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Daymond John: ‘I Prefer Franchises’

Daymond John: ‘I Prefer Franchises’

I had a chance to discuss franchising with Daymond John, the recognized TV personality and investor on ABC’s award-winning Shark Tank, the founder and CEO of international hip-hop fashion brand FUBU, Inc., and the NYT and WSJ bestselling author of The Power of Broke.

John talked about how to succeed as a franchise entrepreneur and said that he’s looking forward to serving as a guest judge at the NextGen Global Franchising Competition at the IFA’s Annual Convention in Phoenix on February 10-13, 2018.

Why Experienced Hustlers Make the Best Investments

John hopes to see entrepreneurs present a strong proof of concept, scalability of the business, and a response from the experts in the live audience.

“The ones who are successful at franchises are the ones who’ve failed in the past,” said John. “They’re the hustlers at 5am. They’ve seen what not to do, and so they’ve found something that fits their life.” 

“I have people tell me, ‘Running your own business is tough, and I didn’t know what I was doing.’ So these franchisees don’t have a problem paying the 5-10% to have a lot of the details figured out already.”

There’s Freedom in Spending Other People’s Money

John is no fish out of water when it comes to evaluating pitches off the top-rated ABC reality show.

“I’m looking forward to the fact that I can actually judge and not spend my own money,” he laughed. “When it’s your own money you get opinionated, like sharks. But I’m going to be objective and straightforward because I don’t have to hide my shortcomings as an investor.”

A Next Franchise Act

In addition to licensing his $6 billion FUBU brand to open five FUBU Mobile stores in Brooklyn, a concept similar to MetroPCS and Cricket, John disclosed that he’s rolling out a new franchise company and plans to launch it at the IFA Convention in February 2018.

“It’s too early to give out details,” said John. “We’re working on the name right now.”

He didn’t say which industry it’s in, but he did say some industries perform better than others as franchises. For example, John pointed out that “lifestyle experiences” are a great fit.

“I don’t see enough dance studios. That’s something you can’t do on your phone,” he chuckled. “Something that offers a community with a physical element is good for franchising, like the Flywheels of the world, or anything related to fitness. I have ownership in a couple crossfit gyms.”

Finding “Intimacy” and “Symbiosis” in a Single Business Model

John said he prefers the franchise model over the traditional “corporate” business model because it offers a unique intimacy and symbiosis between stakeholders. He referenced the story of his “potentially biggest Shark Tank deal ever”, Bubba’s-Q Boneless Ribs.

After founder and former Detroit Lions NFL player Al “Bubba” Baker appeared on Shark Tank and struck a deal with ribs-loving John, Bubba’s-Q and CKE Restaurants Holdings, Inc., the parent company of Carl’s Jr and Hardee’s, announced a partnership to sell the innovative Baby Back Rib Burger, a burger laden with Bubba’s-Q patented boneless ribs, at 3,000 of their franchise locations nationwide.

John visited a number of Hardee’s and Carl Jr.’s during this deal and met with franchise owners. “It opened my eyes,” he said. “I was fascinated by how entrepreneurial both the owners and staff are and how much they impact the local community.”

John said this “intimacy” is what differentiates franchises from big corporations. In corporations, “It’s a top-down culture with lots of people and lots of rules.”

“Franchising is a more symbiotic relationship where you give an opportunity to other entrepreneurs and they run with it fueled by their own passion.”

However, one’s not better than the other, John points out. “Whether you’re an entrepreneur or an intrapreneur, it’s always about the hustle.”

Being an Entrepreneur Today Isn’t Easier or Harder, It’s Different

Upon mentioning “the hustle”, John reflected on lessons from his own journey as a lifelong entrepreneur, including the differences between today and 30 years ago.

“Today, it’s a lot easier to source manufacturing and manage inventory. You can turnaround good and services faster. Finding financing is easier, whether it’s crowdfunding or Silicon Valley. Analytics is far more advanced. You can know more about your customers today, even down to the color of their hair.”

“Back in my day, I had to do focus groups. I remember going up to people walking on the streets of Harlem and asking them what they thought my products.”

John noted technology has made a huge difference for people starting up a business today. But not without its drawbacks.

“The challenge is everybody can do the exact same thing with a phone and a computer,” said John. “It used to matter that you were in a good city with a strong network but now you can you can do almost anything from anywhere, rural or urban.”

“Couch potato” Has a New Definition

“For companies to succeed, you have to find the right people. But that’s getting harder and harder, especially for new companies,” said the People’s Shark. “You have to build a culture where people want to work. Otherwise, the good ones will just stay home and make a million dollars from their living room couch.”

 

Read the original article here.

5 Things That Make A Franchise Successful

5 Things That Make A Franchise Successful

Judging from the performance of Potbelly Corporation (NASDAQ:PBPB) IPO on Friday, franchise remains a popular investment concept in Wall Street—the company operates and franchises Sandwich Works shops in the US.

 

But as is the case with other investment, not every franchise is successful. And even among successful franchise chains, some fare better than others. McDonald’s (NYSE:MCD) and Yum Brands (NYSE:YUM), for instance, have fared much better (in terms of equity performance) than Wendy’s (NASDAQ:WEN).

 

What Makes the Difference? These Five Things

 

1.The Right Business Model

The way the chain enhances customer value vis-à-vis the competition. Franchise pioneer McDonald’s, for instance, delivers customers a quick, convenient and inexpensive meal, vis-à-vis traditional restaurants.  KFC offers the same meal attributes but with a different menu—focusing on chicken rather than hamburgers—though both chains broadened their menu portfolio overtime, adjusting it to the local tastes.

 

Dunkin Donuts offers coffee and donuts (and in recent years ice-cream) to go at convenient locations.

2. Scale

home-improvement-franchise-paint

Cost savings associated with a larger production scale of a standardized menu–the bigger the production scale, the lower the cost per menu.  With 33,510 units around the world, for instance, McDonald’s has a scale advantage over Wendy’s, which has 9,792 stores.

 

 

 

Company Rank Worldwide Sales ($M) Domestic Units International Units Total TOT +0.35% Units
McDonald’s 1 85,941 14,098 19,412 33,510
KFC (Yum Brands) 3 21,300 4,780 12,621 17,401
Pot Belly 286 12 298
Pizza Hut (Yum Brands) 6 12,626 7,600 6,147 13,747
Wendy’s 18 6,004 6,772 3,020 9,792
Panera Bread 33 3,421 1,538 3 1,541
Dunkin’ Donuts (Dunkin Brands) 18 6,004 6,792 3,020 9,792

 

 

 

The scale advantage is reflected in the operating margins of the two companies. McDonald’s enjoys a hefty 30.12 percent operating margin, versus 7.38 percent of Wendy’s.

Company OperatingMargins (%) Return on Assets (%) Qtrly Revenue Growth (yoy) Qtrly Earnings Growth (yoy)
McDonald’s 30.13 15.42 0.90 0.30
Berger King 31.95 6.17 -42.50 150.3
Wendy’s 7.38 2.72 1.80 -82.7
Dunkin Brands 39.23 5.22 6.20 -8.30
Panera Bread 8.22 15.64 12.70 16.80
Yum Brands 15.05 13.80 -8.30 -15.10

Source: Yahoo YHOO +0%.Finance.com

 

3. Scope

The cost savings associated with the offering for sale of different products by a single corporation rather than by different corporations. McDonald’s and Panera Bread, for instance, offer a variety of products for sale (McDonald’s has added Mccaffe in many locations), vis-a-vis Wendy’s and Dunkin Brands. That can explain the higher return on assets.

4. Location

The benefits associated with occupying primary location sites for franchise stores. In fact, location can support and re-enforce all these advantages. As an older franchise McDonald’s, for instance, had the opportunity to pick best locations. This further explains both the hefty operating margins and the high return on assets.

5. Market Saturation

The degree of market penetration. The lower the degree of penetration, the higher the room for the company to grow by opening new stores. Potbelly and Panera Bread, for instance, have more room to grow, vis-à-vis McDonald’s and Yum Brands.

The bottom line: Successful franchise chains begin with the right business model, and proceed with the amassing of the right scale and scope in the right locations, until they reach optimum market saturation.

 

Read the original article here.

 

 

 

What Are The Keys To Franchise Success?

What Are The Keys To Franchise Success?

Making any business reach its full potential takes talent.  If you’ve selected your franchise well, your franchisor will be able to help you avoid many of the mistakes new, independent start-up businesses make.  Here are some keys for franchise success.  

Make Sure You Have Enough Money. 

  • Determine how much you have to invest, how much you’re willing to risk and how much you will need to live on for at least 12 months.  
  • Make sure you understand the initial investment required.  
  • Make a careful and rational decision about buying the franchise. Listen to your attorney and accountant and do not be pressured by the franchise salesperson.  

Follow the System. 

  • Franchisees often get their business up and running and then begin to change, add or modify existing products, advertising, hours, services, and even the quality and consistency they are licensed to deliver.  This violates the franchise agreement and puts you in jeopardy of having your franchise terminated! 
    • preserve the brand
    • protect your investment and that of your fellow franchisees

By Following the System, You:

Don’t neglect your family and friends.  

  • Be prepared to work long hours, but also make sure to budget time for your family and friends.  
  • Don’t forget to acknowledge the sacrifices your family makes.  
  • Allow your family and friends to share in your new life. 

Be an enthusiastic franchisee.

  • The success of any business is linked to the level of enthusiasm you bring to the job.  
  • Enthusiasm brings a level of excitement and energy to the operation that everyone can feel-including your customers and staff. 
  • Let your staff in on the fun.  Acknowledge their good work with recognition or a raise.  

Recruit the best and treat them with respect. 

  • Good help is hard to find-great help is essential.  
  • To keep the good staff you’ve hired: 
    • Rotate routine and boring jobs.  
    • Be fair. Don’t show favoritism.  
    • Work with your staff to develop the schedule. 
    • Treat your employees with respect. Don’t allow employees to be disrespectful to any other employee.  
    • Keep employees informed of new marketing and other promotions.  
    • Remove hassles-ask employees which procedures are working and which aren’t.  
    • Make their workdays challenging.  
    • Provide timely performance reviews and wage salary increases.  

Teach your employees. 

  • In franchising, training should be continuous.  Employees are you front line.
  • Training classes are a good way to show your employees that they matter to you. 
  • Get all the training you can from the franchisor.  
  • regularly train and retrain all your employees.  
  • Hold refresher and advanced classes on a regular basis.  
  • Alert your franchisor when you need additional training. 
  • Take advantage of every training opportunity, whether it’s offered by the franchisor or by local schools, trade associations and other sources. 

Give customers great service. 

  • The most important thing you can do is to get everyone to smile! 
  • Let the customer know you’re happy they chose your business. 

Get involved with the community.  

Customers like to shop in places that support them. 

  • sponsor Little League team
  • support a civic or youth group
  • give tours of your business for school groups
  • set up a kiosk at community events

Stay in touch with your franchisor and other franchisees: 

  • Stay in communication with the franchisor: Letters, newsletters, emails, phone calls, faxes, training classes, regional meetings, conferences and conventions. 
  • Communicate with other franchisees by participating in the franchise owners association. 

Watch the details. 

  • Success is in the pennies! If you watch your pennies, the dollars will take care of themselves. 
  • Minimize costs and maximize sales. 
  • Watch out for shrinkage (merchandise that is missing or unaccounted for). 
  • Work hard every day. Choose your time away from the franchise wisely.  

NEXT STEPS 

The International Franchise Association has over 1,400 franchisor members, representing 100 unique business categories, listed on our site.  If you are considering whether or not to go into business for yourself, but not by yourself, we are confident that you will find a number of franchise systems that might be a good fit for you.

Read the original article here.

Making the Mental Switch From Employee to Owner Is Crucial to Succeeding With a Franchise

Making the Mental Switch From Employee to Owner Is Crucial to Succeeding With a Franchise

When someone invests in a tried and true franchised business that has a track record, they essentially bought themselves a winning lottery ticket. However, have you ever read about lottery winners? Stats show that the overwhelming majority of lottery winners are broke or back to where they started financially within two years of winning the bonanza.

When investing in anything, scrutiny and due diligence is paramount, of course. Investing in a franchise is one of the most informationally-comprehensive investments you can make, as far as I can tell. Because of the Federal Trade Commission’s rules on selling franchises in the United States and their requirement that every franchise have a Franchise Disclosure Document, which makes a franchise corporate entity totally transparent for the investor, a buyer has an unprecedented amount of information to help make a well-informed and educated decision on any franchise opportunity.

In addition, buyers are encouraged by the franchise company to take time and call as many franchise owners in their system as they’d like. Investors have the opportunity to hear from people in the trenches about how their business is going and whether the franchise company is helping them to succeed in their market. Potential franchisees may even talk to people who have closed their business in the preceding two years. (If you’re currently investigating a franchise get a free download of my “39 Questions to Ask Franchise Owners.”Still with months of analysis, exploration and probing, many franchise units will still fail.

Why?

I can write a book, and actually have written two, on all the reasons why business fail and all the traps to avoid when buying into a franchise. The reasons and excuses for failure are many. I have spoken to many franchisees of failed units and heard all the war stories. Everything from the landlord raised the rent which made it impossible to survive, to the government came out with a study warning consumers about the peril of using the very product or service they were providing, to a spouse got sick or passed away.

I talked to one owner who had the experience of new sewer mains being installed on the street of his establishment. The workers tore up the street and of course, the way government projects go, it took double the amount of time than anticipated to complete the project and effectively put the franchisee and others on the block out of business.

Many times, the franchisee will admit that the business was simply not the right fit. The president of the franchise will quickly add, “Sometimes we award a franchise to the wrong person.” Or, “The franchise unit failed because of ‘operator error, the franchisee just didn’t follow the system!'” Franchise executives will point out the fact that they have X number of franchisees. Some are hugely successful and breaking records. Some are losing money hand over fist. And then they go looking for reasons or excuses to explain it away.

In my opinion, I submit that failing franchisees make really only one fatal mistake that triggers all the glaring issues that can be found an under-performing unit. He or she never made the mental switch from employee to business owner.

Making the Switch

So, what happened to these franchise owners who don’t make it?

I believe much of the issue is in their head. Like with lottery winners, when someone becomes a millionaire overnight, they never had the chance to build their knowledge and relationship to money. They are thinking small when they should and could be thinking big. One night some of my friends and I were sitting around dreaming about what we would do if we won a million dollars in the lottery.

My friend Robin blurted out, “Oh my goodness, if we won that much money we could pay someone to paint our apartment!” She wasn’t kidding. It never occurred to her that perhaps they could buy a new house and have someone paint something that they owned. I assume, because of Robin’s upbringing, she never thought that she could think beyond what she knows.

I am persuaded that everyone’s family has a financial thermostat and people from that family will always get back to their set point unless they change their thinking. As youngsters, we are all taught about money, most likely, without realizing it.

As a personal example, I remember my father saying things that I interpreted as gospel without questioning it. Why would I? Father knows best. I vividly recall, the furnace in our house breaking down and dad saying with passion and conviction, “See, as soon as you have a few extra bucks something always goes wrong and the extra money goes out the window.”

One time when my parents were buying a new car — it was used but new to us — dad came into my room with $5,000 in $100 bills and said to me, “Hold this money for a minute. You will never hold this amount of money in your hands again.” That kind of teaching could really dampen someone’s ability to think big. I hold no grudge about my father unknowingly setting my financial thermostat. He didn’t know any better. He was only teaching me what he was taught.

Number one on the hit parade was, “Money goes to money — the rich get richer.” My dad would say on a regular basis with disdain. And he was 100 percent correct. The wealthy do seem to have that “Midas touch.” It’s because rich people are wealthy in their minds before they got rich in their bank account. I think this is where many franchise owners have a disconnect. They scrape together some money, buy into a great franchise but never change their attitude about creating success and wealth.

They are still living in that apartment in their mind instead of thinking about the mansion in their future. Hard work will get you to a certain point but people seem to plateau at a certain financial level. The point of that plateau is what they think they deserve on a subconscious level based on their family’s money set point. To break financial barriers and self-limiting beliefs about money, a franchisee — and really every small business owner — has to train themselves to be a financial winner.

Here are ways to train your brain that have proven successful for me and others who had this financial, generational, mental setback:

  1. You’ve already reached a certain financial level in your life today. Celebrate and be comforted by that. Be grateful for your work experiences so far. Appreciate the fact that you can make a change and be a business owner in the United States with no constraints.
  2. Accept that you are a winner. Actually, you’ve already won. You have beat 300 million other sperm to be the unique person you are. That is an audacious miracle that you are the recipient of. Embrace that fact.
  3. Regardless of where you were born and raised, we have all overcome challenges as we made our journey from child to adult. Some have more challenges than others. Take solace that you are here now, able to read this article, and you are so blessed compared to so many who don’t have access to this online magazine. Not to mention how blessed you are because you actually know how to read.
  4. Erase the tape that was installed by your parents, teachers and preachers regarding how money works. Teach yourself about money and its energy. Only you can make that mental switch to your own relationship with money. Understand that your past beliefs do not dictate your future results and as we intentioned as your parents were, they may not have past the best information down to you.
  5. Know that you deserve whatever your goals are. If it wasn’t achievable, you wouldn’t be permitted by our creator to see it in your mind’s eye.
  6. Study wealthy people you admire or ask for advice from the franchisee of the year. Take them to lunch at your next national franchise conference. You will find that leaders will be happy to lend an ear. Success always leaves clues. Find out who has the clues, ask for the clues and then follow the clues.
  7. Associate yourself with great money thinkers. We are the average of the five people we hang out with most. Today we are who we are because of the books we’ve read and the people we associate with. Who are you hanging out with at your convention? Notice what the top performers are doing. Hang with them, do what they do.
  8. Ask a senior, successful franchisee to be your mentor.
  9. ABL — Always be learning. Read the articles in this publication. Read the books that are available to you. Go to seminars. Always be a student of greatness.
  10. Set up bank accounts, and know your money. One of the first line items on your profit and loss statement should be to an account for marketing. Without marketing, your business will starve. Ten percent of your profits should go to fun money for yourself and your family, maybe a vacation club or something you enjoy. If you do not have fun with your money, you will end up resenting your business.
  11. Do this powerful exercise. Write down all the negative money statements you’ve heard from childhood. Reframe the thoughts to be new positive statements. Change your words. As an example, don’t say things such as, “I can’t afford that.” Instead say, “I am choosing to buy that with cash money at a later time.”

Once you change your thoughts and behaviors surrounding money, you will begin to notice a difference in your business and its bottom line. Resetting your financial set point takes conscious effort and daily vigilance. If you want your business to go to the next level, it’s worth the trouble of being attentive to your thoughts and words around money.

Read the original article here.

The Right Economy for Franchising

The Right Economy for Franchising

Franchising is a larger part of the U.S. economy than most people realize. For example, according to independent research firm FRANdata:

  • 1 in 7 U.S. businesses is a franchise;
  • An estimated 3,383 franchise brands operate in the U.S.;
  • An average of 300 new brands open each year, nearly 1 every day; and
  • 744,437 franchise establishments are expected to be operational by end-2017

Each year the International Franchise Association commissions a study from PwC (PricewaterhouseCoopers) on the economic impact of franchising in the U.S. Highlights from that study include the following:

  • Taking into account the indirect impact of franchised businesses, business format franchises support more than 13.2 million jobs, $1.6 trillion in economic output for the U.S. economy, and 5.8 percent of the country’s GDP.
  • Franchise businesses provided more jobs in 2016 than wholesale trade, transportation and warehousing, nondurable goods manufacturing, and information (including software and print publishing, motion pictures and videos, radio and television broadcasting, and telecommunications carriers and resellers).
  • Quick service restaurants (QSR) is the largest category, representing 25 percent of all franchise establishments and 45.5 percent of all franchise jobs.
  • Jobs supported because of franchise businesses were at least 10 percent of the private sector non-farm workforce in 33 states, and at least 6 percent in every state.
  • The number of people employed by franchises is greatest in California, Texas, Florida, Illinois, and Ohio.
  • Franchisees own and operate 88 percent of all business format franchise establishments and franchisors own and operate 12 percent.

In the previous article in this guide we listed several reasons this is a good time to get into franchising. Here we expand on those reasons.

Control Your Destiny

With the job market tight, many of today’s job seekers have shifted their focus from working for someone else to starting their own business and taking charge of their financial security. This is one of the strongest reasons entrepreneurs choose franchising to support their own American Dream.

Lower Cost of Entry

In an effort to keep growing in a shrinking economy, franchisors have begun offering scaled-down versions of their concepts. Smaller footprints mean lower real estate costs and new options where franchisees can locate. Franchisors are also continuing to offer lower franchise fees, reduced or deferred royalties to start, and part-time versions of their original concept.

Real Estate

As big box anchor stores vanish from malls across the country, new opportunities are opening up for innovative brands. In addition, landlords seeking to fill empty space are offering better rates, as well as help with build-out, tenant improvements, and choice locations.

Proven Business Model

In a slow-growth economy with consumer spending stagnant, minor mistakes can sink a business more easily and quickly than in boom times. Franchisors offer franchisees a time-tested recipe for success:

  •  A proven operating system (no need to reinvent the wheel);
  •  Brand name recognition to bring in customers;
  •  A quicker return on investment, as well as reduced risk;
  •  Marketing support (pre-opening, grand opening, materials and collateral, and ongoing national and regional campaigns);
  •  Initial and ongoing support from both corporate staff and fellow franchisees; and
  •  Training, not only in running the business but also in managing and expanding it and developing an exit strategy.

Financing Assistance

After severe cutbacks at traditional franchise lenders following the Great Recession, lenders have figured out new ways to assess risk and are making more loans. Alternative lenders have sprung up, many of which work closely with franchise brands to make funds more easily available for new franchisees — based on their analysis of a brand’s strengths, as well as the borrower’s.

Having a successful franchise brand behind you when you approach a lender greatly improves your chances of success in financing your dream. And an increasing number of franchisors are stepping up with loan guarantees, financing, and establishing relationships with both alternative and traditional lenders to free up capital for equipment, real estate, and additional units.

Something for Everyone

Franchising is a business model, not an industry. That means it can be applied to any industry or business sector. And within each sector, there usually are several competing brands to choose from. Do you like dogs? Fixing leaky pipes? Caring for seniors? Hosting hundreds or thousands of hungry customers every day? No worry: in franchising, there’s a concept, niche, or sector for everybody. It’s just a matter of finding yours.

Even with all these good reasons to consider franchising, the usual “buyer beware” warnings still apply. While success ultimately depends on your passion, dedication, and hard work, you still must choose the right industry, franchisor/brand, territory, and hire and manage the right people — another reason to remember that, in franchising, “Making it on your own doesn’t mean making it by yourself.”

Read the original article here.