I got into the franchise business when I was about 25 years old. After spending a few years washing dishes and picking up kitchen jobs, I bought a bagel/bakery franchise with a buddy of mine called Chesapeake Bagel. They only had about six stores, and they were based in Washington, D.C. But we decided to buy franchise rights for Denver, not really knowing as much as we should have.
We were pretty much on our own for all the support services, name recognition, supply line, staff training, figuring out how to get local items. We were in our mid-20s and didn’t know any better. We were excited and enthusiastic about being entrepreneurs, so we made it work.
We actually wound up growing that brand from six stores to about 200. They sold for $30 million to AFC Enterprises, the parent company of Popeye’s Chicken.
But that was just the first of many successes.
One of my shops in Denver was across from the original Chipotle, so I got to see that growth. We tried to work with Chipotle, but they weren’t interested in franchising. So we approached Qdoba with the idea that fresh Mexican could be the next big thing. We all agreed, and grew Qdoba from one store to about 100, selling it to Jack in the Box for $45 million.
That’s when I knew I had to scale. I’m now the CEO of Fransmart, a franchise development company we started in 2000 with the idea that instead of growing one company at a time, we wanted to grow a portfolio of brands. One of my first brands was Five Guys. It took them 10 years to get four stores, and then in the following 10 years, they had 1,000. Right now they’re at almost 2,000 units.
Because we were feeling so confident with the bagel brand and the Mexican brand, and then Five Guys, we felt like, “Gosh, anything we touch could be a $100 million company.”
But we also would up getting involved with a lot of concepts that didn’t work out very well. We have a lot of battle scars, but also a lot of useful information. To date, we’ve launched franchising for over a dozen companies. We’ve sold 5,000 franchises around the world, and half of what we’ve sold is outside of the United States. The bottom line: I don’t care if the concept only has one unit; we’re looking at what we think it can become over five to seven years.
A good example is the Halal Guys from New York City. No one had ever done a Middle Eastern chain, but I had been looking for a couple years, specifically for someone who already had a brick and mortar. They didn’t. They just had street carts, and it took them 25 years to get three of them. But they were very successful, with lines halfway down the block. Even in snowy, rainy, frigid weather, people would line up deep for these carts. And they didn’t even have their own website, just a fan page with tens of thousands of followers.
All this was happening organically. I look at that as, “What can this become?” We had a vision, to grow this brand into being the largest and fastest-growing Middle Eastern fast casual company in the world.
We started by putting into place our proven sequence of events. You have to have good local partners, good operators, good locations, and you have to make sure your supply chain works. Take McDonald’s Big Mac sauce. Like it or not, if you order the Big Mac anywhere in the world, you know what it’s supposed to taste like.
Then we have to fortify the franchise. They have to go from being a concept group or a single entrepreneur to being a business that’s scalable. We want to make sure that founders are self-aware, so they know their strengths and weaknesses. It’s called the franchise business for a reason. Franchisees have to make money. If they’re not making so much money that they want to keep reinvesting their profits into opening more stores, it’s not going to work.
Franchisors must be 100 percent focused on the success of their franchisees. It sounds obvious, but I’ve met so many people who are franchising, but don’t like franchisees. They look at franchisees as a necessary evil–100 percent of the time, those guys don’t work out. Franchisees need to thrive, make money and build more stores. Franchisors need to constantly think about how they can make the business more profitable for franchisees.
What steps should they take?
Don’t let a franchisee open a location you haven’t fully vetted. I’ve seen franchise owners that don’t even go out and look at the real estate of their franchisees. You have to feel a sense of responsibility and a sense of obligation to make sure franchisees are successful, no matter how much tough love you have to give.
A franchisee is prepaying to come into your system. They’re saying, “I want to see this through. I want to build this business, and I’m willing to put up with everything–clean, work long hours, risk my pension and 401k–because I’m trying to get to the next level. I want to serve for my family.” A franchisor has to be aware of that. If you’re selling somebody a franchise, you need to make sure that they’re successful so that they want to keep opening, otherwise the whole thing is a house of cards.
Don’t let a franchisee take any site you wouldn’t be enthusiastic about investing in. Don’t let them operate without the right people. Don’t let them operate the restaurant with a team you wouldn’t be enthusiastic about having on your team. And remember, training is like bathing. Just because you trained a franchisee on how to run a restaurant doesn’t mean you won’t have to do it again. Half the staff is going to leave in six months. Our industry has high turnover, so you have to keep building back into the process a way to keep the franchisee sharp, and keep their training current. Then you have to support them.
The franchisor has to look at every phase. You have to be able to raise your prices at least 5 percent every year, just to keep up with cost of living. And if you’re spending 2 percent on marketing, it should generate 5 percent or more in additional sales, otherwise, what’s the point?
I’ve seen concepts that could have knocked it out of the park, but they were too narrow minded. They’re just so focused on the wrong thing and being cheap, and they blow it. Not only do they blow their own opportunity, they can ruin someone’s life. They get the upfront franchise fee, and all of a sudden, they buy a Tesla. They look down at the ground at pennies while hundred dollar bills fly over their heads.
That’s why I want others to learn from what I’ve seen. This is my business, but it’s also my passion. I’m committed to helping others find success.