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Is it possible to be a Fastlaner with a franchise? (Being a franchisee)

Topics related to Slowlane, Scripted mainstream dogma

Almada64

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I wish I had known MJ and his books before purchasing this franchise…



I moved to US 4 years ago with my family looking for the old and great “American dream”. Not that it matters for this discussion, but just a quick FYI: legally!



I had a pretty decent life in my home country. I owned a construction company and still own it, but I don’t work there anymore - I was able to find partners that now work full time and it’s finally generating some passive income.



But seeking this new adventure at the age of 36, married and with a 3y old kid, we decided to act and move. Lots of reasons for this decision, and money of course was a good one, but I could say this was my FTE. I realized I wasn’t going anywhere with my company for many different reasons and decided to change drastically the course of my life.



After almost 1 year living in the country, basically burning my lifetime savings, I decided to buy a franchise with an old business partner. We (but mostly I) decided to buy this franchise for many different reasons:



  • Being new to the country - culture, rules, regulations, taxes etc. It would be very hard for us to learn all that by ourselves, in the hard way and we thought that if we would be successful one day on our own it would take forever.
  • We did try a few things on our own such as house flips, car detailing service, ATM machines and commercial construction. But I didn’t put any of these “business ideas” out of the paper, or into real action. I even got my home country company’s website translated to English and “tried” to start a commercial construction company in US. But didn’t go too far. So the franchise was a real possibility and ready to go.
  • Didn’t have too much money to invest in something bigger and the franchise had an affordable / decent price.
  • But one of the most important decision factors, specifically for me, was the franchise’s values. They are good people. They want the good. They seem to really care. And the business model they offered was the closest I had as a professional with a construction background: they were a Home Remodeling franchise. Full service, specialized but not limited in kitchens and bathrooms, leaning more towards to high-end projects. To me seemed to be a pretty good deal back 4 years ago, again, before knowing the Fastlane and MJ’s books.


I’ve read in another post when I was searching if anybody else had posted any content about buying a franchise, that most franchisees failed in most of the CENTS commandments.



Today I understand and agree this is true. If I dissect the commandments, that’s what I see:



Control: I have good but not total control under my business. I mean, I can use any trades I want, I can use/sell any products from any brands (as long as they are good) I want. But of course, I’m limited on territory - which limits my marketing and I obviously must comply with some corporate standards. But in general, I do have a lot of control to my business. I can’t complain.



Entry: competition is everywhere. If you get discouraged by competition, you’ll never start anything new never. Sometimes I feel like there is anything else to be invented anymore and anything you try to do, someone else is already doing. That said, entry wasn’t a great factor to me. Being a full service with a lot of integrity and transparency, differentiate us from most remodelers out there. But again, we are not offering anything “NEW” and easily anybody with some carpentry skills can proclaim themself a “remodeler”. So, it wasn’t hard to entry the industry.



Need: One of the best at least. People need remodeling. Always will. I live in a dense community with houses 50year old with original kitchens. There is a good opportunity here. But again, I suffer a lot with unfair competition such as John Doe and a van, two brothers and a hammer type of company (totally different from what I do, but CHEAPER).



Time: I have almost zero physicality. My company basically doesn’t function without me. At least for now. I know a few other locations (other franchisees) that could make the business self-working and theoretically speaking the owner like myself hardly work on the company anymore. But that’s hard, you need to come up with a very specific process and it takes a long time to reach that. In my case, time doesn’t work for me. I work for time.



Scale: I believe from all of the commandments, this is the worse. I have a big limitation on scale. I have bought a specific territory from franchisor, to act. Not that he wouldn’t sell me a bigger territory but the service I offer is local. I can’t drive more than 40-50 minutes to a remodeling job. Customers won’t drive 40-50 minutes to meet me at my showroom with a few exceptions. The only possible way to get more territory is expanding, like opening more showrooms in different locations. That’s a beautiful concept when you own the franchise being a franchisor. But not when you’re the franchisee. I’m very limited on scale since I’m limited in territory and the number of multiple locations I could handle at the same time if I open more showrooms.



All that being said, what do I think my options could be? That’s what I would like more specifically to hear some feedback, if possible. What are the options that I THINK on the table for now:



  1. Grow my franchise business and be as successful as possible inside my limitations (scale and magnitude). I don’t think I could ever be a fastlaner doing this but at the life circumstances I am today such as my age, supporting a family (and a new baby now), it would be very hard to restart everything again. Besides I don’t have much money to invest in some new business (at least for now). The money I’d make in this option, I would use some for living and some for saving and small (and conservative) investments since my focus would be the company.
  2. Option 2 in my opinion would be to make as much money I could with this business in option 1 but use the money I earn to start something new, a side hustle, an investment group in a larger scale, real state, etc. and gradually move the focus from the franchise to these other things.
  3. As I said on the commandment of time, I could work hard on creating a working process where my presence wouldn’t be much more necessary and open a few more locations to expand my territory therefore my scale. I don’t think I could open more than 3 or maybe 4 locations being the sole owner though.
  4. Make my company stronger and sell my business after a few more years (because right now this business is not worth a lot since I’m still very new) and take the money and start something else. Something mine. Something I don’t need to be hitchhiking someone else’s Fastlane (my franchisor). But if that is the answer, I’ll have sooooo many other questions…
  5. Another option on the table?


Any feedback would be appreciated

BTW, @MJ DeMarco don't know if you're going to remember me, but maybe one day we can get that dinner, or maybe a coffee since you don't do dinners anymore, together :)



Thanks
 
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Eudaimonium

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That's a tough spot to be in, but I'd suggest option 3. Start to streamline/effectivize as much as possible to reduce the time you need to put in on a weekly basis in the franchise. Initially, this means working both IN the business and ON the business, meaning it is more work, but gradually you will be saving time/resources, giving you time to think and more money with which to manoeuvre. If one day you'd like to be a franchisor there is much you can learn from this.
 

Rabby

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Yes, it's possible. A good friend has done it, and it's without question more 'fastlane' than anything I've done so far. Think about the approach though. Can you scale one franchise location? Would it become more scalable if you had 20, or 50, or 100? And if so how would you buy them. You probably don't have enough spare change in the sofa cushions to buy 100 franchises, so that means... investors? Contracts, deals, some way to acquire the best locations before someone else. Maybe you have something in your construction and other business experience that will make your approach a good investment for someone. That's worth thinking about.

If that doesn't sound like the right kind of adventure though, how about selling the thing, recouping the money and putting it into something more within your skillset?

What if I told you there are people who own 100+ locations as a sole owner, and they don't do any of things that an employee at one of those locations would do. That must mean there is a valuable thing someone can do at a higher level of scale right? Perhaps getting all the locations together is part of it, since they can then hire an excellent optimizer (or two, or three) whose skills are multiplied x the number of locations. Perhaps it's also the skill of finding the money, and writing the contracts. And then there's the value inherent in buying locations from smaller franchisees, pulling them out of a tight spot or turning the operation around so that they make more money managing a few locations than they made owning one? These are some of the skills of a franchise owner who scales their business, at least, as I see it.

So this is all possible. But the real question is whether it's a direction you want to take. The same model wouldn't be my choice at all, but I've seen it done well and have a great deal of respect for the people who can do it... so I can only say that either direction -- scaling with many franchises, or getting out of them and into something else -- could be perfectly reasonable. My own approach might even be to automate and systemize the one or two locations as much as possible, keeping them for whatever passive income they could sustain, and let them support me while I worked on something else. My approach wouldn't scale to the moon any time soon, but it's not bad either.

What advice would you give you if you were an objective observer, only aware of your strengths, position, and history so far?
 

Martin Z

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Yes it is. I don't have any experience with it though. But for instance, the tate brothers(Andrew and Tristan Tate) have opened lots of casinos in Romania back in 2020 till now, around 30-40 locations or so come from them.

They don't own the casinos, they're a franchisee of Las Vegas games which is one of the biggest casino franchises in eastern europe. It's a very profitable business because it's like what they say, the house always wins. Their first casino profited $60k in its very first month back in 2020 before it got closed so you do the math on 30-40 casinos and you see it's a very profitable business.

However, they were already very liquid to begin with(I think they were turning $300k-$400k a month from their main business + other ventures like crypto, internet courses and so on). They were already fastlaners with their main business so being this franchisee suddenly gave them more time to focus on passive investments.

So in that case, opening lots of casinos was very beneficial to them. But if you're just going for one location, then it'll be just like a normal job for you because you'll have to be there day in and day out and you have no scale or leverage over just one location.

Your best bet is to probably work on your construction company and grow it as much as you can and then liquidate it once it has reached a good market value.
 
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ZackerySprague

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There are three ways to achieve SCALE the roads are of course as we all know.

1. Internet
2. Innovation
3. Iteration Intention.

If the goal is to achieve scale by opening or creating multiple physical franchise buildings (brick & mortar) to where the business processes are the same i.e. Stores like Chick-Fil-A or Chipotle.

MJ does describe that that scale can be reach by hitting singles. As the wealth equation would be maybe you have magnitude (unit profit), but scale will be reached with adding more physical locations (Unit solds). Your wealth equation would be to add more physical buildings for the "units sold" piece Thus which will also expand to having more customers/clients that can be served.

In the past I was thinking of running a Digital Marketing company, the only way to reach the gates of Law of Effection were to hit singles or adding clients in the "Units Sold" part of the equation. I even found an exit with Digital Marketing companies as I saw/found an M&A broker haha! The only thing is, I would have had to become exceptionally well at what I do since there are plenty of marketing agencies.

I hope this helps.
 

Two Dog

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Franchises have their place in Fastlane. Ask anyone who owns 10 - 30 fast food locations. They're not poor.

OTOH, there are *many* drawbacks. Buying a franchise makes you a small business owner - not an entrepreneur - and the difference is much bigger than one word. Entrepreneurs identify market needs and fill them. Franchise owners follow a script. That's entirely the point of buying into one. It saves you the time and energy of learning how to identify and meet market needs and build systems.

The downside is you never learn how to identify and meet market needs or build systems. Those are critical success skills. Two days or two weeks of training along with a 24/7 Slack channel to similarly inexperienced fellow franchise owners isn't exactly a lifeline.

Every couple of years, I vaguely think about buying into a franchise. The same cons always come to mind:

1. You typically can't introduce new products or service. That greatly limits growth potential.
2. You typically can't market, sell or service outside of your territory. That greatly limits growth potential.
3. You typically can't sell directly to another owner. That greatly limits growth potential.
4. Corporate franchise marketing SUCKS. You're on your own and it might be prohibited. That greatly limits growth potential.

My two hour fantasy always ends with heading back to running my own business.
 
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Two Dog

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If that doesn't sound like the right kind of adventure though, how about selling the thing, recouping the money and putting it into something more within your skillset?
It sounds like the OP is already highly skilled in this niche. It's the same business still running in his previous country.

Your question is really "Why not sell the franchise and offer the same services as an independent business?"
 
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farmer79

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Magic Johnson owns 125 Starbucks so that seems pretty fastlane.

You’re violating the principle of control and the more CENTS you violate the less fastlane you are. I would say entry , need, and time can all exist in a franchise environment although entry could go either way. So that leaves the what I think is the most important and certainly the difference maker which is scale. Can this be scaled? That to me is the key question. If it can I think you can be fastlane ish at the very least. If it can’t be scaled then probably not.
 

Almada64

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Your question is really "Why not sell the franchise and offer the same services as an independent business?"
One of the reasons is I have signed a FDD (Franchise Document Disclosure) with a 10 years fidelity to the franchise. Of course they don't want to teach you everything and then you just start doing by yourself without royalties payments.
 

Almada64

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So that leaves the what I think is the most important and certainly the difference maker which is scale. Can this be scaled?
That's my problem. How to scale a local business? How to scale a local service? Like I mentioned on my original post, customers, and myself included, can't drive more than maybe 45-60 minutes to a job / showroom. It's impracticable, specially if I get the job and need to supervise almost everyday. The only way I believe I can scale this business (and tell me otherwise) is to open more showrooms in different locations. But it won't change the fact it's a local service / business.
 
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Walter Hay

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I’ve read in another post when I was searching if anybody else had posted any content about buying a franchise, that most franchisees failed in most of the CENTS commandments.
If you buy a franchise, there is no option but to lose almost 100% of control because you are bound by contract to precisely obey the rules set out in that contract.

Entry is easy because all you need is cash.

Scale is only possible if your contract allows you to either set up more sites, or buy out other franchisees. To some extent you can scale by making your franchise boom.

Need is a given, because unless a business has catered to a need (or desire) at least to some extent, it could not be successfully franchised. Nobody would buy it.

Time is often a major problem for franchisees, and that mostly applies to franchises that will only work if the franchisee is on site most or all of the time.

Another option on the table?
The best option of all is to take the advice that I emphasize in my thread: SELL FRANCHISES, DON'T BUY THEM. See:

Rapid Scaling a business by franchising​

Walter
 

MattR82

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How is it structured with regards to royalties? Do they at any point take a percentage of revenue or is it more flat fee based?

I know someone doing very very well on flat fee royalty every year. And I know someone doing not so well due to the franchise taking a percentage of revenue instead.
 

Walter Hay

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How is it structured with regards to royalties? Do they at any point take a percentage of revenue or is it more flat fee based?

I know someone doing very very well on flat fee royalty every year. And I know someone doing not so well due to the franchise taking a percentage of revenue instead.
A flat fee would be rare. The most common arrangement is for royalty to be paid on a monthly basis, and royalties are almost universally charged as a percentage of turnover.

Walter
 
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MattR82

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A flat fee would be rare. The most common arrangement is for royalty to be paid on a monthly basis, and royalties are almost universally charged as a percentage of turnover.

Walter
A friend of mine with a tv antenna repair/install, tv wall mounting etc franchise paid about 80k upfront, then 20k per year, the monthly fees are for marketing etc, but nothing based on percentage. Each time he puts a new van on the road though, the 20k per year fee is applied for it too (and the monthly etc).

Nothing is based on percentage for his royalties. Good thing for him too as his turnover will be over a mil this year.

Maybe there's a good reason it's rare, lol.

Edit: I talked to him about it this evening and it does indeed seem like it's a pretty rare deal. So he's of course pretty happy with it.
 
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Almada64

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How is it structured with regards to royalties? Do they at any point take a percentage of revenue or is it more flat fee based?
Royalties are taken by the revenue indeed. Plus a MAP fee (for national marketing programs). When you starts, it's high as 7% royalty + 2% MAP. As you grown and revenue grows with you, these percentages decreases. The minimum it gets is 2%+1%. If you think straight, at some point (an it's not that hard to get to this point) you only pay 3% from revenue. It's not bad since they are very supporting and the network around the franchisees is very strong.
 

Two Dog

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One of the reasons is I have signed a FDD (Franchise Document Disclosure) with a 10 years fidelity to the franchise. Of course they don't want to teach you everything and then you just start doing by yourself without royalties payments.
What does "10 years fidelity to the franchise" mean? You have to pay franchise royalties for a decade?
 
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