How to Know if Your Business is Ready to Franchise

Transcription: 

Leslie Kuban:
Steve Beagelman is joining me today from Philadelphia. It would take our whole episode to list his many accomplishments, but among them are a 30 year career in franchising, a founder and investor in many franchise systems. Steve is a frequent speaker for the international franchise association and a contributor to franchise industry publications, including a little one called forbes.com, and he’s helped more than 350 companies turn their business into a franchise. So he is more than qualified to join us for our topic today. Steve, welcome. So glad to have you here today.

Steve Beagelman:
Hi, Leslie. Good afternoon.

Leslie Kuban:
Well, Steve, some of our viewers are just getting to know you for the first time and with all your many contributions to the world of franchising, your passion for franchising, your commitment to franchising is so evidently clear and would love to hear what do you love about franchising and how did you get into the industry?

Steve Beagelman:
Well, Leslie, I love the franchise industry. It’s been very, very good to me for over 30 years, as you mentioned earlier in your opening. I’ve been in this industry for a long time. And what got me started into franchising was my family started a packaging and shipping business in the mid to late eighties, and they eventually franchised the business. We grew the business to well over 100 locations at its peak. I was a kid growing up in high school, and I just was very interested in business and learning about franchising. So I actually interned for the vice president of franchising that my parents had hired as a junior and senior in high school, and watched him meet with potential franchisees and take them through what today is called the discovery day process. And then next thing you know, people were buying franchises and signing franchise agreements and paying franchise fees.

Steve Beagelman:
And I just thought it was the neatest thing, so I, when I went off to college, convinced my dad to let me sell franchises as an 18 year old in college, which was pretty hard to do, but I convinced him to let me do that. And I called potential franchisees literally from a college dorm room, which was pretty amazing, because there was no caller ID back then. I was able to do that. I would meet potential franchisees after class or on the weekends and I just loved franchising. It was a great industry.

Steve Beagelman:
I was very excited about it. I did very well. And in 1991 I founded my own business in the food delivery industry, very similar to a Grubhub, or a DoorDash or Uber Eats before those businesses ever existed, I helped create what we know today is the food delivery industry. I started that business while I was still in college. I franchised it after I graduated and grew it to about 35 locations by the time I was 24 and then sold my company to my largest competitor called Takeout Taxi. And really that spring boarded my career in franchising and went on for the next 20 some odd years, building franchise brands, such as Rita’s Italian Ice, Saladworks and Hollywood Tans.

Steve Beagelman:
And then about 10 years ago, I started our franchise consulting company, SMB Franchise Advisors, where we help people franchise their business or we help existing franchisors put better systems and processes in place. And as you mentioned, I’ve worked with well over 350 brands. I have 12 amazing people on our team that support our clients every day. I write for forbes.com. I sit on over 10 boards and I love to give back to an industry that’s been really, really good to me. Franchising just is a great opportunity for people to own their own business, but not be on their own and fulfill their dream of owning their own business. And we help people do that through helping franchisors, franchise their concept.

Leslie Kuban:
I love your story, Steve. It started from… I mean your whole career, literally starting, not even from the dorm room, but before that. I can imagine you in your dorm room in college that instead of rockstar posters or sports posters, you had territory maps in your dorm room.

Steve Beagelman:
That’s exactly what I had. I mean, Leslie, it’s funny you say that. It’s exactly what I had. You see the map behind me, I mean, it’s kind of funny, but it’s true. It comes full circle. I had, literally, maps on the wall and I didn’t know my roommate. We met the first day in college and he’s wondering why I have maps on the wall with pushpins plotted where I’m putting all my franchises and he has pictures, like you said, of rock stars or beer at the time or whatever it was. And I had maps. That’s exactly what it was. Very true.

Leslie Kuban:
That’s awesome. I mean, that’s quite a number, helping 350 entrepreneurs turn their business into a franchise, but I would bet that you’ve had thousands of conversations. If you’ve helped 350, there must have been thousands and thousands of conversations with entrepreneurs over the years. I’m curious, if you have 10 conversations with 10 entrepreneurs, out of those 10 conversations, how many of them would really be ready to franchise, at their time they’re calling you up and saying, “Hey Steve, can you help us franchise our company?”

Steve Beagelman:
If I had to guess out of the 10 people that contact us, two to three are probably at the point where they’re ready to franchise, two to three more probably can get to that point, but aren’t there yet. And we explain to them what they need to work on and focus on in their business. If a business is declining in sales for the last few years, franchising is not the answer to save the business. That’s not the time to franchise your business. If you’re working in your business every minute of every day and you don’t even have time to have a call with me or one of our directors to talk about franchising, you’re certainly not ready to support franchisees and train franchisees. So we spend a lot of time getting to know the company and the brand and also where the industry is. Is the industry on the upswing? Is the industry on a decline right now?

Steve Beagelman:
Those are things that we look for as we talk to people about whether franchising may be right for them or may not be right. It’s not right for everybody. I tell people, Leslie, that franchising is a marathon, not a sprint. So if you want to have 500 franchises in the first two years, that’s probably not going to happen and it’s not realistic and you’re not going to be able to support those franchisees. So we tell people, you have to be prepared for the long run in franchising, and it could be very rewarding. We’ve had many of our clients not only launch into franchising, grow, and then do private equity exits. And I spend probably 20 to 30% of my personal time doing private equity transactions with our clients now. That’s very exciting, but there’s a lot of work between the beginning and that. And you have to be willing to put in the time, the effort and the energy to get to that point. And you have to be willing to work much more on your business than just in your business.

Leslie Kuban:
And Steve, we have a similar mission. Part of the mission for my show, for Atlanta Franchise Today, is to support franchising, to elevate franchising and a big component of that is to help entrepreneurs understand when they are or when they’re not ready to enter into franchising, so I’d like us to speak pretty frankly about that. You started to touch on this, that sometimes entrepreneurs call you up and maybe they have this vision of growing to 500 units in two years as you said, so I imagine there’s probably some common misperceptions that entrepreneurs have when they’re starting to investigate franchising as their growth strategy. What are some of the common ones that you hear?

Steve Beagelman:
lot of times people think that, “Okay, I’m just going to franchise my business and I don’t really have to do anything, but everybody’s going to do exactly what I tell them and they’re just going to operate them and I never have to go check up on the operations and I don’t have to answer phone calls from them and they’re just going to send me my royalty checks.” Doesn’t exactly work like that. You have to support your franchisees. You have to help make sure they’re successful, even though it’s the franchisee’s responsibility to grow their business locally, whether it’s brick and mortar or a mobile concept, they still need the guidance and the direction from the franchisor. If there’s product issues, if there’s logistical issues, they’re going to be calling you as the franchisor, and it’s your responsibility, whether it’s you or your team’s responsibility to support those franchisees.

Steve Beagelman:
I think there is a misconception sometimes that people think, oh, they’re just going to use my name. They’re just going to send me a royalty check, and I don’t really have to do anything. That is not the case. You’re going into a whole new business when you franchise your concept. And we tell people that, whole new business. Now you’re a franchisor. You’re going to build a franchise organization. When I was with Rita’s, we had 40 some odd corporate employees that supported our 300 plus franchisees. Okay. So that’s training managers, that’s franchise support managers or business coaches, that’s a construction team, that’s a real estate team, that’s a franchise sales team, that’s a whole accounting department, finance. You have to have all these systems in place. Now you’re not going to have that day one, if you’re starting to franchise your business, but you have to have the vision of building a team and doing that. And if you’re not prepared for that, and the long haul and the hard work, then franchising is definitely not the right direction for you.

Steve Beagelman:
And it’s not right for everybody. Sometimes people have a million dollar business and they’re super successful in their region and they do very well and that’s okay. It’s not the right direction for every business owner. And we spend a lot of time getting to know the business owner and understanding what their goals, dreams, and objectives are to understand whether franchising and becoming a franchisor could be the right direction for them.

Leslie Kuban:
I would also imagine, Steve, there’s got to be some obvious signs. When you guys are engaging potential new clients, there’s got to be just some red flags that come up pretty quickly in those conversations that indicate that franchising may not be the best growth strategy, or at least not right now. Are there any ones that really come top of mind that are these telltale signs that franchising is not right for you?

Steve Beagelman:
You have to have your own house in order. So when we talk to potential franchisors, and then we talk about their financials or we talk about their operations and there’s nothing organized, they don’t have good systems, they’re not using a POS system if they’re a retail business or they’re using an antiquated system that really isn’t up to today’s standards, those are typically signs to us that franchising is not the right direction for their business at this time.

Steve Beagelman:
Doesn’t mean they can’t. Again, maybe two, three years from now, they can come back to us. We have a very successful brand that we had that situation with, that we told wasn’t ready to franchise. We told them what to work on. They did. A year and a half later, they called us. We went through the list, made sure that they were ready to go. They were. And now they have 200 plus locations around the country that are franchised. But, again, it’s tough to say to the person, “You’re not ready,” but we do have those conversations with people to really make sure they understand it, because if they don’t have their own house in order, they are not ready to support franchisees.

Leslie Kuban:
And what about the mindset, Steve? Maybe someone, an entrepreneur, has their house in order, they have the money, they look like they’ve got the bandwidth to be able to grow successfully as a franchisor, but their head’s not in the right place about it. How would you put that into words? What is the right head space or not the right head space for franchising?

Steve Beagelman:
There’s a control element, Leslie, that you have to be willing to give up a little bit when you franchise your business. When you own corporate locations or territories, you control everything. Employees work for you. You get to make the decision on marketing. You get to make all the decisions. When you franchise your business, you’re giving somebody the right to license your name in a particular market and operate the business. So yes, they have to follow your standards and your procedures 100%, but the employees work for them. They don’t work for you. Okay. And you have to understand that.

Steve Beagelman:
Another challenge, I had this was one of our franchisors not that long ago, where they had a million dollar business, but one of their franchisees opened up and did more revenue than they did. That bothered them. They had a real hard time with that. Which on the opposite end, I would say, “That’s terrific. I’m so happy you’re paying me money and royalties and you’re paying me even more than I expected. That’s great. I want you to do so well.” So you have to have the mindset that you’re okay with things like that. And the control element that it’s, nobody could do it as good as you, even though, again, you’re giving them the tools to operate it successfully, maybe they’ll be better at marketing. Maybe their market’s a little bit better. Who knows? But you have to be willing to accept things like that. And you have to be willing to understand that those employees don’t work for you, they work for the franchisee.

Steve Beagelman:
So it’s that control element that sometimes, when we’re going through our process, we can see signs with the potential franchisor that are red flags. And we have those conversations with them early, whether this is the right direction for them or not.

Leslie Kuban:
I’m sure you give this advice as well, that one of the best things an entrepreneur can do is go talk to franchisors, other entrepreneurs who turned their business into a franchise and talk to franchisors at various levels of maturity, some who are still figuring it out in their early years of being a franchisor, others that are more seasoned. Are there particular questions that you would coach entrepreneurs to ask other franchisors as they’re trying to understand if it’s something they should do or not?

Steve Beagelman:
It’s a great point, Leslie. First of all, we actually introduce potential clients of ours to existing clients of ours, to let them have those conversations about what it was like for them, because they were all in their shoes at one point. And our clients really love to talk to potential clients because they want to give back. That’s part of joining the family of brands, of SMB Franchise Advisors. We think that’s really, really important, the relationship part.

Steve Beagelman:
So when one of our potential clients will talk to one of our existing franchisors, some of the questions that we encourage them to talk about is, A, what was franchising really like? Was it what you kind of thought it was? Or was it a little bit different? Did it take you longer than you thought to get to profitability? How much support do the franchisees really require? How much are you involved day to day? Did you need to hire infrastructure pretty quickly who had franchise experience? Those types of questions to understand if it really is for them or not, because we never want to take somebody into the franchising industry that isn’t really ready for franchising. It’s a big decision to decide to franchise your business, huge decision, we tell people, so we want to make sure it’s the right decision for them, just as much as it’s the right decision for us as the consulting firm to bring them on.

Leslie Kuban:
And I find that’s such a big need, Steve, that entrepreneurs really need a reality check and they need someone to give them realistic advice about what it’s involved, how long it’s going to take, the money it’s going to take. And if you’re helping… It sounds like at least half of the conversations that you’re having with entrepreneurs, helping them to understand that there’s still some work to be done, it sounds like that folks are going to get some really good, realistic advice when they talk to you guys at SMB Franchise Advisors. And to that end, what is the best way for our viewers who are entrepreneurs and might want to learn more from you, how can they best get in touch with you?

Steve Beagelman:
Sure. They could visit our website at smbfranchising.com. They could certainly Google my name and read my Forbes articles and contact me that way. Or they can email me at Steve@SMBfranchising.com, but the website has a ton of information. It’s got some great videos on it from some of our entrepreneur founders about their experiences in franchising, which is always educational. They’re short two, three minute videos, but talking about their experiences. And I think it’s relatable for a lot of people that are thinking about going into this industry and down this journey of franchising their business. So we always encourage them to get the opportunity, hear from other entrepreneurs about what that experience is like. But yeah, they could certainly contact us via our website.

Leslie Kuban:
Excellent. It’s something we didn’t really have time to get into today, and I can already tell you that I’d like to have you back, is the exit strategy of private equity. That sounds like that’s a growing part of your business. And we see a lot of that activity amongst the brands that I’m working with in my consulting business, so I look forward to having you back for an added discussion about the private equity activity that we’re seeing. So hope you’ll join me again soon for that, Steve.

Steve Beagelman:
I’d be happy to do that. That’s a big part of our business now, my business. And there’s no doubt that that’s the excitement for franchisors, to think about that multiple at the exit that they’re working hard towards to get. And we’ve had a lot of clients that have had a lot of great success as they’ve built their brands to do that.

Leslie Kuban:
Well, that’s exciting. Look forward to digging into that next time, but really appreciate you joining us today. This has been a really informative conversation and I know our entrepreneur viewers are going to get a lot out of it and take to heart the advice that you gave them. So appreciate you joining us today and sharing your expertise, Steve.

Steve Beagelman:
My pleasure, Leslie.Thanks again for having me.

Leslie Kuban:
And folks, I hope you enjoyed this episode of Atlanta Franchise Today. I’m Leslie Kuban. I look forward to seeing you next week.