SPADEA LIGNANA: YOUR #1 FRANCHISE SUPPLIER

Q&A with Tom Spadea, Founding Partner

1851 Franchise: Tell us about the history and founding of the brand.

Tom Spadea: I was introduced to franchising when I was a small independent business owner myself. I started to do some business broker deals on the side and then became a franchise broker in the early 2000s.  I subsequently joined Rita’s Italian Ice as a sales person, eventually working my way up to the head of franchise development and real estate. While at Rita’s, I enrolled in law school at night. Around the same time, my best friend Josh was looking to switch from his career on Wall Street and enrolled in law school as well. We eventually started brainstorming and talking about starting a franchise law firm.

While at Rita’s, I got involved with the International Franchise Association (IFA) and earned my CFE (Certified Franchise Executive). After I left Rita’s, in my final year of law school, I did some consulting and franchise development work for a number of emerging brands, some of whom are still clients today. I finished up my law degree in the aftermath of the 2008 market crash and started practicing law independently as they weren’t really giving out many law jobs to a 38-year old first year associate. Josh and I then teamed up and mostly worked with franchisee clients negotiating retail leases, Franchise Disclosure Document (FDD) reviews, and other transactional work for anyone who would pay our fee. We eventually started building our team and getting our name out as a law firm with deep franchise and entrepreneurial experience. I think I have been to every national IFA convention since 2006. 

The attorneys Josh and I recruited brought not just deep legal experience and expertise, but business experience and most importantly franchise experience.  That organic assembly of an elite team who are more than just lawyers is really the essence of our brand. We learned a lot from a longtime friendly competitor in the industry, Harold Kestenbaum, who has launched hundreds of brands through his 40 plus year career. Harold has always been a sort of mentor to Josh and I as we built our practice.  We sat next to each other in many trade shows and built a nice relationship over the years. When the opportunity came about to team up with Harold and acquire his practice last year we jumped at the opportunity. That doubled the firm, and we now represent over 250 franchisors — most of which are emerging brands. Currently, the firm is over two dozen attorneys, paralegals and supporting cast that care and support our clients on the myriad of legal issues that arise in the day to day struggle of growth for franchisors.

Most of our clients have come from word-of-mouth referrals, we’ve never really done any traditional marketing. To me, that shows how meaningful our relationships are with clients and that we have some very dedicated and loyal fans of how we operate our firm. 

1851: What are the brand’s key differentiators that make it stand out in the industry?

Spadea: There’s a lot of friction in the attorney-client relationship, and much of that is derived from financial issues. That’s why we keep things simple with our billing; we’re different in that we charge a flat monthly fee subscription for virtually unlimited legal support. 

We’re always focused on the business goals of our entrepreneur clients. When Josh and I were first getting started, we took whatever we could get and quickly realized representing big fortune 500 like companies wasn’t for us. We want to work with gritty entrepreneurs and give them the tools to be successful — help them help themselves and avoid obstacles and mishaps. We want to be the trusted voice in the ear of our franchisors. We don’t just look at the current state of regulations when building FDDs; we’re thinking about the audience, the potential franchisees, and the personality and goals of the founder. Most people become franchisors to hit it really big. Becoming a franchisor is more like buying a lottery ticket with huge upside then just trying to eke out steady cash flow to support your family.  

It’s a long-term game and it's hard work — and we always play the long game. If you want to double or triple your business, don’t bother with franchising. Open a few more corporate locations and earn a comfortable lifestyle and pay for your kid’s college.  But if you are looking for generational wealth and a way to pay for your grandkid’s college, then franchising is a path worth taking. It is exciting to see clients multiply their net worth by 50 or 100 times in less than a decade.  It doesn’t happen every time, but it does happen. I personally believe franchising is the best path to take if that is your goal.  

There are many entrepreneurs who don’t want to spend the money to deal with lawyers, but when we take away the hourly fee and the six-minute increment billing, we’re able to be a long term partner. We’ve also developed a simple software solution for franchisors to disclose the FDD, understand their state registrations and to get franchise agreements executed. To put it simply, the system allows franchisors to easily know where they can sell and where they can’t. We do it all at a flat monthly fee to stay aligned with our clients.  The more efficient we are the more we both win. Ten years from now when the franchisor seeks a private equity exit, we will have already built the deal room that is the envy of the industry.  Because we start with the end in mind, every franchise agreement, FDD receipt, state regulator correspondence, etc is all in one place organized and ready to be put under the microscope. 

Our clients like that at the end of the day, we’re business people as well who have been in the trenches. I’ve paid my mortgage by selling franchises, not many franchise lawyers, if any can really say that. We love our clients, and most importantly we understand them.

1851: What are the milestones in the brand’s history that have led to its success?

Spadea: We’ve grown slow and steady organically. When we launched the mapping software three years ago, it was a big moment. It got us thinking about a subscription type program and how we could be closer to our clients. It was a significant capital investment, and continues to be, but it enables us to manage a very important process for our clients without taking much time or resources away from our team. It may have started as a side project, but it became a main differentiator. The idea actually came to me on election night 2016 — when I saw a graphic of all of the states displayed each as the same size. A lightbulb went off in my head, I grabbed a pad of paper and started taking notes on how it would be a great way for franchisors to show where they could sell and where they couldn’t. There are a lot of good franchise specific software platforms, but they are managed by franchise sales and are only as good as the info entered. Franchisors are leaving it up to the franchise sales team, and as a recovering development person myself, I know they won’t always get it right because they don't have the proper support or incentives to make that the most important thing they think about. I thought if we showed maps that were either red or green in terms of current registrations, it would be a simple way to inject our expertise into the process, reduce errors and not add time to the sale.   

We manage the map internally, so an attorney is responsible for where a client can and cannot sell. It started as a simple spreadsheet, but we worked with a software programmer to turn it into a web-based platform. Now, if the candidate clicks on the state, we link through Docusign to send the candidate the right FDD and to capture the signed receipt page. That doesn't just separate us from other law firms, if differentiates us from a lot of the IT systems in franchising as well. We become the compliance team for our franchisors without charging them hourly. Our franchisor clients seem to really appreciate having us embedded in the process ensuring they can run fast and we will manage the guard rails.  

It is so important for clients to know they can pick up the phone at any time and call us for strategic advice, to let us know what is happening in their business or just to catch up without worrying about it showing up on the bill. We focus a lot on internal transparency and proactive communication.  Our clients know we work hard to prioritize their needs as their success is our success. We have an incentive to be efficient and effective — if our clients grow, we grow. I am very proud of our long-term client relationships. It’s all about serving our clients and not being just another law firm, that many times are just a bunch of lawyers trying to maximize the hours they can bill on their time sheets. 

1851: What do your ideal clients/franchise brands look like?

Spadea: Our ideal client is a franchisor with less than 100 units. It is a hard industry and takes a lot of work to do it right. It takes a few years to get a concept off the ground, and once they start to understand franchising and what it really takes to win, they’re perfect for us. Some of the franchisors who hire us, believe it or not, have never used a lawyer in setting up their system.  There are a lot of unscrupulous consultants in the industry that claim to be able to launch brands for a low price using old and imperfect templates without the need for the client to hire a lawyer. It usually ends in disaster as there is a lot more that goes into starting a franchise system then just pumping out an FDD. But it happens and we have to be empathetic that our clients are gritty and just trying to do the best they can to build a business.  We have fixed many of these brands that made early missteps and quite frankly they have turned out to be some of our best and most loyal clients.  

Others may have been with a law firm that is too large and cumbersome and charged them for every email, call and interaction.  Those law firms are not structured to play the long game or be patient with emerging brands. Those firms don’t take a small client seriously who won’t generate thousands and thousands of dollars in legal fees every month.  They treat them as a nuisance and act as if they are doing them a favor by representing them.  It’s perfect for us, because not only do we not look at it that way on so many levels, we roll out the red carpet for those emerging brands as a perfect fit for who we want to represent. 

We will take the time to come up with a reasonable budget that works for the client and for us and create a workable and practical plan based on what the client really needs. Our job is to bring to life the passion and vision of the brand and to protect our client from the many risks inherent in the selling of franchises and in growing a brand through the wonderful adventure of franchising. When the client gets ready to harvest what they have built, we will be very proud to have played our part and to have put them in the best position to cleanly transfer all that they have built to the next owner.