In this episode, Rick and Matt discuss should you consider franchising your business or expanding in other ways. At some point, successful entrepreneurs often wonder if they should franchise their business. But as any franchisor will tell you, running a franchise differs completely from operating a single business. It offers unique challenges and opportunities to grow and help other franchisees and customers long the way.
How do you know if you should go down this route, and if so, what do you need?
Rick has successfully operated a fitness business for over 30 years. He initially licensed the personal training concept to over 2000 clubs worldwide and recently moved into franchising. Rick offers his unique perspective to anyone considering franchising their business.
Top Reasons To Consider Franchising Your Business
1. Unique Business Concept
First off, your business needs to be UNIQUE to be “franchisable”. This uniqueness is best viewed from the lens of the consumer because they are the ones who will ultimately validate your business concept.
The reasons we went into franchising with Alloy are we had a very successful business model and it is profitable, The unique backstory is we had a brick and mortar fitness business and we had a hiccup in the business. So we came back with a different business model that landed us on a very high revenue per square foot. This caused Rick to get into the speaking and consulting business, helping others turn their fitness business around. The consulting led to licensing other fitness facilities. This also led Rick to buy an educational company called the NSBA. The NSBA was a mastermind group that would coach other studio owners. By 2019, we had a lot of boutique fitness businesses coming to us for help. They wanted help with running their sales systems, training programs, and business systems. The Alloy Franchise was born out of demand.
2. Financial Equity
There are many franchise opportunities available right now in the United States, but there are not as many people who buy franchises every year. It’s not equitable, and it makes little sense. The biggest reason franchisors fail is because they are under-capitalized. Rick estimates you might need at least $2 million to launch a franchise. Sure. So if you don’t have private equity backing you with deep pockets, you better have some money saved up.
Now thankfully for us, we’ve had successful businesses in the past, so we bootstrapped. We could fund the whole growth on our own, because we have other businesses that feed the franchise. If you want to franchise successfully, you’re going to need to get funds and raise capital from the early. Alot of times it means giving up a sizeable chunk of your business. You may provide your sweat equity, but give up the lion’s share of your company for that privilege.
It still can be very profitable. Look at Angie’s List – she owns1% of her business, but it’s worth somewhere around a billion dollars. Angie’s List is rare air, and it’s not even a franchise, but giving up pieces of your company can be risky. You are giving up some control, too. It’s one thing to just give up a percentage of your business, but if you give up a majority of voting shares and they’re pulling the strings.
You can’t approach it on a shoestring budget because under-capitalization is one of the main reasons that franchises fail.
3. Emotional return on investment.
As an entrepreneur, you have to be a leader, especially in the fitness industry. Because you’re like leading a community and leading your team to better opportunities, Rick really believes entrepreneurship can provide financial freedom, but really likes what it does for people on their emotional return center. That’s why we would rather franchise than open corporate stores. We really enjoy growing people and giving others the opportunity to realize their entrepreneurial dreams.
In reality, you will not be successful just owning a franchise, but you should examine what your real motivation is in owning a business. If your motivation is just to grow something quickly, turn around and sell to a private equity firm, cash out and go to the beach. That’s going to manifest itself somehow in your business and you’re going to fail or stumble.
I hope that helps people understand. There’s a lot of ways to make a business successful. You can expand corporately, you don’t have to go franchising. If you go franchising, just know it’s a very crowded and competitive space, and you’re going to need a lot of financial capacity. If you have something that is truly unique in the market, and your consumers have told you so in more than just one or two locations, then go for it. You need to be prepared for a tough road ahead and you’re going to spend a lot of money if you don’t know what you’re doing.
Rick’s motivation is to do this forever, because he loves it. His goal as founder is to stay in the game. So how do you do that? You build a team, hire good people, build a culture, and continually develop. Then we pick good franchisee partners who we think can walk that line of entrepreneurship, who in turn will hire good people to come to work, continue to build the Alloy culture and change the lives of more people in more communities. Now that’s a compelling Alloy journey!
- Haircut story (01:18)
- Why Alloy went for franchising (07:04)
- Is your business franchisable (08:44)
- The minimum capital outlay needed to launch a franchise (09:58)
- Corporate expansion vs. franchising (12:20)
- Emotional ROI for a franchise (14:18)
- What fitness concepts aren’t good franchising ideas (20:11)
- What’s your real motivation for wanting a franchisee? (23:56)
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