🍟 8/15/2022 – 12 Lessons From Multi-Unit Franchise Owners

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DEEP DIVE

12 Lessons from Multi-Unit Franchise Owners

In a few weeks, season 2 of Franchise Empires will be complete. Both season 1 and season 2 have focused solely on speaking with multi-unit franchise owners. 

Season 3 will be a bit different, so I took some time to look back on all my conversations. Here’s 12 key things I learned:

1. Unused Capacity

Many businesses don’t utilize their maximum capacity. For restaurant owners, this could mean having spare labor outside of the peak lunch & dinner hours. 

The owner of multiple pizza franchises realized this, and now his staff is producing just as much profit in the mornings by prepping meals for catering!

Prior to the catering revenue stream, the restaurant would be open at the same time, but the staff they had in weren’t busy (after all, who eats Pizza at 10am?). But now, they’ve filled the gap of that unused capacity. 

2. B2B Revenue Streams

If you operate a retail business, try to find a B2B revenue stream. 

Own a gym? Offer discount memberships to employees of companies. Own a carwash? Cut a deal with truck fleets. Own a restaurant? Get into corporate catering!

B2B customers are less price sensitive and typically offer recurring business.

 3. Great Managers Can Make Great Owners

One of the franchisees I interviewed was managing 8 Five Guys locations when he realized he could do it on his own.

He expanded his network by attending finance conferences, and hustled his way to raising capital so he could afford to acquire multiple locations.

To date, he owns 13 Five Guys!

 4. Most Popular SKU Should Have The Highest Margin

This may sound obvious, but many retail businesses don’t operate this way. 

Often times the strategy is to sell something at a low price (and margin) to get customers in the door, and then depends on upsells to make profit i.e. “would you like fries with that burger?”

But when the most frequently ordered SKU also has the best margin, you’re not dependent on upsells, and as an owner, you’re not as reliant on your staff to put into practice what they’ve been trained on.

This advice specifically comes from the owner of 6 Dunkin’ Donuts, where coffee is the highest margin item and most frequently sold!

5. Collect Emails → Tell A Story

A 6 unit F45 owner was the first franchisee to open F45 in Ireland. 

To build awareness of the brand, he collected emails via Facebook ads before a single gym open.

Now that emai list is used for content marketing. Remember – the goal of content marketing is to keep your brand top of mind (not to plug sales promotions every single email). 

This owner executes perfectly by sending success stories of customers who are in much better shape because of his F45 gyms. Not only does this provide inspiring stories, it’s also validation that F45’s training regimen works!

6. The Franchise Roll-Up Strategy

I’ve interviewed a few owners who started their franchise journey by acquiring locations from an existing owner.

After seeing it done by different owners with multiple brands, I noticed a pattern for how they’re doing it:

  • Find a franchise with hundreds (or thousands) of locations open
  • Target the owners that are at retirement age – see if they’re willing to sell
  • Leverage seller-financing to limit your up-front cash investment 

This is the strategy used by an 8 unit Anytime Fitness owner, a 20 unit Wingstop owner, and a 30 unit Midas owner!

Once you own a franchise, you then have access to that network of franchisees. The brands that have been around for a while likely have owners that are ready to retire, or simply move on from the brand. You can be the buyer to take advantage of that!

7. Build to Learn, Buy to Accelerate

While leveraging the above roll-up strategy can be a quick way to accelerate the number of locations you own, building locations from scratch does come with advantages.

Specifically, owners who had no experience with a brand often cite that while buying locations was a similar investment and less work to achieve profitability – they did admit that the stores they built taught them everything about how to run their specific franchise.

When you build, you have to understand every single role in the company (and possibly even work in each position) as you ramp up the business.

8. Integrate Everywhere

Owning a business at different elvels of the value chain have distinct advantages. 1 franchise owner I spoke to owned 3 brands, which enabled him to be vertically and horizontally integrated.

Being horizontally integrated allows this owner to cross sell customers (from his auto maintenance shop to his auto body shop), while being vertically integrated allows him to buy parts from himself (he owns the supply shop).

The horizontal integration means he can acquire customers for less while boosting the life-time value of each, and the vertical integration informs him ahead of time on supply chain issues, as well as what his competitors are buying!l 

9. The Best Sales Reps Are Your Customers

CPR Cell-Phone Repair has 850+ locations worldwide. Yet the top performing location worldwide is in Bermuda, a country with just 63,000 people!

The owner credits this incredible store level success to his focus on the customer experience.

The better they treat their customers, the more organic referrals they generate – and in a country where there aren’t that many other options, having the reputation as the best servie provider pays dividends!

10. You Can Operate A Franchise Passively

A franchise owner I interviewed has a full-time job. “Semi-absentee” franchise opportunities are marketed heavily, but there are costs to consider before thinking it’s the right path for you:

  • You need an operating partner to run it day in and day out
  • You’ll deal with the emotional struggles of watching your business investment from the sidelines

Dual-income is incredibly valuable, but it’s important to know what you’re jumping into.

11. Three Interview Questions

  • 1st car?
  • 1st concert?
  • 1 movie for the rest of your life – what would it be?

These interview questions come from the owner of 140 OrangeTheory’s, who has had to hire rapidly and build a positive culture in his massive organization.

These questions are what he first asks during an interview, because they turn the ‘interview’ into a conversation, and it allows him to understand an individual’s story.

Understanding the type of person someone is, and how they fit into his culture, are what’s most important to him – the hard skills he can train someone to do, but not being a good culture fit!

12. Stepping Stones

Many of the franchise owners I spoke to used low-cost businesses to build their way into higher earning businesses. 

My favorite example of this is a 39 unit Club Pilates owner – he bought a Liberty Tax franchise, which costs about $44K – $79K to start. 

He grew to 12 locations before buying a Club Pilates ($186K – $388K investment) which he now owns 27 of.

Play the long game!


FRANCHISE HEADLINES

Butterfly Equity Acquires Qdoba

After originally being purchased by Jack in the Box, Apollo Global then acquired Qdoba for $305 million in 2017. Since that acquisition, Qdoba’s unit growth has been relatively stable – they had about 734 locations in America at that time.

Today they have ~750. While the deal terms were undisclosed, LA based private equity firm Butterfly has big ambitions for Qdoba, currently the second largest mexican QSR in America (behind Chipotle).

Domino’s Is Leaving Italy

After a 7 year journey, Domino’s is waving the white flag in Italy. They’ve closed the last of their 29 stores, as locals never quite warmed up to their pizza. Let’s be real…given Italy is the birthplace of pizza, it’s not a surprise the Italian population never warmed up to Domino’s fast-food style of pizza. 

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