Consulting – Franchise Beacon

Where Do I Find FDD’s Anyway?

Michael A. Peterson — Fri, 17 Feb 2023 01:42:58 +0000

Are FDDs Public or Not?

The answer is kinda.

If you are like many people, you heard Franchise Disclosure Documents (FDDs) are “out there” and “available,” but when you search, all you find are sites offering to sell you the documents.

There are a couple of reasons for that. First, FDDs are not public records; they are not like court records, birth, death, and statistical records, or other types of documents you actually have a right to access. For some franchisors, in certain circumstances, you can find their FDDs online, but if you can’t, no one “has” to share it with you (assuming you are not actively engaged in their discovery process).

Whether you are a potential franchisor wanting to see what this whole “FDD” thing is about, a young franchisor trying to find competitive FDDs to see if you can adopt some best practices, or even a prospective franchisee wanting to find old FDDs of a franchisor that you are considering as an investment, knowing these parameters will quickly let you know if the documents are something you can find. I’ll even give you the direct links to find them at the end.

When Can You Find an FDD Online?

The Franchisor Must Be Registered in Wisconsin, California, or Minnesota

As previously mentioned, FDDs are not public records, and some states require franchisors to register their document with state authorities before they can offer or sell franchises in that state. Three such state authorities then make those documents available online: Wisconsin, California, and Minnesota.

You Must Know the Legal Name of the Franchisor, Not Just the DBA Name

This can be tricky, as the legal name may be different from the name used for their brand or business. However, in Wisconsin, the state allows searches for FDDs by both legal and DBA (Doing Business As) names, so if the franchisor you are looking for is offering franchises in America’s Dairyland, you may still be good to go.

The Franchisor Cannot Fall Under the Seasoned Franchisor Exemption

Different states provide different definitions of this. However, California is the only state that provides both online FDDs and has this exemption. If the franchisor has a net worth in excess of $5 million, you won’t find its FDD on California’s website.

Where Should You Look for an FDD?

There are other places to find an FDD, but your first stop should be these three state sites:

If you see something in an FDD that doesn’t make sense, want to learn best practices, or are looking to franchise your business, improve your franchise sales process, or even outsource it, don’t hesitate to reach out!

Since you are looking for FDDs, you are probably considering franchising. We should connect. As industry experts, Franchise Beacon prides itself on offering top-notch services to our clients, but also guidance to the franchise world at large. There’s nothing to lose but questions, and everything to gain by investing 30 minutes. Schedule a call today!

ECE is the place to be in 2021

Michael A. Peterson — Fri, 12 Nov 2021 17:01:35 +0000

Yes, The ECE Market is the Place to Be in 2021

_{This article was featured in the May/June edition of Franchise Connect.}

Businesses centered around childcare, preschool, tutoring, etc. are often spoken of in “soft” terms. Many individuals that enter into the children’s services space, and specifically the Early Childhood Education (ECE) space, have a desire to “give back”, “leave a legacy”, or “impact children’s lives. This is more than admirable; a desire to contribute to the greater good is a necessity to succeed in this industry. I want to begin, however, by bringing some hard facts to the discussion.

For the last 6 years, I have represented a franchisor in the ECE industry. When I first met the founders of Building Kidz Preschool in 2015, I was intrigued by their model, purported numbers, and passion, but had never considered the industry in-depth. As a metrics-driven individual, I started looking for concrete data on the industry. If you have ever researched the preschool industry, you know what I found, troves of information from extremely reliable sources.

I started, as they say, at the top; with a report from the Executive Office of the President of the United States (December 2014). The report is a detailed analysis of the true ROI, as a society, of early childhood development through education. If you are wondering if the impact of quality pre-kindergarten education can be quantified, the answer is a resounding “yes”. The report determined that for every dollar invested in educating young children, a lifetime societal return of $8.60 could be anticipated. Half of this return is from increased earnings of the child throughout their lifetime, and the other half is divided between increased parental earnings, lower engagement with the criminal justice system, and reduced expenditures on remedial education by the public school system. Outside of the straight dollar return, the report stated that pre-kindergarten age education leads to a “change in cognitive functioning and brain development” and could account for some characteristics, such as IQ, that are often considered to be hereditary.

Moving away from the President’s report and into actual industry numbers, I found the same availability of data. In 2015, the ECE in the U.S. was a $70B per year industry and had grown 13.5% CAGR 2011-2014. As I helped to launch Building Kidz into the franchise world and grow them to their current 30+ locations, the markers for ECE kept improving. In April of 2018, a report was released by Zion Market Research that pegged the 2017 U.S. market at $13.5B, and in February of 2020, a report by Facts and Figures had 2019 global Early Childhood Education Market at $245B and projected to grow over 10% CAGR until at least 2026.

Of course, that was THEN. Before the change that we are still watching remake our social and business structure.

In the last issue of Franchise Connect Magazine, I wrote about the appeal of home services businesses; lack of client contact, generally minimal investment, people investing more in their homes rather than vacations or going out to eat, among others. While completely true, home-based businesses and home services are not for everyone. Many people have a passion for helping their community, a passion for education, and a strong desire to build a physical presence that contributes. Recently I was speaking with Seth Lederman, one of the country’s leading franchise acquisition and development specialists, and he explained it like this:

Out of the 200 or so people that I have helped find a franchise, about half of them are really just looking for the right business for their needs, budget, and, especially now, the current economy. Many individuals, however, are driven to entrepreneurship by a passion. While still looking at unit-level economics and long-term trends, they won’t consider a business that doesn’t engage them in whatever brings them personal satisfaction. As someone who left the medical field in order to pursue a passion for coaching business owners, I can relate”.

The good news is that, while nothing is yet certain, the preschool and daycare industries seem to be surging back rapidly. The need for preschools as part of the economic recovery is both obvious and data-driven. We learned early on in the 2020 pandemic that, more than just an essential business, childcare is essential to business. For businesses that need their workforce on-site, the need for childcare is unquestionable. After the 30th or 50th zoom call interruption, however, the need for work-at-home parents to have childcare available is quickly becoming apparent as well. For the children’s sake, we’ve already explored the impact early childhood education has on their entire lives, but we must remember too that children that were not in preschool pre-pandemic often had playdates and other socialization activities. These activities are now often looked at as unnecessary group exposure, leaving only preschools and daycare centers as an option for early socialization skills to be developed.

The New Normal in Food and Beverage

Michael A. Peterson — Tue, 02 Nov 2021 22:33:08 +0000

How Actions and Reactions Defined the New Normal in Food and Beverage

_{This article was featured in the September/October edition of Franchise Connect.}

This issue of Franchise Connect is focused on the food and beverage space. What I want to share with you, however, is applicable across most franchises; how to be confident in your selection of a franchisor partner. Though this advice is somewhat franchise-ubiquitous, the actions over the last 18 months of franchisors in the food and beverage industry played an outsized roll in their franchisee’s success.

Is Now Really a Good Time to Consider the Restaurant Space?

The short answer is yes. The longer answer is: I can’t think of a better time to evaluate a franchisor in the restaurant space.

I can imagine you reading that last sentence and thinking “sure, there may be reasons why now is not a terrible time to invest in the food industry, but the best?”

Allow me to explain.

I likely won’t shock you when I tell you that most franchisors in the restaurant space were bruised and beaten over the last 18 months or so. It’s an unfortunate reality that some in the space didn’t survive, and others barely so.

The Covid-19 pandemic forced franchisors in all spaces to showcase their ability to execute in three broad areas:

Their ability to both react and react appropriately to unexpected marketplace changes
Their willingness and ability to truly partner with their franchisees
Their ability to truly lead

Let’s look at these one at a time.

Nimbleness and Direction

Dog Haus Restaurants epitomized what nimbleness in action looks like with their 2020 roll-out of “Absolute Brands”. According to Dog Haus’s Director of Franchise Development Erik Hartung, Absolute Brands are a series of virtual brands which re-menu portions of the Dog Haus in-restaurant offerings for take-out or delivery only. Erik explained to me that the company had been considering the Absolute Brands idea for some time, but prior to March of 2020 they were planning a roll-out “sometime in the next couple of years.”

When the pandemic hit and franchisees were suddenly forced to shutter their restaurants, the Dog Haus team went to work, and they went all-in on Absolute. Instead of “sometime in the next couple of years,” franchisees were able to offer the first of the Absolute Brands less than 60 days later, and today they have 4 different virtual brand offerings, with an eventual goal of 8. Dog Haus didn’t complicate things; they used what their franchisees already had; to-date they have only added one new sku to support the virtual brands, and franchisees of Dog Haus are automatically eligible to offer the virtual brands as well. The results? Franchisees generating pre-pandemic revenues by June of 2020 and comping up July 2020/2019.

A True Partner

A franchisor that enlists their franchisees in times of trouble, instead of shutting them out, is much more likely to react in a way that is helpful, rather than neutral or a hinderance. To illustrate this point I will step away from the restaurant space. In reaction to the stay-at-home order of March 2020, Building Kidz Preschools (a franchisor I work with directly) immediately took several actions to help their franchisees. Like many franchisors, they gave an abatement of royalties. Because royalties are typically a small part of a franchisee’s overhead, however, reduction of royalties is more of a sign of solidarity than it is a “life raft”. Franchisees expressed what they needed most; the ability to secure funding to weather the storm. Building Kidz reacted to the franchisees’ request for assistance and secured a relationship with an SBA lender well before the PPP loan program was actually passed through Congress. In so doing, they put their franchisees in a favorable position when the funds were approved; so much so that all Building Kidz franchisees (17) that applied for PPP loans received them.

True Leadership

Dog Haus and Building Kidz are just two example of the many franchisors that were able to step up and effectively lead their organizations during the initial days of the Covid-19 pandemic. They used very different methods, but to the same ends; to react to a sudden, unforeseen market shift in such a way that they either strengthened or, in some cases, outright saved their franchisee’s businesses.

Beyond Theoretical

The ever-changing landscape of 2020 and 2021 has laid bare a franchisor’s ability (or lack thereof) to step up to the plate. If you ask franchisees in two or three years from now how their franchisor helped them weather this storm, your will likely get vague answers. Let’s face it, our memories are short, and as business owners the events of two or three years ago are just not front-and-center in our minds. Right now, as many franchisees are just beginning to return to some sense of normalcy, is the perfect time to use real-world experiences, outside of the FDD, to evaluate the franchisor you are considering joining.

Go Beyond the Document

We all know that the FDD is an invaluable resource to help evaluate a potential franchise investment. If you are a franchise-savvy investor, you likely glance at Item 3, look at Item 7 to make sure it’s in your range, spend a bit of time on Item 20, and then dig into Item 19. However, when evaluating a restaurant franchisor as an investment today, I would encourage you to allow the narrative of the franchisees to carry at least equal weight to the FDD in your decision process. If you see an Item 19 showing that franchisees took a 10-20% hit in profitability yet hear from franchisees that business is recovering and also hear anecdotes that sound similar to Dog Haus and Building Kidz, you are likely looking at a franchise with strong and capable leadership. Likewise, if you see an Item 19 that shows a minimal drop or even increase in profitability in 2020, but franchisees can’t pinpoint how their franchisor helped them either push through the pandemic or make the most of opportunities it presented, you very well may be looking at a brand with mediocre leadership that happened to hold a market position that wasn’t hit hard, or even benefited from, the pandemic.

What Will the Next Challenge be?

The global and domestic economy, and U.S. small businesses, will suffer from another setback in the future. It may be another pandemic, but it could just as easily be caused by a financial bubble burst similar to the dot-com & housing market recissions, or even something completely unrelated to U.S. economics like the energy crises of 1973 and 1979. Prospective franchisees are in a unique position today to know, rather than hope, how well franchisors respond to external threats to their business.

The Franchisor-franchisee relationship

Michael A. Peterson — Sun, 06 Sep 2020 18:26:53 +0000

If you are considering franchising your company, one of the things you may not have spent time thinking about is the franchisee-franchisor relationship.

If that is true, I encourage you to stop right now, however far along you are in franchising your business, and dig into this pivotal part of franchising.

In a franchise organization, few subjects are discussed as much, disagreed about as often, or, frankly, as litigated as the relationship between franchisees and franchisors.

For a would-be franchisor, the most important thing to understand is that the franchisor-franchisee relationship is not a normal vendor, customer, employer, or partnership relationship. It is a long-term operating relationship where both sides are tied together financially and reputationally, but do not always want the exact same thing at the exact same moment. If you franchise your business, you are not just selling units. You are choosing the kind of relationship structure your future company will have to live inside.

An Imperfect Union

First, let’s address the elephant in the room.

A franchisor’s and franchisee’s motivations will never be perfectly aligned.

“Hold on a second, Michael,” I can already hear you thinking. “I know I heard you say on/at (insert franchise presentation or interview here) that a franchisor’s success is directly tied to their franchisee’s success”!

You are right.

Not only have I said that (or something similar) in virtually every presentation I’ve given on franchising and everything I have written on the subject, when I work with an entrepreneur to franchise their company I repeat this mantra over and over.

The reason why is simple; the level of dependency a franchisor has on their franchisees is not intuitive, and is knowledge that, if gained organically, will probably be gained by the franchisor way too late.

Conversely, the knowledge that they can always have their franchisees’ long-term best interests at heart and still be misaligned will become part of every franchisor organization fairly early on in its life cycle.

Not Quite Aligned

In what instances can a franchisor and franchisee end up aiming at different targets?

Territory and Exclusivity

This is probably the most common example I have seen.

A franchisor is never well-served with franchisees cannibalizing each other’s business; the net outcome is less overall system revenue and two unhappy franchisees that take part in the validation process.

A franchisee with an overly large territory is likewise not receiving the best benefit from their franchised brand; after all, building a brand together, enjoying economies of scale on advertising, inventory and the like, and gaining more brand exposure faster is one of the reasons franchisees invest.

Even with such a seemingly clear alignment of purpose, however, there can only be so much overlap.

An interesting aside on this: some franchisors, like P3 Cost Analysts, a cost reduction company, get around this potential misalignment by allowing franchisees to do business anywhere in the U.S.

This is definitely the exception, though, not the rule!

National Advertising Spend

A franchisor with a national advertising fund is duty-bound to spend those dollars for the betterment of the franchise system.

That generally means that franchisees’ benefit from the fund will not be a direct reflection of their contribution.

As a simple example, Franchisee A, who has been operating for three months, is likely to contribute significantly less to an advertising fund than Franchisee B, who has been operating three years.

Because of, not in spite of, this reason, a franchisor likely will spend more dollars in Franchisee A’s territory for regionally targeted advertising.

All else being equal, the system will likely benefit most from helping a new franchisee gain market awareness.

These are just two examples of many different ways that a franchisor and franchisee may be, while not misaligned, not perfectly in sync even when they are focused on the “right” motivations.

What to Do About It?

So how should a franchisor, or a franchisee, address this?

Acknowledge It

Both parties acknowledging that they understand the other’s motivations, rather than questioning their integrity, is the first step to a non-combative relationship with franchisees.

Own It

Both sides signed up for this!

A franchisee specifically decided to be a franchisee knowing the freedoms they were giving up.

A franchisor specifically decides to be a franchisor knowing the many, and often seemingly opposing, motivations and pressures that the business model inherently contains.

Pick Your Battles

Franchisees have areas that they can demand their franchisor perform a certain way. Franchisors have the same.

That doesn’t mean they have to.

As a franchisee, when you are in a position that you don’t have to do what your franchisor is requesting, consider it anyway.

Are you sure their request is incorrect?

Whatever it is that the franchisor is asking you to do, could you give it an honest try, remembering that you bought into their brand and vision because you believed in them?

As a franchisor, if you could insist on a franchisee performing in a certain way, do you really have to?

How certain are you that your demand is the right thing for your system?

Would your system, brand integrity, or customer experience really be harmed if you allowed the franchisee to “opt out”?

To Franchisees

I will say this: if you interact with your franchisor with this mindset, you will likely be perceived as a team player and a system contributor.

That perception can have all sorts of positive effects on your business.

If a franchisor is considering a new product line or advertising approach, you will likely be one of the people they seek feedback from.

If opportunities for collaboration arise, the franchisor will turn to the franchisees that are known collaborators.

To Franchisors

Please keep this in mind.

Your franchisees are your boots on the ground. Irrespective of the legal requirements of your franchise agreement, you can’t be all places at all times.

If you want a system of cooperative franchisees, cooperate.

If you want a system of collaborators, collaborate.

World-Class People Make World-Class Organizations

For any franchisee or franchisor who has read this, I hope you take it to heart.

You won’t be part of, or lead, as the case may be, a world-class system if you don’t deserve it.

That’s just the way these things work out.

So, if you have conflict with your franchisor or within your system, check a mirror.

If you are still deciding whether your business is ready to franchise, this is part of the readiness question. Your franchise model, feasibility work, operations documentation, training, territory structure, and support standards all shape the relationship before the first franchisee ever opens. The earlier you think through those issues, the better chance you have of building a system where the inevitable tension is productive instead of destructive.

10 Steps to Becoming a Franchisor

Michael A. Peterson — Wed, 08 Jan 2020 06:39:10 +0000

The 10 Steps to Becoming a Franchisor

This is the basic path: determine whether the business can be franchised, make sure you have the resources, build the right team, document the model, define the offering, plan growth, budget marketing, create the mutual evaluation process, design support, and execute carefully.

Determine if Your Business Is One That Can Be Franchised
Conduct a feasibility study to evaluate scalability, national demand, and profit for franchisees.
Make Sure You Have the Time and Money
Be prepared to take a step back from your current business, and anticipate an investment of between $100K-$400K.
Surround Yourself With Professionals
At the start-up phase, at a minimum you will need an expert franchise salesperson, Operations Manager, Training Manager, and a franchise attorney. Keep in mind that, if you have a well-rounded franchise expert on board, they may be able to wear many hats, such as Training, Support, and Operations. Another option is enlisting a franchise consulting company; often you will get a full team for less than a single executive salary.
Document Everything
From the time the lights go on until they go off, every step of your business, including marketing, employee management, product merchandising; everything you can think of should be put into a process guide. This will later become your Operations Manual. Again, a good franchise consultant or Operations Consultant can help you with this.
Determine the Offering
Decide how much control you require on your look and feel, what your involvement will be in the supply chain, your fee structure, etc. This is the most complicated part of becoming a franchisor.
Develop a Growth Plan
Evaluate if local, regional, or national growth is the right initial approach and how many new owners you can support in a month.
Develop a Marketing Budget
Use your growth plan to develop a budget. This will typically include franchise brokers, franchise portals, exhibitions, as well as organic and paid web traffic.
Create a Comprehensive, Defined Mutual Evaluation Process
Your franchise sales process should tell candidates what happens next, tell your team what to do next, and protect the brand from awarding franchises to people who are not the right fit.
Design Your Training, Onboarding, and Support Processes
The first franchisees will learn the system from the structure you build now. Training, onboarding, and support should be designed before growth starts, not invented after the first few franchisees are already frustrated.
Execute
Be careful! Your first 2-4 franchisees will set the tone of your system for years to come.

Are You Considering Franchising?

We should connect if you are serious about franchising and want to know whether your business, team, capital, documentation, and sales plan are ready for the jump. There’s nothing to lose but questions, and everything to gain by investing 30 minutes before you start spending real money in the wrong order.