How to Franchise Your Small Business with Dr. Tom DuFore

0:01Boom! Shake the room, Fire Nation! JLD here and welcome to Entrepreneurs on Fire! Brought to you by the HubSpot Podcast Network! with great shows like Marketing Against the Grain. Today, we'll be breaking down how to franchise your small business. To drop these value bombs, I have brought Dr. Tom Dufour into EO Fire Studios. Tom is a franchise expert and CEO of Big Sky Franchise Team, an award-winning consulting firm helping entrepreneurs franchise their businesses. He has consulted with or advised more than 700 franchisors over the past 20 years. He also hosts the Multiply Your Success podcast.

0:36And today, Fire Nation, We'll talk about what exactly makes a business franchisable. We'll talk about if you should franchise your business and why you would, the difference between franchising and licensing, the nine pitfalls to avoid when franchising your business, and so much more. And a big thank you for sponsoring today's episode goes to Dr. Tom and our sponsors. Business Made Simple, hosted by Donald Miller, is brought to you by the HubSpot Podcast Network, the audio destination for business professionals. Business Made Simple takes the mystery out of growing your business. with episodes like how to get out of your day-to-day operations without crashing your business.

1:11Listen to Business Made Simple wherever you get your podcasts. If you've been sizing NetSuite up to make the switch, then take advantage of their special financing offer today. Defer payments of a full NetSuite implementation for six months. No interest, no payments. Visit netsuite.com slash fire to get the visibility and control you need to weather any storm. That's netsuite.com slash fire. Tom, say what's up to Fire Nation and share something that you believe about becoming successful that most people disagree with. What's up, Fire Nation? So glad to be here. Thank you for having me on, John.

1:48And something that I believe about becoming successful that most people disagree with, I would say it's a quick two-part thing. Number one is that being successful is hard. It takes a lot of hard work and commitment. And I think most people aren't willing to do that. number two is defining what success means and i think all too often other people when you start a business or get your venture going they let other people define what that success is maybe it's size of size of revenue number of employees number of subscribers other financial metrics and one of the things i actually ask every guest on our podcast before they go is what does success mean to you?

2:31And very rarely is it ever anything to do with financial numbers, revenue benchmarks. It has some other personal connection. So I would just leave as a parting word or question to Fire Nation is what does success mean to you? And ponder that as you're launching and growing your enterprise. Well, I love this Fire Nation. It's a great way to start an episode about how to franchise your business. This is the focal point today. And I just want to start off by talking about what exactly makes a business franchisable. Can you talk about that, Tom? Sure. Great question there, John. And we break it down in a relatively simple approach to thinking about franchising your business.

3:15There are three parts we look at in terms of what makes a business franchisable. First is having a profitable prototype. While that would seem to be common sense, it is something that sometimes can easily go overlooked. So do you have an operating business and is it profitable, essentially proof of concept? Number two is, do you have a national customer base? And while your customers may not currently exist nationally, for example, maybe you have a janitorial cleaning business or a restaurant or some other type of business that's very local, but would you have customers if you were based in Florida and you opened up in Texas or in California?

3:56Would you have customers that exist there? So we're looking for that national customer base. At minimum, regional, where there's maybe a regional following, and ideally, internationally. And then the third piece we look for is, can you teach someone how to run and operate your business? And when we think about teaching and training someone how to do it, I can give you a complex example where we have had a veterinarian client in the past. And that veterinarian client is not teaching people how to be veterinarians, okay? So we're taking people who already have maybe these certain skills or skill set background and teaching them how to run the business.

4:38So for most, are you able to do that in a reasonable time period, maybe one or two weeks, up to two months to train someone on how to run your business? So if you can have those three pieces, a profitable prototype, a national customer base, and you have the ability and willingness to teach someone how to operate your business, kind of having that teacher's heart or coach's mentality, you could be a candidate for franchising. Fire Nation, I think this is really important to think about when you're saying, hey, what kind of life do I want to live? What type of business do I want to grow? What am I creating in this world?

5:17And I think the next really clear question and step I want to move to is the why. Why, Tom? Why would one franchise their business? There are a lot of personal reasons what might drive someone to franchise. what we hear most often from our clients and the people that i've been working with for many years it tends to fall into three categories why they look to franchise the first is money and just really the ability to use other people's money to grow your business when you're operating and running one two three of whatever kind of business you have when you're an operator it's hard to step out and take that free flow cash flow and keep opening additional company-owned units.

6:05So when you franchise, you're able to use other people's money. They invest their resources. Maybe they tap into their retirement account or they get a loan or they borrow money from friends and family to get that location up and running. So money is number one. Number two, and it's really kind of 1A and 1B with money, is management. And when you have a franchisee running that local business, it removes the day-to-day management off of your shoulders as the founder or the owner of the business. One of the biggest challenges with running any operation is managing staff and people. And so if someone doesn't show up or someone calls in sick or you're having a hard time recruiting people, that falls on that local owner to manage the day-to-day activity.

6:53And number three is the ability to multiply. So franchising just allows you to grow more quickly than you otherwise would be able to without it. And so when you franchise, you don't have to expand at a very rapid rate. We all hear news stories where a franchise maybe sells 100 franchises in a year. That's the exception. most franchises you see will end up selling one, two, three, four franchises a year as they're launching over the course of their first five years of operation. So I think a lot of people these days hear about the word licensing, and they're kind of intrigued by that as well, because there's obviously pros and cons to everything in life.

7:35So people are assuming, well, what is the deal with that? So can you talk about the difference between franchising and licensing? Yes. And this is a very common misconception where someone will say, well, I don't want to franchise. I just want to license the business because licensing is easier or that's what someone thinks. It's just easier to do. And when we think of licensing versus franchising, the Federal Trade Commission regulates franchising and has a big legal definition behind it, but it boils down to three big parts of what constitutes a franchise. And so franchise is when you sell to someone the ability to use your business name, generally your logo, trade name, and so on, your system of operation.

8:25So how do you generate business, recipes, procedures, processes? How do you run your day-to-day activity? And then for that, you're receiving a fee, upfront or ongoing, more than$500. And I'm sure everyone who would be looking to do this is looking for more than$500 payment. And so when those three pieces are in place, name, system, fee, you are most likely going to fall under the franchise category. Now, licensing is when you allow someone the right to use your business name for the payment of a fee, but not the system or the operational aspect of it. So licensing, we oftentimes see this in product licensing where Disney licenses its characters to manufacturers to create and make those kinds of things.

9:17But there are also some forms of business licensing, and it ultimately comes down to the amount of control you want to have over day-to-day operations. So the more control you want, the more you want the operations to be the same from one location to the next to the next to the next, the more likely franchising is going to be a fit. If that control day-to-day operation is not as important, licensing could be a solution for you. Fire Nation, there's obviously a lot of pros and cons to anything you do in life. And so I really love how Tom broke down the differences between franchising and licensing.

9:52We're going to really be diving into the nine pitfalls that you need to avoid when franchising your business, as well as talk about some of the benefits and legal requirements and more when we get back from thanking our sponsors. I remember back in 2013 when Entrepreneurs on Fire was scaling fast. And in those early days of our business, we sometimes found ourselves struggling to keep up because we couldn't find software solutions that were easy to use and that would grow with us. Wasting time worrying about software that's complicated, a pain to use, and that doesn't do what you need it to do is not fun or productive.

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12:52No interest, no payments. Take advantage of this special financing offer at Netsuite.com slash fire, Netsuite.com slash fire to get the visibility and control you need to weather any storm. Netsuite.com slash fire. Tom, you've done a great job talking to us about what makes a business franchisable, how you would franchise your business, really the why, the difference between franchising and licensing. But I want to talk right now about the pitfalls to avoid when franchising your business. And you have nine of those. Take it away. Yes. So, and by the way, for anyone who's listening in who wants to get a free copy, we have a great little white paper we put together called The Nine Pitfalls to Avoid When Franchising Your Business.

13:31It's available. It's ninepitfalls.com. They can get a free copy of that if they want more detail on each of these. And there are nine that we identified that we've seen clients and franchisors struggle with over the years. And so I'll go through some of these quickly and I'll highlight a few of these just to emphasize some of them. So number nine on the list is get rich quick thinking. And so if you're gonna get into franchising, you want to be thinking long-term, not short-term when you go into this. Number eight is doing it all yourself. This is a new adventure and keep that in mind. Number seven is giving up equity too early.

14:11Number six is one I want to highlight. It's inconsistent or absent franchise marketing and lead generation. And so much like starting any new business, you've got to generate some leads and get some candidates and interest of prospects coming into your company. And so when you're franchising the business, you need to keep a consistent marketing budget to keep those leads coming in. Franchising has a very long sales cycle. Number five is hiring the wrong franchise attorney. Number four is forgetting the startup mindset. And this is one that I'd like to emphasize. So as most of our clients we work with, we're working directly with the founder.

14:54And the founder started the business and got it going, and now they're successful and they're growing and they're ready to franchise. But sometimes that founder forgets what it took for them to get that business launched and operating. And so they forget that mindset that they really had to put in some extra time and hard work and elbow grease to make that business go. And it's no different when you start as a franchisor and you franchise your business. You're in startup mode again. And so those first two years are really going to require a lot of learning and some extra hard work to make that go.

15:28Number three is not having a franchise sales process. And I would say that's just true for any business, right? Once you get the leads, you need to have a process to take them through and walk them into buying your product or service, or in this case, a franchise. Number two is not providing ongoing support. And support is so critical in franchising. You have to sell franchises, you need to train them, and then you need to support them. So franchising is not a sell them and forget them kind of a business. If you have that kind of a mindset coming into franchising, I would encourage you just to stay away from franchising because you have a responsibility to be helping coach and train and support those franchisees on an ongoing basis.

16:14And then number one, while this probably is a little self-serving, but it is not hiring a reputable franchise consultant. And whether that's working with a firm like ours or finding another reputable franchise consultants or a whole bunch out there, and just making sure that you're working with someone that can help guide you through this process. And it helps shorten the learning curve and gets you set up and running faster and avoiding a lot of these common mistakes that come along the way. These are a fantastic nine pitfalls that you want to avoid when franchising your business, Fire Nation.

16:50I personally love the one that you did emphasize, the forgetting the startup mindset. I will say Fire Nation, my listeners, they will not forget the startup mindset. So that is one thing that we will check that block, but it's something to definitely keep in mind. And I want to talk right now about the benefits of franchising. Let's really zero in on what these benefits are. So some of the benefits when you franchise your business are what many of you have probably already thought of, but some highlights are, number one, having economies of scale. As you grow from one, even just to two franchises or three to four and so on, you're able to get discounts with current vendors, suppliers, and start providing your franchisees with better supplier pricing than they would otherwise have independently.

17:42Number two is regional and national or international recognition. As your brand grows, you're touching more customers in more areas and your franchisees are promoting and building your brand in their local market and they're investing the time and resources into building your brand in that local market. Number three, you're able to grow faster. You're able to also get out of the day-to-day grind of owning and operating your current business. So one of the common, I don't want to call it complaints, but things that a client is looking forward to is getting out of the day-to-day operation to become more of what I call a coach or a teacher or an advisor to their franchisees.

18:30Because most folks, and I'm certain the Fire Nation, it falls in this bucket, that you know you're worth more for what you know than what you can do in a day's work. And I think that's important. And so when you franchise, you're bottling that intellectual property that you've already invested so much time and effort into creating. And now you're able to multiply that across the country or around the world and give other people the opportunity to benefit from what you've created. And the final piece that I'd like to talk about is when you franchise, the other benefit is you're now providing to someone else the opportunity to start their own business.

19:11And what I call that franchising becomes that confidence elixir for a prospective or budding entrepreneur that maybe is a little too scared to start the business on their own or they would prefer to join with a network or a system that has proven model that they can learn and take and execute. And so I love that part of franchising. I think it's so beautiful that by taking what you've created, you now give someone else an opportunity to build a life that they would like to with your system and your model that you've created. Now, these are a lot of great benefits. Before you get too excited, Fire Nation, and start kind of running off to the races, we do need to realize that there are facts in life.

19:56And the facts in life are there are legal requirements to everything that we do as business owners, as entrepreneurs. So what are those legal requirements of franchising that we really need to hone in on, Tom? Great question. So as I mentioned earlier, the Federal Trade Commission regulates franchising. And it requires, before you start offering and selling franchises, that you must have what's called the Uniform Franchise Disclosure Document. You may have heard it referred to as the disclosure or the franchise disclosure, something in that regard. And there are 23 items of disclosure that every franchise must disclose.

20:36So whether you're a brand new franchisor or McDonald's or Jiffy Lube or 7-Eleven or any of these well-known brands, you must disclose these 23 items in the same way so that a prospective franchisee can easily compare one franchise offering to another. So that's at a federal compliance guideline. Then there are approximately 25 states that have various other forms of requirements depending on grade marks, state registration. Those are important things to be aware of as you start thinking about franchising and taking that next step. Fire Nation, legal requirements, this is one thing you don't want to skimp on.

21:22We have heard too many horror stories in every way, shape, and form of people who just haven't dotted that last I or haven't crossed that last T. And because of that, they're struggling today. So Tom, what is the one key takeaway that you really want to make sure Fire Nation gets from everything that you and I talked about here today? Yeah. If there's one key takeaway to think about, and I advise any business owner that's thinking about growing their business, If you're thinking about growing, you have to consider franchising. I'm not saying you should do it or that it's the best solution for any business.

22:00But if you're thinking about it, it is an option that you need to consider and explore and investigate. And that's part of the reason why we always offer to anyone exploring or thinking about franchising a free consultation, no obligation, just to see what it might look like. And Fire Nation, you need to realize that following people who have come before us, because we are all standing upon the shoulders of giants, is a critical process to take. Tom, if we want to connect with you, if you want to learn more about what you have going on, give us your call to action. Call to action is go to our website, bigskyfranchiseteam.com.

22:40That's a long one, bigskyfranchiseteam.com. and just click free consultation. Schedule a free consultation with one of our franchise consultants and there's no obligation. It's a free assessment and we have a plethora of free resources available for you as well. So if you're not quite ready and you just want to investigate, we have weekly webinars, podcasts and all kinds of other information if you're not ready to talk to someone yet. And if you are, we're ready and available to speak with you. answer any questions and guide you through this. And most people we talk to, this is not something they decide lightly.

23:18They're going to think for six months, sometimes six years. Fire Nation, you're the average of the five people you spend the most time with. You've been hanging out with TD and JLD today, so keep up that heat. Links to everything we talked about today are at eofire.com. Type Tom in the search bar. The show notes page will pop right up. Tom, Tom, thank you for sharing your truth and your knowledge with Fire Nation today. One more time, give us that URL. It is bigskyfranchiseteam.com. Thank you so much for having me. It was our pleasure, and we'll catch you on the flip side. Hey, Fire Nation, a huge thank you to our sponsors and Tom for sponsoring today's episode.

24:00And Fire Nation, what can 3 ,000 of the world's most successful entrepreneurs teach you? How about how to achieve financial freedom and fulfillment? My first traditionally published book, The Common Path to Uncommon Success, is a revolutionary 17-step roadmap that will lead you to the lifestyle you've been dreaming about. This book took me 10 years of accumulating the genius of the world's top entrepreneurs, and you can get it all in one place when you visit UncommonSuccessBook.com. I'll catch you there or on the flip side. Business Made Simple, hosted by Donald Miller, is brought to you by the HubSpot Podcast Network, the audio destination for business professionals.

24:35Business Made Simple takes the mystery out of growing your business with episodes like how to get out of your day-to-day operations without crashing your business. Listen to Business Made Simple wherever you get your podcasts. If you've been sizing NetSuite up to make the switch, then take advantage of their special financing offer today. Defer payments of a full NetSuite implementation for six months. No interest, no payments. Visit netsuite.com slash fire to get the visibility and control you need to weather any storm. That's netsuite.com slash fire.