Don’t Buy a Franchise Until You Understand These 5 X-Factors Franchise Fridays with Jeff Dudan #190

Welcome everybody. Jeff Duden here. Welcome back to Franchise Fridays. And today we are going to talk about the five, count them, five franchise X factors other than money that you should be most concerned about when evaluating a franchise opportunity for your future. Here's an unfortunate statistic. According to the Small business administration, about 20% of franchise failures happen in the first year. And one big reason is that people fail to evaluate the right things with the right weighting of importance. So today we are going to talk about the five franchise X factors that you need to make sure you check the boxes on when you're evaluating if a franchise system is right for you. And remember, you can always learn more by using the links below to download a free copy of my book Discernment the Business Athlete's Regimen for a Great Life Through Better Decisions that will help you use filters to make the greatest decisions for your future. Or, while you're listening, take a dabble around our brands by visiting homefrontbranch.com and learn more about the great offerings we have at Homefront Brands. And hey, maybe you can use what you learn here today to evaluate our businesses. Hold us to task. I promise you won't be disappointed. Okay, here we go. X factor number one, capital. And I mean intellectual and human capital. So what do I mean? I'm not talking about the capital that you were supposed to put put into the business, the money. The capital that it's going to take to invest in the franchise and create the market opportunity and hire the people and provide the product or the service. That's not what I'm talking about. I'm talking about two types of other capital, which are intellectual capital and human capital. You need to make sure that you believe that that franchisor has the deep franchise experience and a track record of success, which is important because franchising is a very unique business model. And your greatest chance of success is investing with people that have done this before. You need to believe that these are the types of people that can help you be successful in the business. They're authentic, they're trustworthy, and they know what they're doing. They've done it before. And if you believe that, if you follow their plan and you heed their advice, it will help you be successful as well. The older I get, the more I realize how important it is who you choose to go through life with and who you choose to invest your time with, your energy and your money and your opportunity costs. It is the people around you that ultimately will have the greatest impact on your success, regardless of the widget. All franchise companies have the same underlying fundamentals that will help franchise owners either fail or win in the marketplace. And does your franchise system have the requisite domain experience? Meaning what is the business that they are in? Are they in the food business? Are you looking to be in a pet business? Are you looking to be in a fencing business? Whatever the business is of the franchise business, you should make sure that these people have got decades of experience so that there is not a problem that you will encounter that they have not solved. And there is not a situation that you will encounter that they have not faced. And they can very quickly and with authority and absolute certainty advise you and give you the best path forward to success. Another area of intellectual and human capital is marketing and sales. Are there people at the franchisor on their team that you believe are better than you and can guide you at marketing and sales? Because there is no outcome without income and there is no income without leads. And every franchisor, at least today in 2025, should participate in the acquisition of customers and the generation of leads at the local level, at the national account level, at every level. And from that point, how do those customers get converted into sales that actually ring the cash register and actually start the process of you making money in your business? There should be demonstrated expertise within the franchise organization that can help you in positioning your product to the marketplace and then helping you transition those leads into paying customers, potentially recurring customers, lifetime customers, or referring customers. And finally, consider whether your franchisor has excellence in business coaching. You need people that can help you when you start your business, which is incredibly important. But also as you grow and scale your business, are there the people on staff that will help you understand how to best manage your cash flow or how to help manage your team, build your staff, your people, your vendors, manage your inventory, all of these things your business coach will be a primary point of contact for. So you might want to know who the business coaches are and what experience do they have and how do they engage with the franchise owners? And then here's kind of a curveball and I would guarantee most people don't think about this one, but legal do they have in house counsel? Expertise is a huge benefit to franchise owners in house counsel, being on staff and also available to you because we live in a very legal world. And if you're part of a fast growing brand, you may face unique legal challenges in your market in terms of trademark or intellectual property infringements or situations with customers, a collection item or even vendor situations. So within reason, a franchisor should be able to provide at least a first level, a triage level of guidance as part of their standard operating systems. When it comes to dealing with common reoccurring legal matters. In the operation of your business, pay careful attention to human and intellectual capital that you will have access to, including the leadership and all of these specialists that we've talked about that are necessary to support you. That's franchise X Factor 1. Now we move to franchise X Factor number 2, which is validation. Toot, toot. All aboard. As we pull into validation station. After you evaluate the people at the brand, you need to evaluate the franchisees. Are they like you? Are they similar in background? Is there any reason they that you think that these people can be successful and that you can't? And what has their experience been thus far? Would they do it again? Is this a business that they would recommend to friends and family? Was the opportunity, the franchise opportunity as well as the tools and support as promised, or was it something different? Was it better or worse than was expected? And specifically in what ways? Because look, you have to take that conversation with a grain of salt because business ownership and business operation is difficult. So you got to balance your information with that in mind. But you should be able to get a sense for what aspects of the model are most challenging and also what works exceptionally well. You should make an honest assessment then of yourself as to how you personally will perform in the challenging areas, like sales, for example, and your desire to dive in and overcome these areas. And remember that while franchisee satisfaction is important, the best business owners, the top performing business owners, including franchisees, are impatient and competitive and everything can always be improved. So they're going to look at it from that lens. They might be crushing it and outperforming their goals, but they're always going to have ideas about how things can be better because. But that's the owners we want. I like challenging franchise owners because that's how we all get better. I never want my franchise owners to be satisfied. I don't want them to be satisfied with us or anything else in their business because that's when they get comfortable, they will stop growing. And I want them to be pushing hard and demanding excellence in every direction and pulling other franchise owners up to their level, because that's what makes any great team. And that is the fundamental of any great system, that we all want to win together and we're willing to do whatever it takes to, to win. And of course then we also look for intellectual humility, people that will resolve conflicts in a healthy manner and just get on with it. We're all in the same game, we're dependent upon one another and we're all trying to win. So as hard as we push, we also need to be able to get in a room, break bread and resolve that this has been good for all of us. Another thing that I would listen for during validation is, is the franchisor truthful? Can I trust them to advise me in a manner that is always in the best interest of of the franchisee? Because at the end of the day, a franchisor should build the very best entrepreneurs from the ground up and want franchisee to see things for truth in the light of day that are going to make them better entrepreneurs. Franchisors should never withhold education. And I've seen people withhold things as franchisors because they're insecure about what to share with their franchise owners. They share everything with franchise owners. It's up to them what they do with the education, with the development materials, with candid, good, honest feedback. And sometimes with a franchise owner, it might not be what they want to hear in the moment, but that is what you should demand. And what will make you great is that good feedback and getting the information or getting the feedback that you need to hear, but maybe that you don't want to hear in the moment. And that's what makes a great iron, sharpened iron type franchise system. So during validation test for that, ask about those interactions between the franchisee and the franchisor and how those things are handled and if they're of benefit to the franchisee. And also too, you're going to want to poke around and say is the franchisor a strategically competent business builder? Would the franchise owners validate that the people are competent, that they pay attention to the trends in business? They're not only looking at what the operations are today, but where the business needs to go to get competitive advantage and what are the opportunities that the system overall can take advantage of to better build a business bigger, better and faster. You may also inquire about the capacity and if there has been adequate investment in people and systems to get the information that you need when you need it. And ultimately, can the franchisor big question. Provide you with a path to profit, a path to the lifestyle that you desire to achieve, and a path ultimately to get the outcome for this business, whether it's to build it up and sell it or to pass it on to your children that you have decided that you have set out to do all right, we move on to franchise X factor number three, which is support. We say at homefront brands that if it starts well, it goes well. Think about it. Things have rarely gone well that didn't start well. And I would point to your, your last failed relationship. So from us, we understand that heavy, heavy support at the launch of the business during market entry is absolutely critical. We provide tall guardrails and you should look for tall guardrails that focus on the right stuff. You should determine that the franchisor has a market launch and market entry plan that provides sufficient intensity to keep you focused on the right stuff and to make sure distractions are kept to a minimum. Generally, when people join a franchise system, they will seek to leverage their skills that they believe they are the best at. We all have things that we have succeeded at and we might try to bend that opportunity around our skills because that's what makes us comfortable. And this can be called a curse of knowledge and it's a trap. There will be priorities in launching your franchise business that are more important versus the things that a franchise owner likes to do, has an affinity for or prefers to do so. This connects right back to the business coaching and the ability for a franchisor to have skilled and critical conversations with the franchisee early on. Often in times of stress because you've just made an investment, you've just changed your career and you're doing something for the very first time. But to make sure that the plan is being followed in its entirety, maintaining your priorities for an efficient market launch will ensure that you build the right muscle memory early on. It's just like working out to avoid change management or switching costs down the road. That will be expensive in terms of time, energy and money for you. I would also want to know that the franchisor has access to timely data that is integrated in the support and provide rationale and proof for the coaching recommendations combined with the discipline to measure how your actions, behaviors and investment move the critical numbers in the right direction and give you confidence that you're doing the right thing. And finally, does this support scale as the owners do? Does the support mechanism inside the franchise system grow as much as you do? Because everybody launches from zero and many franchises include those in the property service industry can grow to be very, very large businesses. What an owner needs at entry level is going to be drastically different from what they need at a much larger level. As the business scale up in revenue and staff and geography and complexity a franchise or should anticipate the phases of growth that an owner will transcend. And each phase should have specific proactive support to see around corners to help the franchise owners know what constraints are coming and provide tools, tactics and techniques and programs that will help them to navigate these challenges. All right, that's three in the can. And I move into number four and franchise X factor number four. Is technology probably more important today in 2025 than it ever has been? Because with the rapid deployment of AI as we sit here in 2025, technology is no longer a Rachel Ray crock pot where you can set it and forget it. You should try to determine the level of sophistication and investment that the franchisor has made in its current systems and that they have an appropriate technology roadmap for the business. Tech should be clean, tech should be integrated and data should be aggregated and available versus dropped off in one system and manually put or never used in the next system. Your tech should be agile, should be coupled with a culture of transparency. Because in that way, and what I mean by that is providing benchmarking against your peers, everybody's numbers to be, need to be for the benefit of everybody. Which is actually more difficult than one might think to actually achieve. But it's something that you can ask about. How does the franchisor achieve that is a cultural norm for people to share their data because that's how you will get continuous improvement and that's how you get better. And of course tech needs to provide those real time data driven insights, be able to incorporate AI and machine learning and help you understand the key levers to pull and the actions a franchisee can take to make an impact in their business. You should be interested in if the tech will scale or is it going to be cumbersome as I move from owner operator to executive model to multi location conglomerate owner, because I know you're all going to get there. Everybody thinks they will and you can too. And of course is it available to everybody in real time? Because the last thing you want to do with TAC is to create a bottleneck around the franchise owner and you and just making sure that they are the making them the keeper of all the data. So you want to make sure that the systems are are sophisticated enough to allow for appropriate permissions so that all people in the franchisees organization have level to access the right information at their level. And this not only includes the CRM and the point of sale systems, you'll want to know what investment the brand has made in things like learning management and coaching tools and other technologies that Help a franchise owner build capacity to scale and build a team to produce the work as they generate more work. So leveraging tech infrastructure investment capabilities. There are certainly winners and losers when it comes to franchisors in terms of tech. So get your questions answered appropriately and dig in on the technology. And here we come to the last franchise X factor, non monetary durability. Bottom line. Is the business that you're looking at investing in going to exist in 25 years? You're on the cusp of investing your valuable time, your energy, your money, and you're seeking an outcome, either building a transactable asset or a generational family business. And you should know that if you build it, will it last and will it have value in the future? If you build a business to transact, the buyers must believe that the business is going to be there long enough after you sell it to them, or they're not going to buy it from you. And if you want to build a business to transfer to your kids or family or somebody else to operate, you want to know the same. Is this a sexy new and improved business or is a new and unproven business? Is it a fad or a trend, or is it an essential business that will never not be necessary and always be needed? Genius attacks happen every day in franchising, and sometimes people get hurt. There's a great idea about a new product, a new method, and yes, the richest can be in the niches, but you have to be really, really careful. On one hand, if it's new and it hasn't been done before, then you're probably going to be able to get the territory that you want and maybe cut an advantageous deal because they're looking for early adopters. But on the other hand, if that business might work today, or it might sound good today, but over time the business could become irrelevant. So many people that get into franchising are looking for something that has certainty of outcome. So think deep about the durability of the business that you're looking at. What is the demand profile for the business in 5 years and 10 years and even in 25 years? A great example of this is the senior care industry, which was largely unfranchised. But some very, very smart people early on looked at the demographic trends of people in the United States and realized that we had an aging population. We're living a long time, and culturally we're not moving our parents and our grandparents into our homes anymore. So there was this huge market demand for senior care of all types, and people that got in early, took advantage of the market. Maybe today there's still an opportunity in senior care because we're not getting any younger in this country and there continues to be high demand for these services. But it's also gotten very, very crowded and to create new offerings inside of the space is difficult to enter markets may be difficult and I believe it's, you know, difficult for any new entrant in the senior care space. So what are the trends today? Is it pets? Is it kids? Is it some special new cookie? Here's what I know about durability. There will be 150 million more people in this country in 25 years, plus or minus. And we believe at Homefront Brands that the home property services are the most durable sector that you can get into as everybody will need a place to live, everybody will need a place to work, shop, to get educated, to go to the doctor, and so on. New homes, new buildings, new infrastructure, and the ongoing repair, restoration and maintenance of the existing building inventory. The supply demand curve has never been more strongly in our favor and our businesses are built to scale to meet that demand. You may have heard me say that you will never find a Home Front brand nestled comfortably between a Blockbuster Video and a Curbs Fitness franchise because property services are the most durable thing that you can get into and there is no obsolescence. And that's why we partner with families on Main Street USA to build what we build on the Home front at Homefront Brands. I truly hope these five Franchise X factors have been helpful for you as you continue your journey of education about the franchise industry and how it can serve you. While these have nothing to do with money on the surface, if it makes sense, it'll probably make dollars too. And as always, check out the links below for a free copy of my book Discernment and or just head on over to homefrontbranch.com to check out how we can serve your community, make a difference in your life and those you care the most about. Stay focused, stay positive and go do great things. And let's find a way to get you unemployed in the best way possible. This is Jeff Duden. Thanks for listening.