Franchising is a popular way to start a new business. Scott Majeski, a franchising consultant who is the Managing Partner of FranNet for Chicago and NW Indiana, joins The Savvy Entrepreneur to talk about franchising basics. FranNet advises its clients on franchising, helping match them with the right franchising option. Scott likens the business model to a real estate agent — there is no charge to the buyer, and the franchising company pays FranNet for a successful match with a new franchisee. 
Scott shares the pros and cons of franchising, as well as what makes franchisees successful. He speaks from experience, having built and operated a successful PuriClean disaster recovery franchise himself. He talks about some of the common misconceptions about franchising, the kind of people who are a good fit for franchising (and those who are not), the most common mistakes franchisors make, and some of the costs associated with franchising.
It’s a good, practical overview of franchising for those considering this option. Read on, or click here if you’d prefer to listen to an on-demand version of the show!
Doris Nagel 0:42
Hello everybody, and welcome to The Savvy Entrepreneur show! We’re broadcasting here from the Greater Chicago Milwaukee area. If you are or want to be an entrepreneur or a small businessperson, this show is for you.
I’m Doris Nagel, your host for the next hour. I’m a serial entrepreneur myself, and I’ve also counseled lots of startups and small businesses over the past 30 years. I have seen lots of mistakes. And I have made plenty myself. I dedicate the show to helping others avoid some of those potholes. The show has two goals, to help share information and resources and to inspire you and hopefully make your journey as an entrepreneur faster and easier, and maybe just a little bit more fun.
To help with that, I have guests every week on the show who are willing to share their stories and advice.
This week’s guest is Scott Majeski. He’s here to talk about the ins and outs of franchising. Franchising, as you may or may not know, is a pretty popular business startup option. According to one 2018 study I saw, there are some 760,000 franchises in the US, employing more than 8 million people.
Scott is the managing partner of the Chicago and Northwest Indiana Office of something called FranNet. You’ll hear more about what FranNet is and does in just a minute. He’s the former president of a PuriClean restoration franchise. So he knows about the process of selecting and buying and growing a franchise, as well as the stress of making a career change and becoming a business owner.
Prior to that, he had 20 years of experience in institutional in the institutional investing world. He says he’s born and raised in Chicago and has two young kids.
FranNet is an international franchise consulting firm, and has been in business for more than 30 years. It has over 100 locally-based consultants across North America, and their business is matching people who want to be in business with a franchise that meets their needs.
Scott, welcome to The Savvy Entrepreneur show. Thanks for joining me today.
Scott Majeski 03:17
Doris, thanks for having me.
Doris Nagel 03:19
Scott, what is FranNet? Talk a little bit about what you do and who you help.
Scott Majeski 3:27
Sure. FranNet is a franchise consulting firm. We represent a pool of franchise owners who are looking for new franchisees. We have inside information about these franchises. And we go out looking for people who are interested in exploring the world of franchise businesses — people who are looking to go into business for themselves.
My role is to match them with a business that meets their goals and objectives, wants and needs. We first start that process by helping educate them on what a franchise business is, and what a franchise business isn’t. And more importantly, what it means to be a small business owner, and what that entails. Because business ownership isn’t for everybody, and a franchise business isn’t for everybody.
We want to work with people that are open to doing an exploration and learning about small business ownership and the franchise world.
Doris Nagel
I noticed on your website that your services are free for people who are interested in owning a franchise. So how do you do that?
Scott Majestki 4:58
A lot of people equate us to real estate agents. When you buy a home, you look for a real estate agent that has expertise in a particular neighborhood, town or city. We are experts in the franchise world and have our fingers on the pulse of the franchise world. We know which franchises are doing well, or which ones might have a temporary problem within the system, or are taking a break from adding new franchisees.
We’re franchise experts. People come to us because we have a process that we put our clients through the help them evaluate these businesses. That way, they don’t waste their time looking at businesses that may not match their goals and objectives. And we do that at no cost to them. Our clients never pay us anything, at any time.
I get compensated if the client that I’m working with ends up signing an agreement with the franchise, and the franchisor then pays me a commission. That commission has been pre-negotiated by my corporate office, because FranNet is a franchise system as well. But my responsibility is to my client, not the franchisor.
Doris Nagel
How did you become part of FranNet?
Scott Majeski 6:21
It’s a long story, but I’ll try and make it as short as I can. As you mentioned in my intro, I spent 20 years in the institutional investment world. In late 2008, you may remember the uneasiness of the markets then. This is before the actual meltdown. At that time, my two managing directors called me into the office, and they were they were laughing about something. I don’t think it was about my demise, but they were chuckling. I sat down. And they stopped laughing and said, and I quote, “It’s you, not us.” And that’s how they told me I’d been let go.
They said, “You have three months to find a job. Good luck.” So as I tell people, I was summarily dismissed from my last position.
I went out and I started looking for another job. I was having a fantastic job search, probably the best one of my entire career. I was talking to nine different investment firms from the west coast to the east coast. That was October of 2018.
But then the market crash happened. I think that was a Wednesday, or Thursday. And that following Tuesday, I call the nine companies that that I were was in various stages of the interview process, and not a single one took my call. And that was the end of my job search. February 1 of 2019 was the last day of my corporate career.
And February 3 was my 40th birthday, and the start of my midlife crisis. Here I am, 40 years old, without a job, in the beginning of the worst recession that most of us have ever been through. I didn’t really know what to do. I did know that my industry was upside down. Speaking with my friends in the industry and other professionals, the investment world wasn’t going to be hiring VP level people like myself for maybe 4 to 6 years, nobody really knew. I seriously thought that my career in the investment world was over. I’m not the type to sit around and, and you know, figure out who I am for a couple years.
Doris Nagel 8:53
Most people aren’t, let’s be candid. But it’s very interesting that you’re talking about this, because obviously, we’re going through yet another big dip.
So I’m guessing there are people who are nodding their heads, going through something similar in many industries.
Scott Majeski 9:13
This is a story that happens over and over and over. A lot of my friends and colleagues have seen this — in the dotcom recession and 911, and then the Great Recession, and now the COVID recession.
So, I decided at that time that maybe it was time for me to look into going into business for myself. I had previously thought maybe that might be a good thing for me to do. But I never knew how to get there.
I called a friend of mine who was in franchising world and I asked, “How do I learn about franchising?” And he told me about franchise consultants. I didn’t even know — and probably most people don’t know — they exist. I went through that person’s process. And that’s how I ended up buying my first franchise, which was the Pureclean Restoration company in Iran and grew that successfully. I got married later in life, and I had kids later in life. And restoration is a great industry, but it’s a 24/7, 365 type of work. Even as the company president, it’s still a 24/7 job and was not very conducive to trying to raise young family.
I thought the franchise consulting was a good job to transition into, that would give me a better lifestyle. I got connected with FranNet, and decided to transition to becoming a franchise consultant.
Doris Nagel
I’m sure you’re able to take a lot of what you learned in the process of managing a PuriClean restoration franchise, being able to help advise people on franchises from a personal standpoint.
Scott Majeski 11:00
Yes. That’s what makes what I do very personal, because I’ve been there, I’ve done it. I’m a corporate what they call a corporate refugee. And there’s a lot of us out there. I found a world of franchising, and I found a business that I loved, and grew a successful business. And I enjoyed highly, learned new skills, got to employ people. There are lots of benefits from small business ownership, and I made good money.
It was a wonderful opportunity for me, and new I get to bring that to my clients.
Doris Nagel 11:49
What exactly is a franchise, and what isn’t it?
Scott Majeski 11:54
A franchise is a basically a vehicle for going into business for yourself. It’s like starting any other business, right? So, you know, from with my friend net business, I have a legal corporate entity, like any other normal business out there.
Except that, in a franchise system you belong to a larger community of other business owners that have been trained by your franchise to do the same thing, the same way. And the training that you receive provides you with the knowledge and the ability to open your business, to operate your business, and to be successful at that, following a tried and true system. And that’s what a franchise is.
Doris Nagel 12:47
I’m guessing there are differences in the degree of specificity, or maybe the freedom that you have with different franchises, but first, let’s talk about some examples of franchises. I’m sure most people when they hear the word “franchise” immediately think of McDonald’s or a fast food chain. But I I know from experience that lots of businesses are franchises that people might be surprised about.
Scott Majeski 13:20
Yes, a lot of people are surprised at the depth that franchise businesses get into. For example, there’s a franchise system in chiropractic care. It’s a wellness built business, surrounded by chiropractic care. There’s a franchise for estate sale services. And that’s a growing industry, because people as they age, they’ve certainly collected an estate over time, and we’re talking about normal people. We’re not talking about just rich or very well off people.
Doris Nagel 14:02
I can attest that it’s a lot of work. I mean, when my parents moved into assisted living, we had an estate sale company come in, and they were a godsend. They got everything organized, and there was a lot to do. They took a cut, obviously, but they made short work of it. They knew exactly what to do, and how to lay it out and how to price things. For us, it was great.
Scott Majeski 14:29
And the other thing they do is that is that the items that aren’t sold at the state sale, they find it organizations to donate the items to if they’re wanted, so they don’t go to waste, and they don’t go into the landfill.
Doris Nagel 14:45
And anybody who’s ever tried to downsize anything, or simplify their life know that getting rid of stuff is a lot of work! In some cases, if you knew how much work it would be to get rid of, you might not have gotten it in the first place!
So, there must be some other franchise examples. I guess I’m thinking of places like Hair Cuttery or other hair cut places. And I was surprised to learn that True Value, the hardware store chain, are franchises. We have quite a lot of those in the Midwest, at least. What about some other ones?
Scott Majeski 15:19
There are eyelash extension franchises. People are amazed at that. And that is an absolute huge business. There are martial arts dojo training businesses. There’s even — and this is pretty cool — a robotics, artificial intelligence, and coding education franchise for kids. So that’s a pretty new wave that’s out there.
Doris Nagel 15:52
I’m guessing that people don’t always have a clear understanding about what a franchise is, and isn’t when they come to you. What are some of the most common misconceptions that people have?
Scott Majeski 16:10
Most people when I first speak with them, maybe they’re attending a seminar, or webinar, think of and know about McDonald’s, right? It’s the world’s largest and best franchise. Some people say that was the first franchise, and everybody knows pretty much all fast food is a franchise. There’s also a lot of retail that are franchises.
Many people think that that’s all there is. And we just talked about a couple of other examples. But franchising is much broader than just food and retail.
Another thing is that people think that going into business for themselves costs a ton of money. And although it is a serious investment, you don’t need millions of dollars to open up a franchise business.
Doris Nagel
Can you give me range of fees that people might look at for different kinds of franchises?
Scott Majeski 17:20
The fee range can vary wildly. There are franchise businesses where the initial investment is anywhere from $50,000 to $500,000. We joke that there’s a franchise for everybody out there. And it depends on what our clients are looking for, and the level of investment that they’re comfortable making. Because nobody wants to worry about paying their bills while they’re getting their business up and running. Hey, let’s point to one of the things that we work with extensively on is, you know, what is their comfortable investment range?
I’ve done research with my clients — because people always ask, “Okay, what’s the average investment level?” And about the best I can say is that a good investment level is somewhere between about $150,000 to $250,000. That’s not small change. But that’s doable for most people.
Doris Nagel
Do some of the franchises allow you to finance the initial investment?
Scott Majeski 18:43
Yes, most of that. The rule of thumb is that you’re going to need about 25% to 30% of the investment level in cash. That’s like your down payment on your house. The rest of it you can finance, and there’s many different ways of financing the opening of your business.
Doris Nagel
How much do you need to know about the industry you’re looking at? I’m guessing I might be a bad person to think about buying a Hair Cuttery franchise because I don’t cut hair, but maybe I’m off base there.
Scott Majeski 19:26
That’s the third misperception that I was going to talk about. People think, “Well, I don’t know about this industry, so I wouldn’t be successful or I wouldn’t be good at it.” The fact is, is that most franchisors prefer that their new franchisees not have any direct experience in the business or the industry. Because they don’t want their new franchisees to come on in with preconceived notions or biases. They don’t want them to come in and go, “I love the industry, but I want to do it this way.” And, part of the reason you get into a franchise system is because the franchisor has a system, a tried and true, proven system, that they’re going to teach you and train you on. And then you need to implement that system. That is the path to success.
Doris Nagel
I wouldn’t have guessed that. If you don’t need to bring knowledge, should you bring passion about the industry you’re looking at? Or does that matter, either?
Scott Majeski 20:45
Passion is a whole different question. Before we get to that, I want to emphasize that franchisors are looking for people that have that entrepreneurial spirit, that have the drive and commitment to build a business. They’re looking for people that have people skills, management skills, communications skills, and people that can follow their system. That’s really what they’re looking for in terms of skill sets for their potential franchisees when they’re going through this process. That’s what they’re evaluating their candidates on.
Doris Nagel 21:28
But I know from trying to build businesses, that it’s a lot of work a lot of long hours. There are things that are wonderfully rewarding about it, but it’s not all sunshine and rainbows and unicorns. I only know from my little corner of the world that it would be hard for me to put in those kind of hours if I wasn’t passionate about the purpose of the business. What do you need in terms of matching your passions with the right franchise?
Scott Majeski 22:05
This is an often-debated question. Do you need to be passionate about the industry or the business? And, you know, this is this is how I might, I might phrase it or put it into perspective.
Everyone needs or is passionate about something in their life. Some people say are our passions are “the whys” in our life. And that’s certainly something we talk about when I’m working with my client, but we’ll talk about process later on. But I always ask them, “What’s your why?” Because our “whys” make us get up in the morning and do what we do. They give us energy. Sometimes they might give us focus.
One example is me. Personally, I am passionate about being with my family. I have two small young children and a wife I love. I love picking them up. And I’m passionate about taking them up to my cottage in the woods. There’s no better place than there. I love to be with my little boys on the dock, chasing frogs, or being in the woods, and seeing a deer or some other wildlife. For me, that’s heaven. I look forward to going back there every spring. And now that my boys are old enough, they’re asking me, “Hey, Daddy, when are we going to go up to the cottage?” And that’s music to my ears. That’s what I’m passionate about.
Now, I love being a franchise consultant. I think I have found my last job, my last career. Because I love helping people achieve their independence, and seeing them take control of their destiny. That’s powerful. I get an enormous sense of pride and satisfaction when I match a client to their business, and they decide for themselves, based on the due diligence that they’ve done, that this is the right thing for them and their family. They are supercharged about being in the business, and they can’t wait to open their doors. I love that.
But that’s not my passion. There is a difference there.
Doris Nagel 24:28
And there are some people who can take what they truly love, and turn that into a business. But that doesn’t happen for everybody right?
Scott Majeski 24:42
If you can intersect the two, what you love and what you’re passionate about, I think you’re very lucky. And the person that comes to mind that has managed to do that is Oprah. She’s a great lady, a very lucky lady. Because she’s found her passion, and she’s married it with a business that has afforded her the ability to the pay bills, right. But that’s the difference. Passion doesn’t pay bills.
Doris Nagel 25:17
How well I know!
What are the pros and cons of franchising? What makes franchising a good option for people as opposed to, for example, just starting their own business from scratch?
Scott Majeski 26:01
There are three main reasons why people use a franchise system to go into business. One, it’s a quicker way to get into business. It’s generally a lower cost way to go into business. And it’s lower risk, because this business system has been put through the wringer. It’s been modified, by things in the past that maybe didn’t work, they’ve been pulled out, right, and new new things that have that that work better put in. So, you know that it’s a proven business system. Also, some franchise systems have name recognition. And that can help get people walking into your door. The franchisor also trains you initially and then they provide ongoing training and support.
There have been studies out there that show franchise businesses have a lower failure rate than, you know, independent businesses.
Doris Nagel 27:14
It’s interesting that you say it’s lower cost. Because, you know, the initial purchase numbers that you mentioned in the first part of the show were pretty steep. But that made me start thinking that when you start your own business, you may think you’re in control — that you only have five grand to start, and you’ll work with that. But in fact, it’s usually a slow bleed, as opposed to maybe a bigger upfront payment. Would you agree with that?
Scott Majeski 27:55
Yes. You have to think of all the people that you need to speak to about starting a business. You’ll need to speak with an attorney about opening your business and your liability for providing a product or service. And generating contracts.
Doris Nagel 28:16
Not to mention the marketing that you need to do. I’ve spent a LOT of money on marketing over the years, that’s for sure.
Scott Majeski 28:22
That’s right. And then, getting training in whatever you are doing. And finding insurance; knowing which insurance is the right insurance, making sure that you have the insurance that you do have is the proper insurance to cover all your potential liabilities, and that there are no gaps. Finding and paying for an accountant to counsel you on the proper organization of your company.
Doris Nagel 28:57
Just setting up a website can be quite a daunting task. What kind of website do you need? And who’s the right person to help you do it in a way that makes sense for you?
Scott Majeski 29:09
Yeah, there’s a lot more cost than then people think. And there’s the time that it will take to get all this done. A franchise system has done all that for you and put it into a package, and you pay your franchise fee and get trained on it. And you’re ready to go after that.
Doris Nagel
What are some of the downsides? I’m sure not everybody is the right fit, as you mentioned, to be a franchise owner. What are some of the limitations or downsides that people should think about?
Scott Majeski 29:45
Franchising isn’t for everybody. I do agree with that. There are fewer industry options in franchising. There are very, very few manufacturing businesses in franchising. And there are other limitations. Some franchisors can have very structured systems. Think McDonald’s. It is very, very structured. You run that business by checklists.
Doris Nagel 30:19
So if you want to introduce a new sandwich, good luck with that, right?
Scott Majeski 30:24
Yeah, not as a one off. No way. McDonald’s has a whole committee for that. But there are other systems that do have more flexibility.
You just need to find, you know, which one is the right one for you. Right, there are territory restrictions, right. You know, what your territory is? you negotiate that with a franchise or before you sign your agreement. But you need to understand what their definition is territory of a territory is, and what you are allowed or not allowed to do outside of your territory.
Doris Nagel 31:00
That’s a good point. Two franchises that come to mind where you often see franchises very close together are Starbucks and Subway, for example. It’s probably good to ask how much protection do you have to make sure that there’s not a competitor plunked just a few blocks away.
Scott Majeski 31:231
That’s right. And that will be laid out in the franchise agreement, most certainly.
Doris Nagel
You’ve mentioned your process at FranNet. Talk about the process that you have people go through if they’re interested in owning a franchise.
Scott Majeski 31:41
Our process starts, as I mentioned earlier, with attending a webinar or seminar. We believe in educating our clients so they understand what a franchise system is and isn’t, what small business ownership means, and what it’s capable of doing.
From there, we have a one on one, where we explore the basics of their goals and what they’re trying to achieve. We need make sure that their spouse, or their significant other, is on board with this person going into business. Is their spouse or significant other going to work in the business?
Then we have them take a personal franchise assessment survey, which gives us a lot of information on them. For example, what their buyer motives are, and what skills and preferences they have. After that we sit down with them, with their spouse or significant other or partner, if they have a business partner, and we build a personal business model. And this is where we get their input on what they want their company to look like and feel like. We find out what industries they might have an interest in and their ideas about employees — how many, what type of employees, things like that. Maybe they are interested in semi absentee businesses. Those are businesses where you only need to put in, say 25 hours a week. We ask about geographical issues, such as where they want their business to be located.
After gathering all these pieces of information, we build a business model. And that, along with the assessment survey allow us to conduct our research to come up with anywhere from two to four businesses that match the client’s goals and objectives.
After we present those to them, they start an exploration process, having weekly phone calls with each franchise or each week getting more and more information so they can make an informed decision of whether they want to go into business with one of them.
Doris Nagel
You know, it’s interesting that you mentioned family members, so I suspect a lot of franchises have family members who are involved in some way with the business. What are some things people need to think about? Because it sounds wonderful, but it also has the potential to, to create some heartburn too.
Scott Majeski 34:29
Yes, it can. Which is why that that initial consultation is very important. And if their spouse or significant other is not on board, it can be a very short conversation. Because, if the spouse isn’t supportive, it’s not going to go anywhere. We know that for a fact. There’s a 0% success rate, when the spouse or significant other is not on board. So if there’s any out there, you know, then we just, you know, coach, our client on either trying to get the spouse on board, or thinking about another direction, looking for Plan B.
Clients also need to have a sense of timing of when are they prepared to go into business. Because once they go through this exploration, they start talking to franchisors. And at some point, a franchisor is going to award them a franchise, and then they’re going to expect an answer from the client. Do you want to sign an agreement or not? They’re gonna need to make a decision. And if they’re not able to make a decision, it’s not like, “Hey, can I get back to you?” That door then probably gets closed. The franchisor is going to move on and start talking to the next person. So, if your timelines not within three to six months, maybe then we need to wait until your timeline is better, is within that three to six months.
And again, your investment level is key. You need to have that conversation with your spouse, significant other partner and make sure that all parties are on board. You need to have a sense of where you’re going to get your cash portion of that, and some idea of where you might want to consider financing. We do have financing partners that we have them work with, but they need to have decent credit and be in a decent financial position. Finally, they need to be committed and open to exploring new business opportunities
Doris Nagel
What are some of the kinds of things that people should ask about different kinds of franchises? I’m sure they vary in terms of quality and flexibility and other things. What are the some of the questions that I should ask if I was interested in a franchise?
Scott Majeski 37:15
You need to understand what the business model is — who the customer is how you reach them. Also, what support this the franchisor provides. You know, one thing we didn’t talk about in terms of the disadvantage is ongoing royalty payments. That’s the number one thing that people bring up in terms of not liking a franchise system. The monthly royalty payment covers the ongoing support and training in the license that you have to use the name, the trademark, and the systems. That is that is a cost of doing business as a franchisee and if you can’t understand the value in that then maybe franchising isn’t for you.
Doris Nagel 38:13
How much are royalty payments, typically?
Scott Majeski 38:18
It depends on the business, but the average royalty is somewhere between 6% and 8% of revenue on a monthly basis. A lot of franchisors offer a declining scale. So as revenue goes up, you know, there are break points. But you know, that will be listed in the Franchise Disclosure Document, you will know what that is you, you will be able to factor that into your financial model to help you decide whether or not you want to get into that, that franchise business, nothing, nothing, nothing will be a surprise.
Doris Nagel 39:00
You obviously want to match franchisors and franchisees, but your success long term, it seems to me, is not just making a match, but making a match that’s successful. And you probably seen people who are really successful and people where things just didn’t turn out. What makes for a really good match between a franchisor and a franchisee in terms of success?
Scott Majeski 39:34
A good franchisee that is successful is a franchisee that follows the system. One that believes in the product or service that they’re offering, and is a good corporate citizen. But most importantly, they follow the system and gets out there and drives their business to success.
The number one reason why franchise businesses fail is because the franchisee does not follow the system.
Doris Nagel 40:07
That’s interesting. I would have guessed it’s because maybe the franchise just didn’t provide enough support or didn’t really have its act together. But that may be a difference between the client of the FranNet screening process, you’ve done it friend that you really partner with good franchises. I’m guessing there’s probably plenty of them out there that you might not even consider matching people with.
Scott Majeski 40:37
That is correct. We don’t represent all franchisors. We have a very extensive due diligence process that we put franchisors through that want us to represent them. We have a team in our corporate office that puts these franchisors through a checklist. And if they meet our criteria, then we’ll represent them.
They have to be a good solid business, they have to have solid financials. We call actual franchisees of that franchise and we validate them. We ask them questions such as, “Did you feel that the training was appropriate, that you came out of training ready to go?” “Does your franchise continue to support you and your growth?” “Are you making the kind of money that you thought you would be making?” “Would you buy the franchise again?” Those are the top four questions, and then there’s questions that branch off of those. If the validation goes well, and they meet the other criteria, then we’ll add them to our portfolio.
Doris Nagel 41:47
So you actually you bring a double benefit to your clients. You not only know how to help assess whether or not they’re a good fit, but you’ve already done some of the legwork. That’s pretty important. You’ve been very diplomatic, but I’m sure what it means is that there are some franchises out there that you need to ask a lot of questions about.
Scott Majeski 42:15
I agree. There are franchises out there that we don’t want to be a part of at all. And we don’t accept them into our program.
And then there are there are franchisors that that we represent where maybe along the way, something occurs within the franchise that’s destabilizing. They may put themselves on hold. They may come to us and say, “We need to just put ourselves on hold until we right the ship.” Or let’s say I hear some information, I’ll go to my franchisor team and I’ll tell them. And they’ll check in with the franchise. And if we validate it — if we find out that it’s true and the franchise no longer meets our criteriam– we’ll put our partner on hold until they get back in compliance with our validation criteria.
Doris Nagel 43:21
It’s interesting how some franchises seem to be so durable, like, a True Value hardware stores or McDonald’s. But then there are others that seem more “here today, gone tomorrow.” The one that comes to mind is Krispy Kreme. At one point, it seemed everybody wanted to have a Krispy Kreme outlet. And now, maybe you find them at the grocery store. I don’t when the last time I saw a Krispy Kreme store.
Scott Majeski 43:54
It’s funny you mentioned that. The friend that helped me get into franchising worked for Krispy Kreme maybe 15 or 20 years ago,
Krispy Kreme got away from their original premise of hot, fresh donuts. They put the doughnuts in a box, and they put them in the stores. So are those donut donuts hot and fresh? No, they are not. So the quality was not what you were used to when you drove up and saw the flashing sign, right? You would drive up and get that hot, fresh dripping donut, which is what made Krispy Kreme. But when you got them in a store the quality was totally different. And that was the first mistake they made.
Doris Nagel 44:44
So what happens to the franchisees when the franchisor starts experiencing problems? What can you do to protect yourself?
Scott Majeski 44:56
Again, you have the franchise agreement that will list there what the franchisor is obligated to do for the franchisee. And usually there’s some type of workout, depending on how bad it gets. And it can get real bad. And it’s unfortunate if it gets to that point. Which is why due diligence and just knowing the franchisor that you’re signing with. It’s key that you have confidence in that management team and that business model.
Doris Nagel 45:35
Any examples you can give people who have been really successful in building a franchise other than yourself of course with PuriClean?
Scott Majeski 45:46
I know of several. In fact, the person that that I sold my PuriClean franchise to is another PuriClean owner here in the Chicagoland area. And he started two or three years after I did. And today, he owns five or seven territories, which is which is the most of anybody in the system. I believe he’s certainly in the top five in the franchise in terms of revenue. He’s doing probably $5 million a year.
Doris Nagel 46:24
You know, that’s another advantage of franchising. You think about just your little McDonald’s or your dry cleaning store. But if you’re successful and really have ambitions, you can perhaps acquire multiple territories. And in that case, you’re talking about a whole different animal, right?
Scott Majeski 46:48
Yes. There’s two things that you need to ask — going back to the question that you should ask. Two other important questions are: “How do I grow this business?” if that’s what you want. There are certainly franchise businesses that are out there where maybe you just need a little income, and you want something to do, or you want to give back to society, or maybe do something for fun. There are businesses for all of those models. But what’s your growth model? How do I grow this business?
A second very important question that you need to ask yourself and ask the franchisor: “What is my exit plan?” Before you get in, you have to at least know what your potential paths are for getting out.
Doris Nagel 47:44
It’s funny, I tell my clients who are startups that you should begin with the end in mind. People don’t want to think about the end, because it’s so exciting to start something, but it’s really helpful to know what you want from the exit, so that you can build those options into your daily decisions of investing in the business.
Scott Majeski 48:13
Getting to the end of PuriClean for me was very exciting. I had started a business in the Great Recession. I struggled to get it going because of the economy. I grew it to a nice business over 10 years, I made good money, I sold my business for a nice profit, and I transitioned into an even better business.
All that was exciting to me. The end does not have to be a bad thing.
Doris Nagel 48:49
It’s just the beginning of the next thing.
Scott Majeski 48:51
That’s right. So I hear what you’re saying, that people don’t want to think of the end – they think the end is a bad thing.
It doesn’t have to be, but in order to know what the end is in a business situation, it’s important to think about how you might want to end your business. That could be a sale, a transition, close, sell the customer base and assets, or give away. You need to understand what those possibilities are at the start and then work towards that over a number of years.
You can’t work seven years and then in the eighth year decide you want to sell it because your company may not be in sellable condition. That’s the worst situation to be in.
Doris Nagel
Great advice. Scott, the hour has flown by and we are just about out of time. If people are interested in connecting with you to learn more about franchising, what’s the best way for them to reach you?
Scott Majeski 49:57
The best way to reach me is to call me. My number is 312-806-9963, or you can send me an email at smajeski@frannet.com.
Doris Nagel
Scott, thanks so much for joining the show this week. It was great having you on. I learned a lot!
Scott Majeski
Thank you very much. It’s been a great pleasure.
Doris Nagel 50:27
Thanks so much for listening, everybody.
And thanks again especially to our guest today, Scott Majeski, the the Chicago and Northwest Indiana managing partner of friend net, who joined me today to talk about everything to do with franchising.
You can find more helpful information and resources for entrepreneurs on my website at globalocityservices.com. And because the show is for you, my doors always open for comments, questions and suggestions, or just to shoot the breeze. Email me at dnagel@lakes radio.org. I promise you’ll always get an answer from me.
Be sure to join me again next Saturday at 11am Central/noon, Eastern.
But until then, I’m Doris Nagel, wishing you happy entrepreneuring!
Leave a Reply