see like okay, these are the guys that do the social media.
This is the CFO, and so you kind of get the tour, you get to meet all the people, this is the real estate team. With franchising, it's kind of fun to have a team that's helping you hit the ground running, and so it's important to really take the time and invest in that before you write that big check.
Pete: Right, because that's what you're paying for, right? You one want to validate the business model.
Nat: Yes.
Pete: Number two, you want to validate the support.
Nat: A hundred percent.
Pete: You're going to be paying a royalty for that each month, percentage of your revenue, or whatever it may be at some point. All right, so those are the four core steps. And again, you can do those in four weeks; you do it in two weeks. It's really your process, right? It's the individual candidate as they go through it, it's their process to do it the way they want to do it.
All right, but there are other little steps in between, right? And I think you mentioned that earlier. Like some franchise companies, one of the steps is a unit economics call, right? They take it through kind of in a way in which is compliant, tell you about how financially you can do kind of in a backward way.
Nat: Yes, for sure. Real estate call, marketing call, unit economics call, got to get all these.
Pete: Yes, some make you take a personality test.
Nat: Yes. Well, that's probably a pretty good idea, actually.
Pete: I don't know, I probably would have flunked it.
Nat: Yes.
Pete: But seriously, so lots of other little steps from that standpoint. And so you go through these, and you get to the point where you've done all the steps, right? You got all the information, and then it comes down to making a decision. And that's where we both know that you will get a lot of data.
You're going to get 60, 70, 80, 90% data you're never getting 100%. And you may like the franchisor; they may like you, you might think this is a great potential match. And you have to make that decision to invest your earned dollars into this business, and you still only have 70, 80, 90% of the data.
And you have to make a calculated decision or a leap of faith to invest in the business. And this is where it creates fear and anxiety. And I'm sure you see it all the time; I see fear and anxiety all the time.
Nat: Yes. Also, on the other side of that, I see that once somebody makes a decision, just that huge weight that comes off their shoulders, it's so empowering to make that decision and take control, know what your next steps are in life.
And for me, I remember making that decision and going back to Dayton for training and everything and coming back. We had three-ring binders back then, there were computers, but it wasn't like it is today.
Pete: You're aging yourself.
Nat: I know. Came back with a three-ring binders and a phone number for like, hey, if you have questions, call this. It's just, it's like your next chapter in life, and it's exciting.
Pete: Yes. It took me a little bit more work to do that. When it comes to big decisions, whether it's getting married, I had a hard time with that; my wife would attest to it. But writing that big check, I mean I didn't sleep well for three nights. I mean, there was a lot of anxiety.
Nat: But how did you feel after it was all signed, sealed, and delivered?
Pete: It was great. I mean, I was ready for the next step because that was something; it was a dream. And I was moving forward with my dream to take back my life.
Nat: I think part of why franchising is so successful is because you get corporate executives a lot of times that have been successful. But once you write that big check, it's like it really holds your feet to the fire, like there's no turning back and all those. It's like you have to be successful.
And I know you get tired of me saying this. But I think past performance is a good indicator of future performance. And the guys that we work with typically have been very successful. I think you know writing that huge check is hugely motivating. You're going to recoup that investment and build a legacy for your family, right?
Pete: Yes, absolutely. I mean, and we wrote the check, my wife did not want a start the business; she was not going to be involved in the business. This was not what you want to do, and we wrote a really big cheque.
And for me, there was no choice; we had to be successful, right? Whatever I got to do, I'm going to do it. But my wife literally, she had so much fear even after we signed, that every day for like the first six months she'd walk into my office and go, are we going to make it? I'm like; you got to quit asking me the question, right? You're killing me from that standpoint.
Nat: What she was really asking was, do I have money to go to Starbucks?
Pete: Yes, something like that. But I think the idea is that when you get into it, you leverage your great business acumen that you've gained over the years from those corporate jobs, right?
Because we can have a lot of responsibility in the corporate world. And our leadership skills and we take a franchise system, a model. And we leverage that model and our experience and our, yes, our leadership skills, and we go drive and build the business.
Nat: Yes. I think at the end, it's always going to be a little bit of leap of faith, but you're kind of betting on yourself, and then also on the process or the research that you did on your business.
Pete: Let's take that a step further, right? So a franchise, it can be the best model in the world, right? But if you don't follow the system, right? Bottom line is odds are you're not going to be successful.
Now you can follow the system and make it better, but you have to follow the system at a minimum. And there are people that are really smart, that they invest in the system, and they don't they don't do it, right? I've interviewed candidates that have done that from the standpoint. And you got to learn; you got to follow this.
Nat: So I think the fit is super important, like what you have to do in the specific franchise to be successful; that needs to be a good fit for kind of how you're hardwired as a human. So that you wake up in the morning wanting to go do that activity. If it's something you hate, you're not going to do the activity, and then ultimately it's going to, it's not going to be as fun, you're not going to be successful.
Pete: Yes. Sometimes I recommend my candidates to go spend the day in the life of.
Nat: Totally.
Pete: Before they invest.
Nat: Yes, job shadow.
Pete: Spend a day. And I think that's a pretty good idea to do.
Nat: That's a great idea; I love that.
Pete: One of the other things we talk about is that as a franchisee, you're going to have to adapt and change, right? So things never go exactly the way you want it to go, right?
And as an entrepreneur, one of the core skills that you have is you have to adapt; you have to make it work. Whatever you have to do, you have to go out there and adjust and make it happen. Regardless of what it is.