Really interesting article in this weekend’s Wall St. Journal on how private equity firms are buying up car washes and turning them into regional chains. There is a trend in private equity to buy up small businesses is to bundle the businesses in order to “roll-up” those businesses and find new ways for them to make money. The goal is to create more valuable companies that can be sold for multiples of what the private equity investors paid.

This is happening in all kinds of businesses such as dentist offices, auto-repair shops and dry cleaners. It is happening in the franchise industry as well. It is a trend that seems to have some legs and something to keep watching.

I made this observation on Twitter recently. Franchisors should stand by their trademarks.

What? Why would you say this? Doesn’t every franchisor stand by their trademarks?

No. No they don’t.

If you look closely at your franchise agreement, it is very likely the franchisor will not indemnify its franchisees against trademark infringement by third parties. This means the franchisor isn’t willing to protect its franchisees from challenges to the name of the franchise and its brand. Franchisees are really buying two main things from a franchisor. One is the system. And the other is the license to the name or brand.

If your franchise won’t indemnify, defend and hold you harmless from trademark infringement, you should negotiate to have such a clause inserted into your franchise agreement. And if your proposed franchisor won’t agree to it, then perhaps you should think twice about whether this is a franchise for you.

A business owner approaches you to invest in his business. He comes up with an idea to “sell” a portion of his equity in the business. You listen to the business owner’s pitch and likes the idea. You decides to invest in exchange for “ownership.” The problem? Nothing is in writing, you have invested the money, and there is nothing that documents whether you are entitled to ownership, whether it was a loan, or perhaps even a gift.

I cannot tell you how many times I’ve seen something like that happen. I have seen people invest hundreds of thousands of dollars without a written agreement signed by the parties. It seems incredulous to me that someone could part with that without assurances in writing but I have seen it happen between friends and complete strangers alike. Why does this occur?

I think it boils down to trust. Most people are just too trusting. They believe things will work out and many do not want to confront or offend the other person. Maybe, they want to be the kind of person that does business by a handshake. Or, they’re just plain stupid (but I prefer the trust angle). So by all means have a healthy respect for your business partner, but make sure to get it in writing BEFORE you invest money in a business.

*This blog post was originally written for the Greater Des Moines Partnership.

I am fascinated by the mindset of high performers regardless of their profession. Because I am a sports nut, I am particularly drawn to the champion mindset of athletes. How are the very best able to achieve at such high levels? For me, it’s fun to listen to these high performers share their background and insight on what has made them so successful. There is no singular path or right way. There are no hacks, tricks or secrets. If you listen to these high performers, you will see consistent themes that weave through their minds. And the great thing is this high-performing mindset is available to everyone. We all have it in us. You do not need to be the most gifted or talented to improve your performance dramatically with the most optimized internal mindset.

It is no surprise soccer star Mia Hamm’s keynote at the recent Greater Des Moines Partnership Annual Dinner was a treasure trove on how to optimize your mindset for high performance. But it was surprising to hear her confession to the audience that she suffers from self-confidence issues. This hurdle did not stop her from becoming perhaps the greatest soccer player of her generation garnering two World Cup championships and two Olympic championships, becoming a 4X NCAA champion and two-time FIFA Player of the Year and retiring as the leading goal scorer in international play. How did she accomplish all of this? Her focused mindset undoubtedly set her apart and helped her overcome any doubts she had about herself.

Achieving in Sports + In Life

Some of Hamm’s key takeaways on how to achieve at an elite level.

  1. You must learn how to work. It is important to get comfortable with being uncomfortable as you push yourself beyond limits. You cannot be afraid to fail. Hamm started on the national team at the age of 15 and realized “she was not very good.” But fortunately, her winning mindset pushed her to continue working hard through all the ups and downs.
  2. You must make the decision to flip on the light switch every day. Most only do it part of the time. It must be an all the time thing.
  3. Each day will throw obstacles at you. Do not let these obstacles throw you off from your goals. Be flexible and adapt in difficult situations.
  4. It can be lonely at the top. Lots of people will want you to conform. You may be viewed as different or strange. You must be OK with this and comfortable in your own skin.
  5. How do you elevate over other elites? You need to find a way to improve in some aspect of the game/profession every day. There can be no wasted opportunities. The best players are always on. It just matters to them more. Do not just seek to win. You seek to dominate. Because you deserve to be as good as you can be.
  6. If you want to be a great leader you must carry the water. Do the little things. Grab the ball bag. Pick up the trash. Be the example in the small moments, not just when you are standing on the podium. Assume someone is watching you all the time.
  7. We all want to know we are valued. So, treat people the right way. Be a team player. Be optimistic and positive with people.
  8. You do not need to be the best in every aspect. Play to your strengths and understand your weaknesses. There is incredible strength in the vulnerability that comes from knowing that you do not know everything or that you are not the best in everything. It allows you to grow as a person and an elite performer.
  9. Be invincible even when you fail. It is OK to fail. What you really are doing is learning for the future.
  10. You are on the team for a reason. Be confident.
  11. Give back to your profession. You likely did not get to where you are without the help of others. Be there for the future generation and help pave the way for others to become even more successful.

A special thanks to Mia Hamm for sharing her insights and to WHO-TV reporter, Justin Surrency, for his work as the moderator of her talk. Hamm’s humble approach combined with an incredible work ethic and determination undoubtedly has made her not only a world-class athlete but also a world-class person.

In March of 1995, Michael Jordan had one of the shortest press releases announcing his return to basketball. He simply said,

I’m back

Well, I may not be the caliber of Michael Jordan, but after a long hiatus I am announcing I am back to blogging. I have been blogging (for the most part continuously) since 2006. I started my own entrepreneurial venture in late 2020, and maybe just needed a break, so I took the past year off blogging. But I return energized and anxious to take this blog to another level. While I still cover legal issues with the blog I do intend to expand beyond just the law and also focus on business success and franchise opportunities.

I also have plans for a podcast which I put on hold for the past year but will be coming soon. I think you are going to enjoy it!

I was recently interviewed on the Entrepreneur Iowa Podcast by Dan Tooker. Dan is with the Des Moines Radio Group and is also the owner of Franchising Done Right. Dan’s franchise related business helps displaced executives and budding entrepreneurs find franchise opportunities. Dan and I discussed franchising, what it takes to be successful in business, business law issues and more!

Take a listen. Hope you find some valuable insights and tips.

I wish you a happy and successful 2021!

 

FRANCHISE Marketing Branding Retail and Business Work Mission Concept

I saw a post from Global Franchising that warranted attention from franchisors as we move into 2021. All too often I have seen franchisors this year bury their heads in the sand and not communicate with franchisors. This article discusses six things franchise executives must do to prepare for 2021.

For me, it’s all about #1 in the article. Franchisors must proactively reach out to franchisees before the end of the year. For many franchisees, it has been a tough year. Taking the time to personally reach out to franchisees will pay off dividends for your business in the long run.

You’ll find that the activity of having your executive management team personally check-in on franchisees between now and through the end-of-the-year won’t take much time and will provide you with the greatest ROI of almost any investment or activity that you can undertake. The insights that you’ll receive are critical for the budgeting process, and a simple call will go a long way in showing your level of commitment and conveying how valued your franchisees are.

I think if there is one thing this year has taught us, it is that personal relationships are most important. Would you believe that I have actually seen franchisors that have not communicated with franchisees during this entire pandemic? By reaching out to them at least franchisees will know you care. The other thing is that you may be able to offer valuable advice that a franchisee can use to improve their business during this difficult time period. But also, YOU will be able to come away as a franchisor with important objectives to meet in 2021 to make your franchise offering even more valuable and successful for franchisees.

The article talks about how you may also be able to use third parties to conduct research on your behalf. While not a bad idea, I would definitely recommend your franchise management team reach out to franchisees rather than a third party. This is not the time to outsource. This is the time to roll up your sleeves and do it yourself. You will not regret it. If you haven’t reached out to your franchisees this year, be sure to do it now. I guarantee (and you typically won’t get guarantees from a lawyer) that it will pay off positive dividends for your business!

There are five other tips worth considering in the article. Be sure to give it a read.

If we can help you out with your franchising needs as you enter 2021, be sure to give us a call.

 

 

Are you interested in starting a new franchise? This blog post will discuss 7 initial steps to franchising your business.

Step 1: Decide if franchising is right for you. Franchising is not something to take lightly. It is a significant commitment, not only in terms of time but also the financial investment required to start a franchise. Some questions to ask yourself before you franchise your business include:

  1. Are you making a good living in your business?
  2. Have you operated multiple locations?
  3. Do you have a proven system of operation?
  4. Are the profit margins large enough for the franchisee to make a good living, support employees and pay you a royalty?
  5. Do you have the time to devote to a franchise operation?
  6. Do you have the skill set to promote a franchise operation?
  7. Do you have start-up and operating capital?
  8. Will franchisees be able to get financing from affordable sources?
  9. Does your business have a unique selling proposition?
  10. Does success of the business depend on skills people have or can quickly acquire?
  11. Is the market stable enough to provide for growth over several years?
  12. Are you able to support franchisees once you get them in business and do you have something to offer them beyond getting them in business?

If the answers to these questions are “Yes” then perhaps you are a candidate to franchise your business and advance to Step 2.

Step 2: Talk with Business Professionals About Starting Your Franchise Business

It is a great idea to talk with various professionals concerning whether to franchise your business. I recommend you speak with a franchise lawyer and your accountant first. It is important to work with a lawyer well-versed in franchise issues. Your typical business attorney may only have limited knowledge about what it takes to franchise your business. Just like you would not want a general surgeon operating on your brain, make sure you get a lawyer who specializes in franchise law to help you out. Also, it is important to get your accountant involved from the start because there are a number of issues that will come up especially if you are growing the franchise including audited financials and other tax considerations. You will probably also want to make sure you talk with your banker, insurance and marketing professionals before you begin your franchise.

Step 3: Work with the Franchise Lawyer to Develop Your Franchise Disclosure Document

So you have decided to move forward with the franchise. The next step is to work with your franchise lawyer to prepare and issue a franchise disclosure document (FDD) that complies with federal and state laws. This is an important process that involves a number of other steps, including writing the franchise agreement that franchisees will sign. The FDD requires you to provide certain information to prospective franchisees in 23 disclosure sections. It is is a detailed process that should be planned carefully in a way that connects with how you intend to run your business. You will not only be preparing documentation that will work in your exiting state, but also in other regions of the country in which you decide to franchise. Sometimes this may include selling your franchise in what are known as registration states. In registration states, regulators will closely examine your FDD offering to make sure it complies with their state laws and requirements. Often, there are special restrictions placed on new franchises in registration states. It is helpful to have a lawyer that has experience in working with franchise regulators to navigate the numerous issues that may come your way when you start selling franchises.

Step 4:  Develop a Franchise Operations Manual and the “System”

The backbone of any successful franchise company is systems. You will need to create and completely document the systems of your franchise with an operations manual that a franchisee will use to run their business successfully. You will need to create a training program that will teach a new franchisee what they need to know to become successful. You will also need to develop marketing plans that a new franchisee will use to obtain customers. And since you will now be in the “business of franchising” as opposed to your “former business”, you will also need to have systems that you can use to recruit new franchisees into your franchise company. There is a TON of work to do. You may be able to hire outside consultants to assist with all this work, but if you do, you are definitely going to pay significant dollars for that assistance.

Step 5: Take the Steps to Protect Your Intellectual Property

You will need to establish and register your trademarks and logos. It is important to register your trademarks (both the words and design of
your logo) with the United States Patent and Trademark Office (USPTO). This is not a step to take lightly. Do not have this work done on the cheap. Be sure to work with an attorney who specializes in trademark registrations. That may, or may not be, the same attorney as your franchise attorney. Not all franchise attorneys file trademark registrations although most franchise attorneys will have a trademark specialist in their law firm. The trademark is absolutely critical to the success of your franchise because this is the main intellectual property you are licensing to franchisees.

Step 6:  Establish Your Franchise Business Entity

You are rounding into the home stretch in the start up of your franchise business. You need to decide what type of entity you will use to operate your franchise business. There are a number of factors to consider before you choose your corporate entity. Many people these days tend to automatically lean toward the LLC. But the LLC is not right for everyone. One major consideration is whether you plan to take investment from outside sources. Many investors do not like LLCs and will not invest unless the entity is a C corporation because of the tax rules. Investors typically do not want to pay taxes unless monies are actually distributed. Unlike LLCs, C corporation shareholders are not taxed unless profits are distributed. Be sure to seek tax advice from your accountant when you are choosing the type of entity.

Step 7:  Create Your ‘Go To Market’ Strategy

Once all the legal documents are completed you are really just starting. Mapping out and planning your initial franchise marketing and sales strategy is critical. Where will you start your franchise? It is usually best to grow at a slower pace in the beginning to get your “franchise legs” underneath you. While everyone dreams of explosive growth, growing too fast can cause a host of problems for new franchisors who do not have experience including franchisee, supplier and business systems issues. Also, do you intend for your franchise to be a national brand? Or perhaps is it better off staying in a regional area? Will you be registering in franchise registration states? If so, you will need to make sure you are actually registered (or filed in certain other states) before you sell locations in those states. You will need to develop a business plan to effectively carry out your franchise goals.

Franchising is a long-term business strategy. It is not generally a get rich quick approach. It requires systematic processes and lots of patience in growing your business and dealing with franchisees. It can be very rewarding financially if carried out successfully. But just know, once you are up and running as a franchise, you have just begun to be in business. Let us know if we can help you to start and grow your franchise.

 

 

 

[Announcing]: A long awaited Steak-N-Shake is anticipated to open in West Des Moines this coming January 2021. A couple of years ago in a Des Moines Register poll, Steak-N-Shake was one of the most desired businesses for the Des Moines area.

Delayed for more than a year, West Des Moines Steak-N-Shake to Open Next Month –  Des Moines Register

Although Steak ‘n Shake traditionally has offered table service, the new location will rely on counter service, a drive-thru and carhop curbside service. Delivery also will be available through third-party services such as GrubHub and Doordash.

Franchising on the Precipice: Unknowns in Transition – Natalma McKnew of Fox Rothschild LLP via JD Supra

Over the last 8 years or so, the ever-changing landscape of employment laws has arguably posed an existential threat to franchising. The franchise business model may not make sense if franchisors are legally defined as the employers of their franchisees or joint employers of their franchisees’ employees. But what is an “employee” and who is a “joint employer?”

With Biden becoming President are there more challenging times ahead for the franchise industry?

Hooters to Expand its Fast Casual Chain through Franchising – Restaurantdive.com

Hoots Wings offers a wings-focused menu with breaded bone-in, naked bone-in, boneless, smoked and roasted wings and over a dozen sauce and rub options. A handful of full-service chains, including Bloomin’ Brands and Cracker Barrel have looked toward their fast casual brands to expand, but HOA is among the first to do so through franchising the concept. Hoots anticipates opening 17 locations in 2021, 35 locations in 2022 and 50 locations in 2023, with key expansion in 2021 focused on the Southeast, Midwest and Northeast.

Hooters closed its only metro Des Moines location back in 2013. We’ll see if a franchisee brings the new fast-casual concept back to the area.

Planet Fitness Franchisee CEO Pushes for Larger Gyms to Stay Open – Spectrum Local News – New York State

Candidly the whole reason we exist is to help people be healthy, and there are millions of New Yorkers that struggle with the consequences of being overweight, diabetes, heart attack, stroke,” he said. “People can get out, get exercise, and boost their immune system. That’s what people need to be doing. It’s the worst possible time to shut down gyms in that respect.

Covid has caused many challenges for the fitness and gym industry. In Iowa the group fitness ban has been lifted but participants still must maintain a 6-foot social distance requirement.

 

Whether your are a prospective franchisee yourself, or a franchisor searching for the right franchisees, it is important to know what makes a franchisee successful. Because in actuality there are always top, average and poor performers in EVERY franchise. Franchisors will see a wide-spectrum of results. This blog post examines 5 traits I have noticed about successful franchisees.

  1. If it is to be, it is up to me. If you read my blog posts on franchising with any regularity you will see many references to this mantra. Unfortunately, all too often I see franchisees who expect they will be successful JUST BECAUSE they bought a franchise. This is sometimes the case even when the franchise has no name recognition in the particular city or state where the franchisee is opening the location. The reality is success is up to the franchisee. There is no guarantee that a franchisor has a great marketing plan. The notion that a franchise is less likely to fail than a non-franchised business is absolutely false. So be sure to learn about your customers. Make sure your customers have great experiences and that your employees deliver superior customer service. Your operations will likely make a bigger difference than the brand recognition of the franchise, or your location. In fact, if you don’t deliver the experience franchise customers have come to expect from other locations, your location is very likely to suffer.
  2. Work ON your business, not IN your business. I am a big fan of Michael Gerber who wrote the E-Myth Revisited which I reference in one of my pillar franchise posts. Top performers  develop leaders, and put the necessary infrastructure in place to ensure they don’t have to do it all themselves. A franchisee who owns 70 locations has no more hours in the day than someone with just one. If you can get the right people in place, and train them with excellent systems, your work yields more results. This is one of the great attributes of a franchise. It allows you to use the franchisor systems instead of coming up with new systems of your own.
  3. Stick to the System. Lots of franchisees think they are smarter than the franchisor. One of the more significant franchise failures I have seen involved a very experienced, and intelligent business person. But unfortunately this person thought they knew it all. They ignored the franchisor’s advice. Don’t be one of those people. Another highly successful franchisee I know with over 50 locations believes he is successful because of his willingness to follow the franchise systems. His theory is that if he can follow the system to build one location, he can continue to replicate it to build multiple locations and grow beyond what he could do on his own. If you find the right franchise model you will want to trust the system in order to be successful.
  4. Be willing to learn. Believe it or not, many of the most successful franchisees often have no business experience in the industry they select. But what these people do possess is a willingness to learn. Education is also not necessarily a predictor of success. I have seen highly educated individuals who failed. And of course there are legendary stories such as Dave Thomas who developed the Wendy’s franchise without being college educated, and did not even get his GED until age 61! Learning on the job is critical for success as a franchise owner.
  5. Be passionate about the work, not necessarily the product. Many people become interested in a franchise because they love the product. For example, maybe you have eaten at franchise restaurant out of the state and think to yourself, “I should bring this franchise to my area!” This happens frequently. But eating and loving the food at a franchise restaurant is much different than actually owning one. I don’t care if the food is great, you won’t be successful unless you are willing to do what it takes to be successful in the restaurant industry.  Running a franchise is tough. You will need to be passionate about the work and the steps that will help you build your business.