Thomas Scott Talks What to Expect In Franchise Development This Year With Johnny Franchise
Check Out the Full Transcript Here:
Our CEO and founder, Thomas Scott joined John Francis, who is better known as “Johnny franchise” here in the franchise industry, on the What The Franchise Podcast to talk 2021 trends in franchise development.
These two leaders in the franchise industry shared it all from why you CAN’T be a “do it yourself(er)” in the franchise world, to the value in utilizing Facebook advertising in your development marketing strategy, to the importance of developing and nurturing a performance culture in your franchise system as a franchisor.
Check out their full conversation below:
Thomas Scott: John, thanks for joining us this week! Are you up in Minneapolis?
John Francis: Yeah, thank you, Thomas. I’m at home, in the Twin Cities in Minnesota. It’s snowing outside. But it’s not too bad. I mean, it’s January and Friday afternoon, so I’m trying to get on a snowmobile this weekend.
Thomas Scott: That’s great John. Let’s jump right in, here at Brand Journalist, we see a lot of emerging and mature brands growing, and some are really changing their growth cycles in 2021. When I talk about some of the trends we see, John, as an advisor, you must see a lot as you work with tons of emerging brands and several mature brands struggling to pivot. The number one trend I have noticed is the audience for franchising has tripled. 2021 truly is the year of the entrepreneur, and to take advantage of that a brand must understand the shifts in the market, and some brands are really struggling to do that. At the same time, we have an incredibly large surge of new franchisors and the emerging of new systems. Some days we see two or three new systems popping up. The beautiful thing about franchising is that it has taken us decades to get to this level. John, why don’t you talk about what you are seeing in the trenches? What trend for 2021 have you found interesting?
John Francis: Of course. I do see a lot of stuff as I talk to people everyday. I try to help people and be a resource, but I’m seeing these emerging brands they say “I want to franchise this business”. Of course the first thing I try to do is talk them out of it. I usually say, “No, you don’t, you’re not ready”. Then I explain to them more about what a franchise is and what that commitment looks like. The costs, fees, and regulations. In order to make sure they really have some sense of commitment, I try to scare them off a little bit. Once you franchise a business, you’ve got another business and I make sure these emerging brands understand that.
What I’m seeing now as a lot of brands are coming out, is that they are less qualified in terms of their preparation. In a way brands are trying to DIY their franchise, do it themself. I’ve had more brands than I want to think about that tell me “I’m just going to put this thing up, put it online. We know how to do social media so we’re gonna sell franchises.” So I tell them, “I really think you are underestimating the complexity and the commitment that you’re considering”. What I think it comes down to is these folks, they’re millennials, and I don’t think they understand what it means to be a franchisor, to be committed to a franchisee, or have to lead the effort that drives a business. I don’t think they realize what goes into making sure that franchisees are successful. The first five people to buy your franchise, those people really matter. It’s important to dissect who they are, how they behave and what they’re capable of. These first five buyers are so critical, because they set the pace for a lot of things. They’ll push you and challenge you, you will grow together. These people I am talking to, they have no concept. They are unprepared in terms of knowing these facts of franchising. So, I try to explain that these people who are buying into your franchise, are writing big checks and they are spending lots of time to build a business.I’m just seeing a lot of what I would call “do It yourself franchisors” and I think that’s a little dangerous. I want to see people succeed. I don’t want to see a franchisor get hurt and I don’t want to see a franchisee get hurt by a franchisor who is unprepared. This is why I try to help people understand what they need to know. I tell them where to read about it and learn more. There are a lot of great resources out there from real professionals who do this sort of thing. They explain the process of franchising through their experience and you can really learn a lot by having a few phone calls and by reading.
Another trend I’m seeing is that social media is really becoming expected. I see a lot more brands on LinkedIn, which I think is appropriate as this is where more professional type folks spend their time, specifically when they’re frustrated with their work situation. And then there is Facebook,and Instagram. Ultimately, I’m seeing more information, more money, and more attention focused on social media more than ever.
I guess the other piece I’m seeing is much more automation. Automated key systems communication, emails, texts, and even phone calls. There is a system that has a development button that allows you to set an appointment with a candidate, and one minute before your scheduled time, your phone rings telling you the name of the candidate you’re about to speak with, then you click the button and it dials their phone. It’s automated call management. As we get access to better technology, we will continue to see all kinds of automation because it’s become affordable, accessible and it’s effective.
Overall I’m very encouraged by what I’m seeing out there. Strong brands are getting stronger, and people are getting smarter. Generally things are better, even in spite of this lousy pandemic and the economic carnage that is created in a lot of areas. There is no doubt that franchising is well poised and positioned for growth.
Thomas Scott: Yeah, for sure. I think those are all interesting trends.
You know, in our business, we grow franchise brands. We use Facebook to attract and targett the right kind of buyers through their advertising system. Utilizing Facebook this way has gotten more and more precise, more detailed and more difficult, over the last few years. Four years ago it was one or 2% of our closes and in 2020 40% of our closes came from Facebook. Facebook generated buyers, that are multi unit, high net worth individuals or for brands that are high and expensive such as Sonic, down to entry level brands like Frost Shades and Dryer Vent Sqaud, both brands that we launched for Homebased Franchise Group, our sister company, in 2020. You know, we’re definitely not doing it yourself franchisors, we’ve got 30 to 40 years experience between us and our group. Yet it is still hard, it’s hard for me and I know what I’m doing. I would tell somebody interested in becoming a franchisor that you need to have $500,000 to $600,000 to do it right, and you might blow through that and still need another 500,000 before you get to the right point. If you’re really going to do this right, you’re going to create a model that generates a real owner benefit of $75,000 or more per unit for the owner, and you’re going to do it in a collaborative, fun culture that’s franchisee centric, where you really respect people. Where franchisees love the work they do. This type of culture is the missing piece in a lot of systems. And that is why it is really dangerous to adapt to these do it yourself franchise systems. You don’t know until they get 50 units in and realize you’ve made a huge mess. It’s too late. It’s like sitting on the deck of the Titanic.
John Francis: You know I have called franchising, economic Darwinism. Because there’s some truth to the fact that the brands that survive over time are the ones that adapt and change to whatever’s going on. Over time,businesses grow and change based on external and internal facts. You have to adapt, and as a brand grows, the franchisees get smarter, the business gets more complicated, and everything hopefully gets better. The brands that adapt and change are the ones that survive.
Thomas Scott: You know another trend that I see in Facebook marketing for development is that in Canada where we do some work, it has become the predominant form of lead generation. Companies solely do Facebook and don’t even mess with a lot of the traditional ways of recruiting because you can be so precise, much more precise than LinkedIn even and while still reaching the same people that are on LinkedIn. It’s an affordable way to go to market and generate a lot of leads.
John Francis: You know, it’s hard for me to get my head around that. The idea that you would only promote your franchise opportunity on Facebook. But at the same time for certain businesses, or categories that are targeting a certain demographic or a certain profile, I get it, that’s where people are. Facebook is very precise, it can be a rifle shoot. You can be very targeted in your filtering and related, and that’s great.
Thomas Scott: Yeah, the next statement I’ll make is not really a 2021 trend. But there’s no such thing as a monolithic franchise buyer. If you work with Office pride, a really well established and mature kind of commercial cleaning brand, or one of my service brands like Dryer Vent Squad, Frost Shades, or Magnetainment, there are different franchise buyers. Part of what a good strategy is, and this is really important in 2021, is to break down your buckets of buyers. Are your buyers new Americans who are second generation immigrant buyers who grew up with franchise owner parents? Is it a family business? Is it a Gen Z buyer who’s coming out of business school or college and wants to buy a business instead of get a job? Is it a corporate refugee? You know, all of these people have vastly different views and how they understand the emotional parts of a business.
This is where the targeting takes place. It isn’t just demographics. It’s understanding their behaviors and patterns and interest alike. You have to ask how can I get relevant messages about this particular brand in front of this subgroup of people? The hard part of digital marketing and content marketing today is what we call conversational marketing. How do you have this inclusive and fun conversation? And that’s hard. Anyone can hire a digital marketing firm, if you go to the IFA, there’s a dozen of them and they all do exactly the same thing. But what they don’t do is say “We’re going to take the time to understand who we think you should be selling to, because some people are going to perform better in this business. Some people have the natural skills, aptitude, passion, financial net worth, and availability to do well in this business. All buyers are not equal”. A do it yourself guy is gonna go in and just start getting leads randomly from whatever source. Then they’re going to force the franchise leads through, sometimes making illegal earnings claims, just doing whatever they can to get somebody closed. They are not really asking “Is this person going to do well?” or “Is this even a good fit for this person? Is this person gonna make the business better? Are they going to actually hit their goals?”. These people are so far away from that.
But this year, particularly with the Facebook targeting, we’re reaching an entirely new population of people who’ve never looked at franchising before, which is purely a COVID offshoot. These folks are looking at franchising after spending a year introspectively searching and rethinking their life journey. In fact, I’m talking to people today with my service brands who year ago were in a good job market and had no idea they’d ever be an entrepreneur. Then all of a sudden, that’s all they can think about. They don’t want to be furloughed again.They want to have more control. The mindset shift from COVID was huge. And these people go to the market and look at things that are available in their market. A lot of these do it yourself franchises are the ones that they see. Entry level, emerging franchise systems aren’t bad. I have some great ones. Our people are making money. But how would you know if you’re not experienced in franchising and this is your first jump into the waters? There’s 4,500 or 5,000 systems now in the US and another 3,000 in Canada giving buyers the option of like 8,000 franchise systems in North American with another two or three starting up every day.
John Francis: I mean on one level it’s inspiring and on another it’s scary.
It has been a little while since I heard from our friend, Darrell Johnson at Fran Data. He does a great assessment of franchise system growth every year. Statistically it’s amazing. There is always more. The minute I figure this is as big as it gets, it’s not, and it just keeps going and going. Franchising is alive and it’s a beautiful way to grow a great business.
I appreciate hearing about new brands and new techniques. You’re right, things are constantly changing and expanding. Very exciting.
Thomas Scott: Yeah. Well, the other big shift that I see is that we’re back where we were in 2008 where all of these new people are coming into this industry. But they’re not high end franchise buyers, buying three and four $500,000 businesses. They’re really looking for the $50,000 or less business. Right now, the audience for a business that is a real entry level business with a $30,000 franchise fee and $20,000 of other costs that’s where the market is right now. But if you look around at all of the concepts we have, we’re super heavy on food, fitness, and retail. Although we have a lot of service brands, there aren’t a lot of entry level service brands that have open territory and are growing.
When I look at what’s moving this year, it’s a shift from away from food. I’m a franchisee of the Just Love coffee system and it’s been a brutal year to be a food operator. A lot of people are looking at service brands thinking, “Wow, this is the wise opportunity to research this year.” Much like the brand that you’re on the board of, Office Pride. These are the businesses that make sense in today’s market and are less risky.
John Francis: I would agree with that. Office Pride was deemed an essential business, cleaning, disinfecting, and sanitizing. This business has done well. I don’t want to do a commercial for Office Pride, but it is a brand with a great system, they work really hard, they win the right awards, and their culture, franchisee satisfaction and performance makes it a solid opportunity. Even with Office Pride’s low price, it’s truly scalable. They have some wildly successful franchisees who have grown and continue to grow.
Some of the others that I work with, some are bigger, some are bricks and mortar, and one is even kind of a seasonal pop up, kind of work from home. It is great to see that there are lots of opportunities out there, and the whole entrepreneurial drive in America is alive and well. The truth is that when everything else goes haywire, people rely on themselves, and that is where entrepreneurism comes through. As franchising brings a lot of value to an entrepreneur, franchising, I would say is the safe path to entrepreneurism. Plus, once people see that huge benefit and pick the right brand matching up something that really fits their abilities, well I love it. After 30 years in the industry, when I see a franchising situation that works, it’s just really fun to watch.
Thomas Scott: You know we launched Frost Shades in the middle of 2020, and this brand is a commercial and residential window films kind of business. It’s a kind of nice niche business. The very first franchisee we recruited was actually here in Nashville, Tennessee, and it was a husband, wife team. The husband had been working with a contractor, doing audio visual install and trade show and convention setup and had been doing that for 15 years. Well, hat business does not exist anymore. I mean they’ve completely shut up
John Francis: Not this year. That’s for sure.
Thomas Scott: Yeah, for sure. So last year, he was spending time at home where as he’d been traveling a lot. He’s got two kids and his wife was an aesthetician that worked in a spa, and they came to us and we got to start talking about Frost Shades, window tinting, the opportunity and the unique economics and, and they they had a little bit of home equity left and a little bit of money saved and we were able to do a really good entry level deal with them. They got started in November last year and really hit it hard in December with like $10,000 to $12,000 in sales that month, netting $7,000 in their very first month of operation, which was like three times what they expected to do.
John Francis: That sounds like they’re cash flow positive, right? Nothing better than positive cash flow.
Thomas Scott: Yeah and to watch how transformative franchising is for a family like that, that is on dire straits, and not sure what’s going to happen after COVID, and then to suddenly have this ray of hope, well that is exactly what is making them interested in buying a second unit soon. They’ve done so well, they’ve already kind of made back most of their investment. It’s an amazing thing, you know, to see that, and I see that every day. Like that’s what franchising’s value proposition is.
Those folks are in their mid 30s, but what I see also is a lot of younger buyers. People in their 20s buying businesses, with themselves or with their parents. A lot of these younger buyers are out of school and just hardcore serious about entrepreneurship and learning how to be a business owner. And they view franchising as the Cadillac version of a business.
John Francis: Well that’s encouraging.
Thomas Scott: Yeah they don’t view it as a bad thing, they think it is amazing.
John Francis: They should, they should appreciate and respect it. It’s been around long enough and there’s obviously enough history that you can learn about it.
But, I think these new brands are gonna do the right thing. They’ll hear our conversation or hear it from somebody else, then they’ll learn what they need to and they’ll do it the way it works, creating that success for everybody.
Thomas Scott: What are your top two or three pieces of advice for somebody who started down the “do it yourself” franchise path and now they want to grow? Should they use brokers? Should they do their own development? What would your advice be like, if someone was early on, and listening to this podcast, and they could take stock and make some changes in their business?
John Francis: Yeah, good question. I would say, stop what you’re doing or at least reconsider what you’re doing and get some advice, talk to some other people and get the full range of possibilities.
There are lots of different broker networks and all kinds of consulting groups out there, which is great because there’s opportunity for everyone. However, if you’re a franchisor in that circumstance look around, talk to a few people, check references. Experienced people have reputations. I don’t think it’s too hard nor inappropriate ever to ask for references or check people’s hstory to see what kind of performance they are used to delivering? That’d definitely be my number one advice.
The next component that I think is very dynamic is financing, funding, and lending sources. There’s so many ideas and people. Some people still have equity, the stock market has been really strong and steady, rates are very low, and even in spite of the pandemic there are some economic opportunities in the funding aspect. There are some good old systems and vendors that have been doing the same thing, and they’re still good. There are lots of ways to get funding and you should have those discussions and know what’s available to facilitate that for your franchisee. You should know which programs your model is best suited for and why those programs are successful for your model.
Lastly, take your time, be selective, and think hard about these people who are buying your franchise. Are they the kind of people you want to spend the weekend with? When something goes wrong, because it will, how will they respond to adversity? Try to have those conversations and be selective. This is why the first five in a new brand are really critical. As they start they will grow and ultimately set the pace. Plus, it is hard to tolerate a low performer in that first round of development.
Those may have been obvious Thomas, but I think they are still very important.
Thomas Scott: Yeah and my three would be kind of similar about advice.
What I think is really important is making sure that the unit, the business model itself, can actually deliver the financial result. Make sure that you can build a business case that is proven. If you buy a window tinting business, from me, I know that if you spend $2,500 in marketing you’re going to get $8,000 or $10,000 worth of business like and that’s going to produce a measurable kind of net. If you’re gonna spend your time and life savings on a business, and it won’t produce $60,000 to $75,000 of owner benefit in a year, you’re wasting your effort on that business and it’s not really a viable business. Make sure that you ironclad have a business that produces a financial result for the average person not just for the rockstar amazing top performers that can figure it out on their own. That’s my number one, because I when I look at businesses, that’s what I’m looking for.
Second would be the relationship. You can have an amazing, unique economics and you can have a rotten franchise relationship where the franchisor just has a lack of intellectual capital. When franchisors don’t understand the relationship part of franchising, good franchisees will leave the business and shut stores down even when they make money because life’s too short to work with jerky people. I see this in so many franchisors, especially this “do it yourself” group, but I also see it in mature brands that have an arrogance of hierarch and a top down compliance culture. Most franchisees like performance cultures. They like businesses that are focused on “how can we work together to both help you make money and have fun?”. That is why franchisees choose to do this. So that would be my number two.
The third piece of advice is on the development side. Whether you work with brokers, use outsource salespeople or internal salespeople, make sure that you’re doing conversational marketing that you’re taking advantage of targeting people where they are. Make sure you are investing in a recruiting website that tells your story. A good recruiting website should unpack the culture, the financial performance, and what a day in the life of one of your franchisees looks like in order to answer all the common questions. If you have a good recruiting website that is substantial, people will spend 40 or 50 minutes reading and researching your brand before they talk to you, and those are the people that buy for the right reasons versus just somebody who fills out a form and then you’re running them through the wringer trying to get them through your sales process. Buyers have their own buying process and it involves answers to questions and if as a franchisor you don’t understand that you won’t be able to get good people in. Ultimately it is the idea of being a pushy salesperson versus thinking about how to recruit the right people and how to give them the information they want in the method that they want it and that’s something the “do it yourself” guys are really not prepared for.
So those are my three things for the year, and what a great year. I mean, I’m with you, I’m hopeful. This is franchising’s finest hour in a lot of ways. Every franchise system I work with, bent over backwards to help their franchisees, it was really a wonderful moment to see how we all came together, how we helped people, even when business was down. We re-negotiated leases, we got vendor contracts changed. We even had companies that were adding mental health resources for franchisees and talking about mental health issues on on zoom calls and just making sure that everybody is okay. Franchising is the social network version of business, you’re not by yourself. What a great experience. I think some of that’s going to push through to 2021. Even with all the disruptive COVID, and news and politics, I think once the dust settles, I think we’re gonna be a much, much bigger industry in the years ahead because of this.
John Francis: Yeah, I agree. I think we’ve been through an awful lot. Hopefully, we’re on the downside and things are starting to steadily improve, and I do think franchising is well positioned for a lot of reasons. Franchising makes a lot of sense for a lot of folks. So I’m excited. Great to be a part of it.
Thomas Scott: I’m excited too.
Well, John, thank you so much for joining us today. Everyone who is listening should definitely look up the franchise lifecycle video series, and I know you can connect with John on LinkedIn. He’s pretty prolific. Do you have a website John? Like what website should people go?
John Francis: I do, johnnyfranchise.com. I guess you can learn about me and reach me and read all kinds of things right up there. I’m happy to share with you today, thank you, Thomas.
Thomas Scott: Alright, Thank you so much for joining us good luck for the rest of the year.
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