Dennis: Good morning, Fred. Our guest today is Bob. Bob has been a franchisee three times and is currently with the Entrepreneur's Source, where he coaches individuals in selecting the correct franchise. Bob has also been in a franchise operations and support role with large and small franchises alike, including McDonald's, Wendy's and Popeyes. He has been responsible for almost two billion dollars in sales. Good morning, Bob.
Bob: Good morning.
Dennis: Bob, let's start with the basics. What exactly is a franchise?
Bob: A franchise really is a method of distribution of a product or service that includes several points. Number one, the licensing of a trademark or a trade name. It does include what we call payment now and forever, which is a franchise fee and typically a royalty; a proven business system, training and ongoing support, a win-win business relationship and regulatory oversight. That's really what a franchise is structurally.
Dennis: What are the biggest benefits for someone getting into a franchise?
Bob: I think the biggest benefit that I see is, number one, you have a proven business concept that you can explore and validate to be sure that it's going to work for you, fits your skills and talents and delivers what the individual wants in terms of their success. I think that another major factor is the intangible asset of being able to join a community of franchisees. If you're an independent business person, you're by yourself and an independent business person doesn't have a franchisor and a community of franchisees rooting for them to be successful. An independent guy can't go down the street and borrow product to sustain his business from a neighboring franchise; they don't have that. The value of that community is really priceless.
Dennis: It's almost like having cheerleaders and coaches on the sideline.
Dennis: What are the biggest negatives to owning a franchise?
Bob: I think the negatives are somewhat individual. The negatives would be that if someone is truly very, very entrepreneurial and just can't seem to fit into a set of parameters, they want to be the boss totally and make every decision, then really a franchise isn't for them. It does have some structure that will vary based on the type of business. Food, for example, is going to have some very strict guidelines about how to operate because of public safety being involved. If you're in a service business, then it's a lot more flexible and the rules aren't quite as rigid. You can build your business how you need to. You can see where that might be a negative for someone who really wants to work outside the lines, continue to create new products all the time, things like that, so that might be perceived a negative.
The other typical franchisee/ franchisor argument is around marketing. In all my years, I've never seen a franchisee/ franchisor relationship not be adversarial to some extent around marketing. Everybody's a marketing expert, okay? The franchisee says the national advertising program doesn't work for me in my marketplace and yet you are asked typically to contribute to the support of that. Because there's money involved, there's always an argument of how that money should be spent. Typically, these marketplaces are much more similar than the individual franchisee believes and the franchisor just typically got a pretty well developed and proven plan of how to market that business.