Webinar Recap: Ushering in a New Age of Transparency in the Franchising Industry

Mainland* — a marketing and communications company and 1851 Franchise’s publisher — recently hosted a webinar in which CEO Nick Powills caught up with Patrick Findaro, the co-founder of Vetted Biz, a leading provider of franchise prospecting and research solutions. The two touched on several subjects regarding the importance of transparency in the franchising industry, what franchisee prospects are looking for in a business and the key to successful lead generation. 

“We had an offline database of franchisors going back four years, and we decided to put it up online for free and monetize it later,” Findaro said, describing the origins of Vetted Biz. “Overall, our mission is to bring transparency into markets that are lightly regulated and need more transparency, starting with franchising. Vetted Biz’s main customer is the franchise buyer, but we also cater to brokers, consultants and private equity funds. Our customers come to us for data, financials, contact info and more.”

Powills notes that the 1851 Franchise website was created by Mainland with a similar mission. “We had all of this content because of our work as a PR agency, whether it be franchisee interviews, press releases, and we thought, ‘why not publish it?’”

For example, in the case of 1851 Franchise’s recent influencer list, created in collaboration with SeoSamba, Powills says Mainland sent out an email to over 5,000 names accumulated through its years of operating in the franchise industry. “They were able to nominate influencers, whether it be franchisors, franchisees, brokers, suppliers,” he said. “If we have a network of more people, the better the lists will become and the better we will be able to judge these rankings in the future.”

This collaborative approach is a prime example of how 1851 Franchise aims to leverage its position to create heightened transparency within the industry and ensure all players have a voice. “I’ve always been skeptical of what is considered to be the established franchise industry,” Powills said. “The IFA board, for example, is made of brands that haven’t even done much.”

Findaro agrees, noting that a recent hearing on franchise financing did not look deep enough into what could be changed or updated to make the industry better overall. 

This fear of changing the status quo and inability to promote transparency is a major drawback of the franchising industry, Powills says, and one that is often exemplified in the way other PR companies respond to Mainland. “In categories like home and real estate, there is no B.S., but in franchising, other PR firms often don’t want their clients to talk to us out of fear that we will steal them,” he said. 

How Transparency Can Help the Franchisee

In addition to the industry at large, Powills says individual franchisees can benefit greatly from increased transparency.

“A third of all franchisees in every system will be somewhat frustrated with the business,” said Powills. “In my opinion, that is because the Item 19 doesn’t break down the story enough, whether it be based on time, community, location. Also, franchisors need to remember that different franchisees want different things. A ‘chuck in a truck’ doesn’t go into franchising just to replace income; they want to build wealth. Most likely, the only way to do that is to scale the business. We want to provide that heightened education in the community.”

For franchisees, Findaro says franchising is often an extreme. “You are either working a lot of hours and you get a high return, or you put in the minimum and you get the minimum in return, he said. “Some people want cash flow, and others want assets that can provide them with a capital gain someday. One metric we evaluate is: what is the resale value? If you invest $50,000, does the business sell for $300,000 in five years? If it sells for less than you invested, then you may want to look at other franchises.” 

Powills says many people in the industry often don’t think of these different outcomes because the term “franchisee” is used as an umbrella to cover many different candidates. “They should really be broken into different categories,” he said. “Some are risk averse and are buying into job replacement, and some are multi-unit operators who are trying to build a business and eventually exit,” he said “We tend to couple it together, but there are so many layers.”

Findaro says this lack of transparency also results in a big agency issue within franchising. “It's like when you buy a home — the realtor, title agent, accountant, everyone wants you to do this,” he said. “But who has your best interest at heart? With franchising, everyone needs to take a step back.” 

This issue, Powills says, is becoming even more complex. “In the past, you would go to FranchiseGator, pick a brand, inquire and then buy the brand,” he said. “Now, it has transformed to be more about the broker. There are fantastic brokers, but there are also some who claim to get paid nothing, but their check is coming from the franchisor.”

How Transparency Can Help the Franchisor

With more information available, franchisors can better tailor their expectations when it comes to franchise growth. “You can’t expect to sell a million units,” Powills said. “You will probably sell one over the first year, a few more over the next few years. If you have 25 units after 25 years, you are actually doing okay.”

Prospective franchisors also need to be better informed about whether the decision to franchise is right for them. “If you have five corporate locations and want to franchise, do you really want to be married to 20 different business partners for a 10 years period? It could work out well, but if you are happy with your five-unit restaurant chain, corporate growth might be better,” Findaro said. 

The problem, Powills says, is that the pathway to truth is often too challenging in franchising. “If a business owner wants to franchise their hotdog stand, there are a lot of brokers out there who will help them do it without being honest, and there are a lot of attorneys who will make the FDD (Franchise Disclosure Document) without asking any questions,” he said. “That results in a lot of bad businesses.” 

Then, even though the franchise business may not be strong, Powills says franchisees may still sign on, which will harm the brand in the long run. “Franchisees are not overly sophisticated at that level; they trust first, and they get so enamored with the idea of being in business,” he said. “I believe franchisors should qualify higher so there is more bandwidth. Now, all of a sudden validation increases because expectations are aligned.”

How Transparency Can Help with Lead Generation

While lead generation can be challenging and franchise portals can often seem confusing and full of non-franchised businesses, 1851 Franchise and Vetted Biz stand out because of their focus on only featuring reputable brands with transparent information readily available online. 

“I spoke with a QSR Mexican brand recently, and when I went to their website, there was no ‘Why You, Why Now’? If the buyer doesn’t know what you are selling, it is going to be hard to find successful franchisees,” Powills said. “That is why we often do an assessment at the beginning of the relationship. Sometimes we lose clients because they say they want 50 deals this year, but if they only sold 25 last year and aren’t willing to double their marketing spend or their FDD isn’t strong, we don’t pretend buyers will come. That would just be putting lipstick on a pig. If you have litigation, poor validation, bad ROI, we may be able to get PR or write stories about your good intentions, but it likely won’t help sell franchises. PR is not lead generation; it is lead awareness. It is up to the brand to do the discovery process.”

When prospective clients come to Mainland to generate “leads,” Powills says he always makes sure to clarify that they are chasing “deals.”

“We don’t need 100 leads to buy one unit, we just need one person to buy one unit,“ Powills said. “Lead generation comes from smart persona targeting in markets that make the most sense, usually in concentric circles around high-performing units so you can protect the AUV as you expand. From there, you can turn digital ads into content for lead generation. The first indicator that lead generation is working is traffic to the franchise development website. If you want to grow in Chicago, you better see people from Chicago coming to your website.”

At the start of this year, Powills says Mainland started building a database of franchisee profiles, which are questionnaires that outline their individual buying experience. 

“From first impression to inquiry, it took 7.4 months for them to sign on with a brand,” he said. “Franchisors get upset that they are spending $20,000 on Google ads and getting nothing in return, but I tell them to talk to me in 7.4 months. I get it. It is called franchise sales. People are pressured to hit numbers. We can start telling your story on 1851 and get some validation, but that won’t magically get you leads and deals. Instead, based on our research of franchisees, the content process helps them make decisions.” 

So, which brands are particularly strong right now when it comes to attracting franchisees?

“Food is a tough industry because you aren't going to make a lot of money, with only 10% to 15% net profit, unless you scale,” said Powills. “But home service brands, on the other hand, don’t have to scale. They serve the heck out of the community and they do great. That is why home service is super hot right now. Bigger private equity funds are also consolidating home service groups and leveraging data. If you know the homeowner is going to spend a certain amount, you can market services you know they need. Still, brands need to make sure they have a point of differentiation in the industry.” 

Both Powills and Findaro note this entire conversation ties back into the respective missions behind both 1851 Franchise and Vetted Biz: create more transparency in franchising. 

“Can we challenge these trends to make sure that we educate everyone — the franchise buyers, franchisors, suppliers — on the realities of the industry, so they can make their own informed decisions?” Powills asked. “That is the goal.”

Watch the full webinar here: https://www.youtube.com/watch?v=_RF8SFzoRDs