Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
Todd Peterson has owned or run a number of businesses throughout his career. He was the CEO of Chippewa Springs Water for five years and owned Underwater Adventures at the Mall of America, to name a couple.
During the height of the COVID pandemic, he was considering his next career move. He started looking into franchising after learning that quick service restaurants were thriving while much of the food and beverage industry was struggling.
Ultimately, in November 2021, he instead chose to acquire Happy & Healthy Products Inc., a 30-year-old wholesale healthy snack company. He, the franchisor, focuses on creating a strong line of products. His franchisee partners sign up to build a U.S. market, helping get the company’s products into institutions, including hospitals, golf courses, grocery stores or others, depending on what fits that geographic area.
“The wholesale distribution business just really rang true to me,” says Peterson, who runs the Florida-based business from his office in the Twin Cities. “A lot of my prior acquisitions have involved wholesale distributors, mainly through the beverage industry.”
With Chippewa Springs Water, for example, he built a business that involved bringing five-gallon jugs of water to homes and businesses around the Twin Cities. He grew that from eight trucks to 20 and learned logistics along the way.
“It’s something I can share with these franchisees as they set out to create their own distribution businesses,” he says of his new role leading Happy & Healthy Products.
Peterson and others say there is good business to be done in franchising, either as a franchisor or franchisee. But it’s important that people take the time to find the business model fit for them. He initially looked at restaurants, but quickly realized it was expensive upfront just to start a buildout. Then, upon opening, it’s a seven-day-a-week job that would have required hiring a bunch of employees. He wanted more flexibility and the ability to take some vacations.
“It happened to be one of the worst markets ever for trying to hire people,” he says.
Most of his franchisee partners keep their business as sole proprietorships or work with family members. They aren’t looking to add a ton of trucks or employees. They can set up reasonably flexible delivery schedules and the products, which range from healthy cookies to meat sticks to frozen fruit bars, are supplied for them “so they are in business without having to do all that work for themselves,” he says.
When Peterson was exploring Happy & Healthy Products he spoke with John Francis, a franchising adviser with 30 years of experience. Francis, also known as Johnny Franchise for his years of experience in the industry, owns Next Level Franchise. He says franchising has mostly stayed strong through the pandemic, often drawing in people who were in between jobs and wanted more control over their lives.
But getting into franchising also is different from just opening a business on the street. For potential franchisors, it can help significantly speed up a company’s growth. However, not every model is a good fit for it and doing it too soon, Francis says, can be disastrous. He suggests “build another one.” It takes three units, he says, to have all the manuals, schedules, checklists and other information franchisees will need to successfully replicate your model.
“Once you’ve got three successful units as an operator/owner, now you’re ready to franchise because you’ve got the experience of opening, of training, the marketing, the start-up, the whole experience of opening new units,” he says. “A lot of people franchise too early. I say the first unit is an accident. The second one is a coincidence. You got lucky again. The third one, now you’ve got a pattern.”
To potential franchisees, Francis says don’t try to be an entrepreneur.
“You buy a franchise to go implement that model,” he says. “If you are a real entrepreneur that wants to create something completely new and make it yours, do not buy a franchise.”
Work with people you trust, do your homework, find a business you like. But don’t try to change up the system.
Then be ready to work hard and be responsible for your results.
“Like any other business owner, you’re responsible for what happens, good or bad, right or wrong, easy or hard – it’s never easy — you’re the owner. It’s not their fault if you fail,” he says. “You have to be responsible, resourceful, committed. You’ve got to work your tail off.”
One of the state’s most successful franchisors, Steele Smiley, grew a fitness business from 900 to 2,800 stores spanning 25 countries. He sold that and now owns Steele Brands, which is growing three restaurant brands – Crisp & Green, Stalk & Spade and Paco & Lime – through franchising.
And it’s working. Crisp & Green, for example, is opening a new restaurant every six days.
“Franchising is a great way to grow,” Smiley says. “It’s a very specialized way to grow. There have only a few people in U.S. history that have built brands that have spanned the globe in 20-plus countries, especially in the food business.”
So, what does it take? Relationships are how you build in franchising, Smiley says.
“What most people don’t realize is when you are a young business trying to start as a franchisor, people are largely buying the executive and they are buying who is on that team,” he says. “People are nervous to select a young franchisor who has never done it. It’s one thing to sell someone a license, it’s a whole other thing to support that person and open that store and make that store profitable. Your journey only starts when you sell that license.”
Having the right team in place to help and communicating with franchisees regularly also is important, he says, adding that he communicates weekly with his partners. “It’s not a sign them up and then be done.”
On the franchisee side, Smiley sees undercapitalization as the biggest risk. A lot of franchisees have great passion for a brand. Smiley says running a growing business requires money and not everyone who wants to be a franchisee has the resources necessary to do so.
“A lot of new franchisors tend to pick anyone who will write them that initial check,” he says. “Unfortunately, most go into that category of ‘sold, not opened,’ which is not where you want to be.”
There are many franchise organizations and consultants potential franchisees can use to seek assistance in finding the right business for them. One is FranChoice, an Eden Prairie-based consultancy. Two of the organization’s consultants, Jim Runyon and Lucy Divine, agree that upfront research is key in finding the right business.
Divine grew up around franchising. Her father was a franchisee and she and her husband became franchisees in the Great Clips system, at one point owning 26 salons with more than 200 employees.
“Business ownership is really important to me,” she says. “So many people think about it, but they just don’t know how to begin the process. They don’t know how to begin the process of evaluating a franchisee or a franchisor or figuring out who they should be talking to.”
Divine says when she bought into Great Clips it wasn’t because she had any particular interest in hair. She was never a stylist, but she thought the company had a good business system in place. Potential franchisees, she says, need to explore the back-of-house systems of businesses they are considering buying into and make sure they are steady and a fit with their own personal goals.
That involves looking at the initial investment, the real estate, marketing and recruitment efforts that are in place to assist in their growth and the alignment between their personal goals and those of the franchisor.
“I can’t tell them what to do,” Divine says. “I don’t try to lead anyone to any particular franchise. I want to help them figure out how to use the information they are getting to make a good decision for themselves.”
There are a lot of options available, she says. Explore them. Find the business that best fits your needs. “It’s a complicated process. I don’t think it’s something you should jump into in a couple weeks. I don’t think you can.”
While complicated at times, Runyon says franchising has never been more popular. “If COVID taught us anything, it’s that life is too short,” he says. “A lot of people don’t want to work 40 to 60 hours a week … and want to find more fulfillment out of life and out of their work. They’re looking at franchising.”
He puts his clients through a process aimed at helping winnow down a large number of options to just a few. He’ll start with a couple hundred possible brands across nearly three dozen industries and funnel it down based on their feedback.
Whether it’s FranChoice or another consultant or expert, Runyon suggests not trying to navigate the vast expanse of opportunities alone. “Take the free advice,” he says.
Potential franchise entrants need to also keep in mind that success doesn’t come just from finding the right concept upfront. That’s just when the real work starts. Even though you’re not going to reinvent the wheel in franchising, there still are areas in which you can set your own course. But you should still reach out to other franchisees within the system for feedback before proceeding to see what has worked and what hasn’t for them.
Many franchised companies have advisory councils where people can share ideas. “One of the benefits of buying into a franchise is you’re not in it by yourself,” he says. “There are other people who are going through it with you.”
As the name suggests, Owatonna-based Kamp Automation looks for customers with a process they’d like to automate. It could be a small, inconvenient, tiny part that people can’t assemble. It could be a high-volume product so needed that the customer can’t find enough labor to produce it in the necessary quantities. “We’ll work anywhere from medical device companies to the seed industry for corn and soybeans,” says Kent Patterson, co-founder, president and CEO. “We just jump all over wherever there is custom automation.” The company started in his garage. Patterson and his partners built a machine. The company started to grow to the point where now it has 48 employees — and had a bunch of people and stuff in different locations. “We went from a garage to a shop to a shop and just kept moving to new places and signing leases,” he says. “We got to a point where it’s like, OK, this is getting big enough and sustainable — we felt that we wanted to look for our own space.’”
