The question this month is whether you would rather have a baseball team full of home run sluggers or a team that is great at getting on base.  Which approach wins more games?  Well, the studies are clear.  Home runs are fun to watch but if you want to build a successful baseball team, you want a dugout full of players that can reliably get on base.  When you are on base, positive things can happen. When you swing for the fence and strike out, you are back on the bench.  (Ref: Study)

Let’s take the metaphor one step further. Imagine you’ve never played baseball before. You are up to bat the very first time. What is the chance you’re going to hit a home run? Not very good right?  Simply getting on base would be considered a success.

Connecting the Dots
Why am I talking about this?  Because often I work with first time business owners who are swinging for the fences.  When I asked them what their goals and objectives are, they provide a long list including paying off the first house, buying a second house on the beach, buying a boat they can go deep sea fishing with, buying their mother a house, buying their siblings cars, and a variety of other ‘must haves’. I then asked them how they are planning to achieve these goals. Their response normally includes opening a business for $150,000 that can eventually produce millions of dollars a year in revenue.  In addition, they want to keep their job while dedicating around 10 hours per week to the business. Has this ever been done.  Sure.  Is it likely to be a winning strategy?  Nope.  It is swinging for the fences when the goal should be to just get on base.

Better Approach
The better approach is to focus on getting on base. Your very first business does not have to solve every financial desire you have in life. Quite often it doesn’t not. The first business needs to grow to the point where you can cover your living expenses.  This delivers freedom.  At the same time, the first business needs to teach you all the critical lessons necessary to be an independent business owner.  Once this is achieved, then you are on base, and, for a first-time hitter, you can consider that a success.

Just like swinging a bat, being a successful business owner is an acquired skill.  Through education and experience, we improve.  The goal over time is to grow a variety of income producing assets allowing you to have diversified income and become, as I mentioned in my August E-mail, ‘financially unbreakable’.

Swinging for the fences rarely works out.  Focus on reliable, predictable singles and before you know it, you will be standing on home plate.

I don’t know about you but I am constantly reading. I am normally reading a few books at the same time and, with the weather being as hot as it is, I’ve been spending more time than normal in my reading chair. Currently I’m reading a book on Bayes Law, a second book is on Real Estate Syndications, and the third book is The Psychology of Money by Morgan Housel. It’s this third book that I’d like to highlight this month.

Over the years one of the things I learned is that saving money isn’t that difficult.  Saving is all about maintaining a lifestyle that costs less than your earnings.  With discipline and time, you will save money.  The challenge is making good investment decisions once you have saved money.  Chapter five outlines three financial survival characteristics of highly successful individuals.  These characteristics apply not only to investing but also to business ownership.

Financially Unbreakable.
The goal is to become financially unbreakable.  Most individuals place all their chips on one roll of the dice. All their income comes from one source.  All their investments are in one place. If anything happens to either the income source or the investment, they have a serious financial issue.  I know you’re saying that’s not you but how many people reading this newsletter have one job (one source of income) and invest all their money in the stock market (one place). The point of this first item is that being one-dimensional is highly risky.  Life happens.  The larger your diversity of income sources and the larger the diversity of your investment vehicles, the more unbreakable you will be.

You Plan, God Laughs.
The second point relates to planning. ‘Planning is important, but the most important part of every plan is to plan on the plan not going according to plan.’  Remember Mike Tyson quote, ‘Everyone has a plan until they get punched in the face.’  Well, things never go according to plan.  For a plan to be useful, it must be able to survive the vagaries of reality.  In other words, it must have a significant ‘margin of safety’. Margin of safety is different from being conservative. Conservative is avoiding risk. Margin of safety is raising the odds of success at a given level of risk by increasing your chances of survival. The magic is that the higher your margin of safety, the greater your chance for a favorable outcome. Margin of Safety drives risk reduction.

Barbelled Personality
A ‘barbelled personality’ is a personality that is both optimistic about the future but also paranoid about what can go wrong. Successful individuals believe the future is bright and that everything is moving upwards and to the right, while also understanding lots of things will go wrong and you need to be vigilant, prepared and even paranoid.  Individuals who are solely optimistic tend to take foolhardy risks leading to loss. Individuals who are solely paranoid believe that everyone is out to get them and never take any risks. Neither path works. The only path to success is both optimism and paranoia.

Hopefully these three thoughts give you a little something to chew on as you sit out by the pool trying to stay cool this summer. Wishing you and yours the very best.

First, an most importantly, Happy 4th of July!.  I hope you have time set aside with family and friends. Enjoy and stay safe.

At it’s core, the 4th of July is about freedom and self-determination.  It is about the willingness to bet on ourselves.  Over a decade ago I published a blog summarizing a talk by Tom Shay.  Today, his message is even more relevant so I am republishing this poignant essay.
Last week I had the distinct honor to hear Tom Shay, CEO of Right Management, Florida/Caribbean speak on the topic of job transition and career management.  What an interesting discussion.  Mr. Shay has held this position for 31 years and during his tenure Mr. Shay has seen exceptional change in the employer/employee relationship.

Mr. Shay began by sharing a very simple statistic. During his father’s generation (presumably 40 years ago), the average tenure for a manager or higher, was 27 years.  Losing a job was considered taboo.  As a matter of fact, it was hard to lose a job.  You really had to do something wrong.  Today the average tenure for that same employee is 3.7 years (update – 3.1 years in 2022).  Doing a good job does not mean you will keep your job.  Job transition is commonplace and expected.  Does that surprise you?  From 27 years to an average of 3.7 (3.1)years. Wow.

Mr Shay went on to state that what used to be ‘one job for life’ has disappeared.  Today it is one boss for life – yourself.  You need to look at yourself as a company and intelligently apply your personal brand to the marketplace.   Mr. Shay’s point is that we are all ‘free agents’ or ‘businesses’.  Companies may contract with you if they think you can solve their problem.  Once the problem is fixed, you will need to find another application for your skills.

Finally, Mr. Shay spoke about the important of investing in yourself.  Going to conferences, staying current and learning new things is what allows us to remain relevant.  Don’t expect someone else to pay for you to improve yourself.  We are all ‘free agents’ or ‘businesses’ and as such, we need to focus on doing those things that allow us to best achieve our personal goals

As you know, I spend most of my time discussing business ownership, but Mr. Shay’s points are well stated.  The world is a different place.  Business ownership may or may not be the right path for you but regardless, you need to think of yourself as a business.

This message from Tom Shay goes to the heart of what freedom and self-determination is all about.  A great message for each and everyone one of us on this 4th of July holiday.

Eleven months ago I announced that I personally invested in another franchise.  Since that time I’ve received many inquiries asking – How it’s going?  Are you open? Can you share an update?

Well, I’m proud to announce that we are officially open for business. Our ‘official’ grand opening was last Wednesday, and we were blessed to have a large turnout of community leaders in attendance to support our new business.  Key employees are in place we are already beginning to service our community.  Obviously, one month does not create a trend but we are confident that everything is moving in the right direction.

As I always share with folks, the first location almost always takes longer, and costs more than you expect.  Our experience was no exception with signing-to-opening taking almost 12 months.  However, when we look at our anticipated cash flow for the first month, we are on track while rapidly acquiring new clients.

As we look toward the future, I fully expect to get the second location open faster with greater capital efficiency.  There is a learning curve that we all go through when opening a new business.  My partners and I feel confident that we’re on the right track to not only fulfill our three-unit agreement, but to potentially grow beyond that.  However, let’s not get ahead of ourselves.  At this point we are simply keeping our head down and focusing on day-to-day activities to exceed client expectations.

A few years ago I subscribed to a free email newsletter called The Morning Brew.

Often, I try new email subscriptions and quickly tire of them; however, The Morning Brew has become a standard part of my morning. The email newsletter covers all the top issues of the day with brevity and cutting humor, which I enjoy.

The Facts

The Morning Brew is sent once a day and the January 19th Morning Brew really struck a chord with me. The first article was entitled, The Pandemic’s Entrepreneurial Boom Isn’t Over Yet.  The article stated that more than 5,000,000 new business applications were filed in 2022, according to the latest data from the US Census Bureau.  This equates to about 13,500 new business applications filed every day last year.  I quote ‘Whether this represents a testament to the country’s entrepreneurial spirit, and indictment of 9-to-5s, or simply a case of everyone seeing the same Tiktok about tax benefits of forming an LLC, it’s a sign that the pandemic era startup boom may be here to stay.’

A couple of sections down in the same newsletter they moved on to news from the Tech world.  Again, I quote, ‘Microsoft announced plans to cut 10,000 employees yesterday, and Amazon began a round of layoffs that will impact 18,000 people. These are just the latest layoffs of tech companies, many of which have begun thinning their ranks’.

The Trend

Anecdotally, we know that interest in business ownership and entrepreneurship has increased dramatically over the last number of years; however, the data supplied in the January 19th Morning Brew really brings together the factual data underlying many of the trends we’re seeing.  It’s rare in one newsletter to see so many clear indicators regarding where the large companies are going and how individuals are responding to the increased risk of employment.

(If you want to have a laugh in the morning while keeping up with the current news, give The Morning Brew a try for a week or two.  Who knows, it might become a part of your morning too.)

Wishing you an amazing February.

Yesterday was an interesting day and it reinforced what I call ‘power in doing’.

Yesterday afternoon I was involved in an e-mail exchange with a fellow franchise coach. We were discussing a franchise system and their ability to create successful franchisees.  He shared the fact that is most polished, seasoned, professionals often over thought the process and, as a result, they often struggled during the startup phase.  He then compared this to his candidates who were scrappy, focused and action oriented.   Even though their resumes are not as impressive, these folks seemed often found success faster and more reliably.  It was interesting food for thought.

As the day ended, I headed over to my local Pilates studio and, in the parking lot, one of the ladies who works out at the same facility walked over to me and said, ‘Rick, you were SO right. All the stuff I was worrying about when it came to starting my business didn’t matter. Most important thing was to simply get started’.  She continued by saying, ‘There were so many things I didn’t know that I didn’t know. I  would have never started if I tried to sort all of that. However, now that I’ve been in business for six months, I can see myself learning and improving.  Doing is the most important thing!’   She was genuinely excited to see her business grow, and I could see that she was also growing as a person.  Maybe Nike had something when they said, ‘Just Do It’.

Same day, same message, from two different places. Maybe 2023 is trying to tell me something.   If 2022 was your year of planning, make sure that 2023 is your year of doing.

I think I’m going to go out and buy myself a pair of Nikes. 

Twice a year I attend a franchising conference where I have an opportunity to meet with hundreds of franchisors, learn the newest trends in franchising, and reconnect with old acquaintances. Last month the conference was in Saint Louis, and it is amazing how franchising is evolving.

Key Takeaways

Operational Systems
Whereas in the past, storefront businesses were at the center of most discussions, today service-based franchises are demonstrating incredible power, predictability, and competitiveness. The back end operating systems of top-shelf, service-based franchisors are incredibly powerful. Many of them include complete marketing systems, scheduling systems, call centers, employee management systems, financial systems, and everything else you need to truly scale your business. I am exceptionally impressed with what I’m seeing on the service side

Private Equity
Private Equity capital continues to play a larger and larger role in franchising. Whereas previously franchisors had to struggle to find the financial resources build their infrastructural support systems, today high-quality franchisors have a large variety of suiters ready to provide the financial resources that are needed to aggressively scale their support systems. In addition, private equity is now beginning to buy larger, multi unit franchisees and consolidating ownership across states.

Holding Companies
We continue to see larger and more sophisticated franchisor holding companies.  These holding companies are not only building strong support systems, but they are applying their support systems across multiple verticals (AKA modalities). In the past investing in an upstart franchise system was highly risky.  Today these large holding companies are able to provide some risk mitigation when it comes to new concepts in that their back-end operating system has already been tested in other verticals and is known to work.

Franchise Sales Organizations
Franchise Sales Organizations (FSO) are becoming more and more prevalent in the world of franchising. Whereas previously most franchisers had no choice but to expend time and money building an internal business development function, today many franchisors are trusting external FSO’s to educate and screen prospective franchisees prior to meeting the candidates personally and making a determination as to whether they should be offered a franchise. Quality FSO’s allow the franchisor to focus, almost exclusively, on driving the operational support system and supporting franchisees as they open locations.  Finally, some FSO’s are taking a more active advisory role. It will be interesting to see how this trend continues to evolve.

Passive Alternatives!
Finally, for the first time I ran into a couple of franchisors who will completely run the business on the franchisee’s behalf. Previously the franchisee had to be either actively involved in the business or semi actively involved using a manager. These new franchisors are taking full operational responsibility for the business turning the opportunity into a structured investment alternative. Of course, these types of opportunities are mostly focused on well-heeled investors, but I do believe we will begin to see more of this type of investment.

It is truly an exciting time in franchising. With substantial financial resources in a competitive marketplace, top-quality franchisors are truly stepping up their game.  At its heart, franchising is about risk reduction.  While even the best franchise or cannot eliminate risk, the best franchise systems are doing an awful lot to reduce it.

The study we have all been waiting for is finally published and available for review!  The original research is titled Determinants Impacting Resale Premium Disparity when Selling a Small Business: A predictive Non-Linear Approach.  By Dr. John Hayes, Dr. David Smith and Dr. Mary Kay Copeland.

Some of you may remember that last May I wrote – ‘Dr. John Hayes shared with us an abstract of his latest study on franchising. This study is focused on resale valuation of franchised vs non-franchised businesses.  The study has completed peer review and is scheduled to be published in the Journal of Economic and Business Studies, Spring 2022.’

Well, finally, the study is ready for publication.  Using a data set of over 2,000 resales, the study was able to statistically prove higher resale pricing for franchised vs. non-franchised locations.

At the risk of over simplification – on page 13 of the study shows that the mean franchised business will sell at 3.5x earnings vs the mean non-franchise business will sell for 2x earnings.  That is a 75% premium.   Page 15 shows that older businesses sell at a higher multiple than newer businesses.  Additionally, page 16 shows that restaurants sell at a higher multiple than most other business categories.

Word of warning, academic studies are not ‘light reading’, however, if you take the time to ‘study’ the study, you will find that it does a good job of analyzing and presenting the data set.  There are always more questions to ask but this is, without doubt, one step forward in the process of quantifying the valuation differential.

I would like to thank Dr John Hayes, Dr. David Smith and Dr. Mary Kay Copeland for all the time and effort to pull this information together in this peer reviewed, scholarly article.

Click here to download the entire study.

People say – Practice what you Preach.  Well, earlier this month I invested in a franchise.  This is not the first time I have been a franchisee.  Over the years, while continuing with my coaching practice, I have joined several franchise systems so you think the decision process would be easy, but it’s not.  It’s never easy.

At first, it’s all excitement. We do our research and imagine what it could become. We ask the questions, build our spreadsheets, dot our I’s, and cross our T’s.  That’s the easy part, the fun part.

It’s the end of the process that slows us down.  Self-doubt and fear set in.  We begin to question all our assumptions. There are two voices in our head screaming at each other. One voice says ‘We’ve done our research; we know it works and we have the abilities.  Stop being a wimp, put on your big boy pants and let’s make this happen!’  The other voice says ‘Are you out of your mind?  We don’t need this, we’re safe where we are.  No risk is good risk. Don’t walk, run!’

So, how do we decide? Over the years I’ve worked with thousands of people who have faced this challenge.  Each person does it differently.  For me a few things come into play –

However, even if all these are pointing in the right direction, there is still fear and doubt.  That is simply part of being human.  So, how do I make my decision?

For me, there is one last question that must be asked.  This is the question that unlocks my personal ability to make hard decisions and move forward.

‘How would I feel if I didn’t do this?

Life occasionally presents us with the opportunity to move the ball forward.  I decided many years ago to try my best to say ‘Yes’ when opportunities present themselves.  I hate to think back on things and wonder, ‘What if…?’  Personally, avoiding a life of regret is a powerful motivator for me.  Assuming all the above-mentioned criteria are in place, it’s this last, powerful, question that helps me personally get over the hump and say ‘Yes’ to a new adventure.

Helen Keller once said ‘Life is either a daring adventure or nothing at all’.  I am very excited about my new adventure and will provide periodic updates.  Of course, I will also continue in my full time franchise coaching role because I so love it!

When it comes to investing in a franchise, many people will tell you it’s a numbers game. How much will you invest? What is the return on investment (ROI)? Cash flow? Break-even? These questions make sense because the numbers are important. It’s only natural that potential franchisees want to ensure they are joining a sustainable business model and will receive a respectable return on their investment if they have what it takes to be a franchise owner.

Having sound financial data to support your investment is critical, but there’s so much more to consider. Becoming a franchise owner is an endeavor that can have a profound effect on you, your life and your family. You need to know more than just the numbers before you make your investment.

In addition to knowing the financial information, it is important to understand the cultural, lifestyle, skill set and emotional requirements before investing in a franchise. This is why it is important to take a step back and conduct the proper due diligence before making a decision. With the proper guidance, you can know everything you need to make a fully informed choice with your franchise investment.

Being Able to See Through The Excitement

The prospect of opening a franchise is a thrilling time in the life of an entrepreneur. You are finally stepping out on your own on the road toward business ownership. It’s an exciting time, but it can also cloud your judgment. Consider how often you may have overlooked certain shortcomings in a major purchase because of your excitement.

Maybe you didn’t consider the poor mileage on the purchase of a new-to-you car. It could have been ignoring that leak in the roof or other minor defects when buying a home. The point is that when we want something to happen, it becomes easy for our brains to do the mental gymnastics to justify just about anything. There’s a saying that when you are looking at the world through rose-colored glasses, all the red flags just look like flags. That’s why you need someone in your corner to help you make an objective business and career decision.

Does The Company Culture Works For You?

Choosing to join a franchise is not the same as buying a house, car or corporate stock. As a franchisee, you’re choosing to become part of a franchise system. This means you must be comfortable with the corporate culture and the people who come with it. The culture of a business is just as important as the numbers. In fact, some would argue that it’s even more important. When you sign a franchise agreement, you’re making a long-term commitment to be part of the franchisee community, follow the business operating system, and play nice with your fellow franchisees and the franchisor. If you are going to set down roots like this, it’s crucial that you fit into the franchisor community and will be happy.

Prior to looking at specific franchise systems, it’s important to define why you want to get into a franchise business. Are you hoping to improve your work-life balance? Do you want to spend more time with your family? Perhaps you want to make a shift toward a more positive company culture.

One important practice I often recommend to people wanting to learn more about a franchise system is to speak to one of the current franchisees. Who would have better insight into the company’s culture than someone who is already in the system? I believe it is important to speak to several different types of owners to get a complete view of the franchise. For obvious reasons, you will want to talk to successful owners to learn how they have thrived. Speaking to other franchisees who may be looking to sell can also reveal potential red flags. Having conversations with longtime franchisees is helpful to understand the historical perspective on the system, while speaking to new franchisees can give insight on the training and support they have recently received.

There Is Also An Emotional Investment

The numbers are what they are. You can discover the estimated ROI, year-over-year profit margins and startup costs. What might be more difficult is to know if the franchise is the right fit.

A franchise is as much an emotional investment as it is a financial one. When you are laser-focused on the numbers, it can be easy to overlook the emotional wherewithal necessary to make the business a success.

Have you ever been on a date with someone who looked good on paper, but you turned out to be incompatible in person? The same rationale applies to franchising, only this involves a much bigger commitment on your part than a dinner date. This is why you need to perform your emotional due diligence with any franchise investment. When you navigate the process with someone who understands the journey, you will be in a better position to determine if your own skill set and attitude align with those of the company.

Don’t Make the Journey Alone

The path to franchise ownership can quickly become overwhelming. It is a major investment that will impact much of your life. The least you can do is make sure that you’ve been as thorough as possible in your research. That means looking at the numbers as well as the people and culture behind them. When you walk the path of business ownership with a proven franchise coach or someone else who can provide an external perspective, you can be confident that you’re armed with everything you need to know to make the right choice for yourself and your family.

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