Franchise Expressions Explained with Mainland CEO Nick Powills: What is "the Dumb Tax?"

Mainland staff writer Erica Inman writes about franchising for Mainland's flagship publication 1851 Franchise every day and frequently runs into industry lingo that's unique to the franchising space. In an effort to decode some of those terms, she spoke with 1851 Franchise publisher and CEO of Mainland Nick Powills with questions about four surprise terms.

Inman chose “business in a box,” “the dumb tax," “turnkey model” and “work on the business, not in the business" as four sets of terms that the average person interested in franchising might not know off the top of their head. Powills explained the nature of a “box business” as one of the benefits of buying a franchise that “gives you a head start” but still has challenges that need to be confronted and the “turnkey model” as a similar concept where a business is ready to be started right away, like turning a key in a lock. Powills and Inman discussed the phrase “the dumb tax” as the upside to paying franchising fees to benefit from the mistakes that businesses make before they become franchises. He also demystified ”work on the business, not in the business" as the difference between strategy and growth and day-to-day tasks.

Terms like these can be helpful to understand during a journey through the world of franchising, and prospective franchisees can learn more by reading 1851 Franchise or visiting 1851 Growth Club.

Watch the full interview on YouTube or read a transcript below. This transcript has been edited for brevity and clarity.

Erica Inman: Hello. Hello. I’m a writer with Mainland, and I’m here with Nick Powills, our CEO and publisher. I’ve been interviewing a lot of franchisees and franchisors, and they often use certain expressions to talk about franchising. I’ve made a list of these expressions and thought I’d quiz you today, Nick, to see if you can explain them.

Nick Powills: What if I don’t know the answer?

Inman: I believe you’ll be able to figure them out. I have faith in you.

Powills: Okay, let’s do it. Otherwise, I can use your help.

Inman: Great. So, the first term I hear quite often is “business in a box” or “box business.” What do people mean by that?

Powills: “Business in a box” means you’re essentially skipping the line by buying something that’s already been created. If you were to start your own non-franchise business, you’d need to come up with a name, register it, create a logo, design your location, supply materials and fixtures, set up a website, establish social media, and get branded items. The list goes on. The benefit of buying a business in a box is that these elements are already handled. However, there are fees such as the franchise fee and royalties, and sometimes tech or marketing fees. While the business in a box gives you a head start, it doesn’t guarantee success; you still need hustle and grit. It’s more about providing a jumpstart rather than skipping the path to profitability.

Inman: Very well explained. You mentioned fees, which brings me to my next expression: "dumb tax." Often people talk about the franchisor paying the dumb tax for you. Can you explain what that means?

Powills: I’ve never heard the term “dumb tax” before, but I assume it means that the franchisor has already made the mistakes on your behalf. When you pay the fees, you benefit from the franchisor’s experience and avoid some of those early business mistakes. Is that what you think it means?

Inman: Yes, that’s exactly it. I’ve been hearing it more and more and quite like the expression.

Powills: I wonder who came up with that. There are other common sayings like “brands don’t sell brands, people do,” “why you, why now?” and “don’t bet on the horse, bet on the jockey.” Maybe I’ll add “dumb tax” to my list as well.

Inman: Definitely. It’s a good one. Another expression I come across a lot is “turnkey model” when talking about a franchise. What does that mean?

Powills: A “turnkey model” is quite similar to “business in a box.” A true turnkey means you buy something, turn the key, and everything is set up for you. In a brick-and-mortar context, this usually refers to buying someone else’s already developed business. Sometimes, it can also refer to modular units delivered by truck or a franchisor setting up the location for you. Essentially, a turnkey model implies that everything is ready to go when you start. However, in franchising, it means you’re getting a business that’s already built, though it may be somewhere in between a fully developed model and a new setup.

Inman: Definitely. Lastly, the phrase “I want to work on the business, not in the business.” What does that mean?

Powills: Working “in the business” refers to handling day-to-day tasks, such as taking orders or managing operational details. Working “on the business” means focusing on strategic planning, scaling the business, and improving the company culture. For example, in a McDonald’s, working in the business would be dealing with counter orders, while working on the business would involve thinking about how to grow and improve the business. Initially, franchisees might need to get involved in every aspect to understand how things work, but eventually, focusing on strategic growth and development is crucial for scaling the business.

Inman: That’s great advice. Thank you for explaining these expressions. Do you have any final words of wisdom for people approaching franchising for the first time who find the lingo intimidating or are unsure?

Powills: Buying a franchise is a significant decision because you’re investing a substantial amount of money into a business with limited control. The benefits include skipping the setup phase and avoiding early mistakes. However, the biggest risk is your mindset. Success and failure depend on your attitude and approach. Remember that a dollar spent in a franchise is effectively worth less due to fees and other expenses. Also, plan for the long term, be prepared for rainy days, and consider how you can scale the business. With this mindset, you’ll be better equipped to build a successful business that can benefit your family and future.

Inman: Awesome. Thank you so much for your insights.

Powills: Thank you. This was fun!