|Franchise Expert and Attorney Roy Hibberd
One of the biggest changes over the last several years is how prospective
franchisees research franchise opportunities. More prospective franchisees now use the Internet as well as franchise brokers.
A gentleman that has seen many changes over the last 25 years in franchising is Roy Hibberd. I found Roy to be one of the
most knowledgeable individuals on the topic of franchising. This was one of our first historic interviews conducted in 2005.
We hope you enjoy it as much as we did.
Franchise Interviews- What advice would you give to prospective franchisees looking to buy a franchise?
Roy Hibberd- I guess I would break this down to several points of advice.
Number one- Really sit down and reflect on your own strengths and weaknesses.
Too often I see people that don't take the time to ask themselves the question, "Are they going to be a good entrepreneur?"
Most entrepreneurs I know that have been successful have devoted a substantial
part of their life to their business. For example, I have a young son that plays baseball. One of his coaches was an entrepreneur.
He would always be out their coaching third base with a cell phone in his hand. He ran two restaurants, and he was somehow
able to balance the two; but you always saw him involved. If he wasn't there, he was connected to the business. With cell
phones, PDA's and wireless Internet access, that has made it easier.
clients come to me or and say they want to be an entrepreneur. They no longer want to work for a corporation and they want
to control their own destiny. Those are excellent goals. But what happens in the process is that they don't really understand
what entrepreneurship is.
So what is entrepreneurship? Number one, it is 24-7. Even in my opinion with a good franchise system to back you
up, it takes a tremendous amount of work and effort.
two- Many times in a corporate setting you are surrounded by consultants and experts. For example, if you are working on something
and you get stuck, you can go to a colleague down the hall or several floors away. When you're an entrepreneur, for the most
part, you loose that. Of course you can surround yourself with paid consultants, accountants, and lawyers on call. You can
have a person that does marketing for you but when you're an entrepreneur, you really need to wear many hats for two reasons.
Number one is financial reasons. You can't just pay for all of that advice. It doesn't make economic sense. Number two, even
if you pay for advice, you still need to learn it and understand it.
I teach franchising, I spend a large amount of time instructing people just what it takes to make a successful business grow.
Franchising can give a tremendous boost in the sense that the tools from a good franchise system are generally proven and
there are things that have been perfected over time. You might have a brand that will attract people to the business and all
of that may tend to insure success. However, nothing will literally guarantee success except the entrepreneur who gives his
or her absolute full time. That is a bit intimidating for some as they reflect on that.
In addition, take an assessment of your strengths and weaknesses. If you are a good people person,
there are systems where you are up front and working with your customers. Then the reverse is true. There are some franchise
systems that don't require people skills and you are not required to be up front and face to face with the customer.
The second issue I want to address
is franchise brokers. I think like all professions, there are good franchise brokers and there are some others that don't
serve their clients well. And even serving their clients is kind of a misnomer because franchise brokers for the most part
are being paid on commission by the franchisor so the real client is the franchisor. Franchise brokers can serve a tremendous
benefit to a potential franchisee in spending the time to understand what the franchisee's goals are. They help the franchisee
assess their strengths and weaknesses to guide the franchisee to an opportunity that may be a better fit. The corresponding
side to that is just like brokers in other areas like insurance and mortgages. Many times franchise brokers will steer you
to opportunities in their portfolio as opposed to something they don't represent that might be a better fit.
I think too many potential franchisees don't understand that dynamic.
Franchise Interviews- Right, and most prospective franchisee don't
know that. Is that what your saying Roy?
Right, they may not have done a comprehensive search. For example, they may be looking at printing franchises and there may
be a dozen. There may be six good ones but this particular broker may be representing or presenting one or two in the bottom
segment. And that's an issue. So not only do you need to do diligence on the franchise system but also you need to investigate
the franchise broker.
Same thing with the Internet. The
Internet can make a system appear much larger than it really is and that is fine. That can be a tremendous advantage if you
understand that downstream this is a pretty new concept and you like the fact that you are an earlier adopter. They use technology
to the max and consumers will perceive as you did that this is a large company and a proven model.
Kicking the Tires
That brings me to my third point. Kicking the tires of the
potential system you are looking at. To me, it is so important to do that. Recently I heard of an opportunity where an individual
invested over a quarter of a million dollars in moving forward with a franchise and than realized (once it was too late) that
it literally was a fraud. Embalmed in litigation, this white collar individual had lost their position and thought they would
enter the entrepreneurial world, took his life savings and invested it in a fraudulent system. Now unfortunately they have
to go back into the corporate world. From an attitudinal point of view a pretty depressing situation.
The UFOC (NOW CALLED THE FDD)
One of the neat things about franchising from
a prospective franchisees point of view is the uniform circular. It is technically called a franchise offering circular or
FOC. Occasionally because the states have also jumped into regulating franchising in addition to our federal government, we
have come up with a UFOC (NOW CALLED THE FDD) format (uniform franchise offering circular).
What franchisees quickly understand, that I wish they do a little sooner because it would help
them out is that this book they get which looks intimidating and looks like it will put you to sleep is the best tool in making
their decision. The UFOC (NOW CALLED THE FDD) has 23 areas. It is kind of like 23 separate boxes the franchisor must completely
disclose about their franchise system. For example, item two in the UFOC (NOW CALLED THE FDD) of a franchise system; you got
to put a biography of all of the key members of that franchise system. When you go to item two, you are going to see the biography
of the CEO, the COO, the franchise sales people, and hopefully the training area. These are the experts that are going to
teach you their franchise concept. You should look for the following:
• Do they have the experience?
Have they been around that concept and have they been around franchising?
You can lay that out if a franchisee is looking
at four different print franchises. You can literally look at item 2 and do a comparison of those 4 franchises. That should
not be the sole judge but it should be an important factor. All the other items are the same. Items 6 and 7 talk about your
initial investment and royalty rates. Take a look at advertising and how does that work. Are you obligated to pay national
advertising in the beginning? The key here is to use the UFOC (NOW CALLED THE FDD) agreement as a tool.
part of the UFOC (NOW CALLED THE FDD), which I find extremely important, is the ability to speak to current and former franchisees.
Now franchisors do a pretty good job in the first category. They will take and steer you to franchisees that have done well
and there is nothing wrong with that. Prospective franchisees need to go beyond that. They need to take that list of current
and former franchisees and at random call people. Again, do diligence. Spend time and recognize that if you are talking to
a Subway franchisee, calling somewhere between 9 and 2 in the afternoon is not the best time. I suspect, and it has been my
experience that in a majority of circumstances that existing franchisee is willing to take the time to speak to someone who
is thinking of joining that club.
Now just as important in my opinion is to take a look at the former franchisees
in a system. And one needs to recognize that former franchisees may have not been good business people. They also may have
not have liked franchising because there is a certain sense of regiment and routine that you have to adhere to and some people
aren't cut out for that.
But many times, by talking to a former franchisee, one really can get a sense of why a
former franchisee left the system.
• How did you do financially?
• How well was support delivered?
A franchisee has no reason of misleading you.
Many franchisors don't go to great lengths to put in current phone
numbers of people who have left the system and there is very little motivation to do so. Many times when a person leaves the
system even the address or contact information might be very old.
I would encourage people to spend a little bit
of extra effort to do a white pages search, yellow pages search or Google search, maybe talking to the chamber of commerce
in town and tracking down former franchisees because occasionally you can pick up a lot of information.
Another piece of advice I would give to prospective franchisees is to retain a franchising expert to
assist them in their decision. We talked about brokers and brokers can serve a valid part in helping a prospective franchisee
better understand which systems are better for them. You really need to invest some time with someone that has been around
franchising that can take a hard look at the system not only on paper.
Franchise Interviews- Where does
a prospective franchisee find a franchise expert Roy? Many times franchise brokers disguise themselves as franchise experts
instead of franchise brokers.
Roy Hibberd- Yes, they do and that is an excellent question and I don't
have as good of an answer as the question itself. Ten years ago there may have been 4 or 5 well-known franchise brokerage
firms. Today with the Internet, there are hundreds, maybe thousands. Where to start is always difficult. Like many good business
people, rely on tremendous referrals. You need to reach out to as many people as you can and find out who are the experts.
|Franchise Interviews studio
Last point I would tell a potential
franchisee is to not be mislead in believing that the terms of a franchise agreement can't be negotiated. Franchising by its
very nature tend to create a belief that the terms of a franchise agreement can't be negotiated. I won't say you can negotiate
something like the royalty rate. I would be very surprised if anyone did that.
• One might be the terms of the
franchise agreement. You read there is a 5-year term, 7-year term, 10-year term or 15-year term, people just tend to say,
"well I guess I'll just have to live with it." There are franchise systems that will negotiate that part of the
agreement. For example, if you get a 5-year lease on a retail building and you have a 7-year term on a franchise agreement,
nothing is in sync. Some franchise systems will allow you to terminate in 5 years.
• Another example is renewal
fees. If you can get the franchisor up front to wave the renewal fee that can be some money saved.
Franchise Interviews- Would you say it's the smaller franchise systems that are more willing to negotiate?
Roy Hibberd- It's kind of a sliding scale. I would say it's a presumption that
the more the franchisor wants you, the more willing they are to negotiate. The presumption then is that the more they want
you may be the more they need you. If a franchisor is willing to negotiate some of the more basic elements of the franchise
such as royalties, that might concern me and send off some alarm bells. Then I would try to do more diligence with the system.
Like a doctor, a franchise expert could tell you how much negotiation is enough and how much is too much.
Roy Hibberd is a
certified franchise expert. He has over a quarter of a century of experience in franchising. Roy heads the franchise practice
group for a consulting firm called Smooth Engine (www.smoothengine.com). A dominant amount of his work is done for existing
and potential new franchisors. He also works with potential franchisees counseling, reading documentation, performs diligence,
and negotiates on the franchisees behalf.
In the next edition,
we will interview Roy about businesses looking to franchise concepts. He will also talk about some of the changes he has noticed
over the last 25 years in franchising.
For a free
brochure on Roy's services call 732-643-5203 or email at email@example.com