The easiest way to rent a business

Do you think renting or owning is better?

Like most answers, it depends. If you can rent at the right price, in a market where prices are not increasing, you’re better off renting.

However, in a market where prices are increases, owning can be better because of market capitalization.

In business, you don’t hear of many people renting a business. There are some rent to own, and vendor financing options that look a lot like a business rental.

The definition of renting is to let someone use something in return for payment. In business, most rentals are called something different. Rented businesses are called franchises. Franchisors would never admit to that. But the contract is clearly written in favour of the franchisor. The control is held by franchisors while a franchisee pays for distribution rights with an ongoing monthly or percentage of sales royalty.

Just like renting a home, renting a business can be perfect for someone who doesn’t have the ability to start or run their own business.

Having been a franchisee as well as a corporate employee for a franchisor, I believe until now, the facts surrounding franchising have been exaggerated.

I invested in a franchise to give my family a better life. I was tired of being a slave in the corporate world. Having been downsized, I decided never to return to work for someone else. I wanted my future to depend on my actions, not on a corporate decision made by people in towers who I did not know.  I made the conscious decision to buy a franchise. I thought I was buying a business, in which I was the owner. What I bought was the worst job I ever had in my twenty years of employment. 

Financial returns were ok. I took a paycut from my corporate world job. I worked more hours than I had ever worked before. The business was mine, in my mind.  After 7 years of being bullied, threatened, and enslaved, I sold my franchises to someone else who was sold on the dream of franchise ownership. And I’ve never been happier.

Franchises brag that their success is based on systems. There is truth in that statement. But some franchises have better systems than others. And some systems are not for the benefit of the franchisee. They are implemented at the sole benefit of the franchisor.

In Michael Gerber’s foundational book, “E-Myth Revisited”, he discusses the topic of franchise prototypes. I believe he is bang on when he explains the need for systems in all businesses. I think he may be oversimplifying the success rate of franchises compared to independent businesses. Here’s the reality, most independent businesses don’t incorporate systems so they risk failure at a higher rate than a franchise.

What’s the definition of failure? Gerber doesn’t tell us. Can a franchise business not fail, yet the investor goes broke? There are countless examples of franchises started where the franchisee loses the original investment only to sell the business at a substantial loss to relieve themselves of contractual obligations with the franchisor, government or landlord. The business continues its operations. The original investor goes away to lick his wounds.  So take Gerber’s statement with a grain of salt. Franchises don’t generally fail but franchisees do.

In one franchise example, there were seven franchisees I know of who went broke over a seven year period. In a market where 15 franchises existed, that is a failure rate of almost 50%. The businesses stayed open. The franchisee either lost their franchises to the bank, the landlord or the franchisor. Or they sold them at significant financial and emotional losses.  Yet the brand looks favorable to new franchisees as it had to investors seven years earlier because all 15 were still open.

When I worked for a 100 location franchisor, we used the Boston Consulting Matrix to categorize our franchisees. The first category was for the stars. These locations and franchisees were optimistic, growing, and producing profits for the franchisor. The second category was the question marks. It included those who were stuck, sitting on the fence, not growing, but not declining. They produced profit for the franchisor but could easily be stars or dogs. The third category was the dogs. They were pessimistic, with declining sales. There was profit for the franchisor but it wasn’t as good as the other two categories. It was the dogs we were actively trying to remove from our system through coercive tactics. It represented 33% of the network.

Brand recognition is another selling point for franchisors. Our franchise system opened five new locations in a western territory where the brand was already familiar to eastern people who moved to work in the oil industry. The systems didn’t save the franchisees. The brand recognition didn’t help them. The marketing team couldn’t offer them hope. Within two years, they all failed and the franchisor retrenched and abandoned the territory to the detriment of franchisee investments.

If an entrepreneur understands the required systems, they can build a franchise prototype that has the potential to being as profitable as a franchise in the same industry.

Don’t misinterpret my words, I’m not against franchises. I believe the facts have been one-sided, skewed toward the success potential and not equally balanced with the downside of franchise investment.

Go forth and learn. Knowledge IS power.  Franchises are rented businesses. And sometimes it's better to rent than own.

Renting real estate versus owning it

Real estate is not always a good investment. Whether you're someone wanting to purchase a home,  or you're someone who wants to a place where your business calls home, there are many factors to consider.

If you're purchasing a home, here a few tips to consider.

1. Observe what the market is currently doing. Are prices increasing, decreasing, staying the same over a 12 month period.
2. Most people make money in real estate because of market appreciation. For 15 years, my market saw continuous market appreciation and people who flipped their homes made a fortune. Today, those same people are in financial difficulty because the market has been depreciating over the last 3 years.
3. Although renting may seem like money wasted, it can't be considered any different than an interest expense. Without appreciation, the small annual principal payment is more like growing a savings account.
4. Owning a home can have many incidental costs not budgetted. Repair and Maintenance is a constant surprise, whereas renting is a fixed, easily budgetted figure. 
5. If you grow tired of your space or feel like the landlord isn't taking care of your needs, you can move, without any worries about closing dates, lawyer fees and bridge financing.

Don't get me wrong owning your home can be financially rewarding under the right conditions. Just study the market and make a decision that you can live with.

The business side is a completely different story. Most business people believe that owning the real estate where the business is located is a good investment.  

There are things to consider.

1. In business, location is everything. Owning real estate in the wrong area anchors down the business from moving, which can slow business growth.
2. A building and a business are two separate businesses. Both provide cashflow. But both are mutually dependent on the success of the other. If the primary business fails and it is the main tenant, the risk of losing the real estate is probably high.
3. Owning the real estate can give you a bit more control if you own a franchise. Franchisors have less power over franchisees who own their own real estate.
4. Cash is still king. Owning a building can be a good investment. But if a business owner is in a weak cash position because of the real estate purchase, the owner is better off renting and paying away good money in rent to test the viability of the primary business. 

I love real estate but it's not always a good investment. If you're getting into business, I think the best option is to sign a lease agreement for no less than five years and no more than ten years with an option to buy. If the business is a success, an owner can put away its excess earnings to exercise the future option on the building.

There is one franchise business that I am well aware of where the majority of franchisees struggle with profit margins of 2-3%. Yet the franchisor stays in business. The mantra is that the franchise is successful when in fact it is not. The successful franchisees all own their own real estate and most have owned their business for 20 plus years.

Is the franchise a success or is the real estate a success? I will argue the real estate has been more of a success for these franchisees. I reviewed the financials of one of these successful businesses and I noticed a glaring fact. At 2% profit margin, the restaurant was making about $20,000 per year in profit. The building made $50,000 profit from the rent. But the rental income wasn't enough to service the debt repayment, let alone pay someone a reasonable management salary.

Yet someone got excited about the business and bought both the real estate and the restaurant. Over the long run, this can be a good investment. In the short run, it is a terrible one.

There's no such thing as long run, if you die in the short run. A long run investment returns money in the short run over a number of years, making the long run very lucrative. In other words, it won't matter what investments look like in 20 years, if you can't pay the bills today.

That's where business real estate and homes have something in common. Don't allow yourself to get in a position of "house poor". It's too risky.

Hiring is easy, but not simple

I walked in and saw her immediately from a distance. She didn’t see me. Maybe she didn’t notice me. I was no one in her eyes. I watched her as she moved from left to right in slow motion, talking on her headset to some invisible person. Maybe she was talking to herself. I could not tell for sure.  Could I have a large Green Tea please. I smiled at her to see what she would do. She didn’t look at me. She took my money. She then asked if I wanted to put milk in my green tea. I’ve never heard of milk in green tea. But maybe it’s a thing I’m not aware of.

Rip open a tea bag, add hot water. It’s pretty simple to do. I can teach my nine year old how to make a green tea. It’s the level of attention that makes the difference between making me feel like I’m important or making me feel like I’m bothering someone. I felt like I was causing her pain. As I sit her writing this painful observation, I realize that I can buy a green tea anywhere. Now I’m questioning why I even stopped here this morning.

I’ve heard this business isn’t doing very well. I’m wondering if this employee is the reason for its downfall or if there are other issues. As an owner of a business, do we realize how much power we give our employees?

We need employees to help us serve our clients. We need employees to help us build our business. But it is employees that are our biggest problem. Employees like the girl mentioned above have the ability to kill a business. She may always be dependable, reliable, smart and honest. However, she does not like people. And this business is a people business.

Hiring employees is easy. Hiring the right employees is hard. It takes time and effort. It takes a strategy.

Do you have a strategy to hiring or do you just hire warm bodies? No one likes to admit that they hire the first person coming through the door. Competition is fierce. Good people are hard to come by.  Plus we are all busy and we just need to fill a need in the schedule so that we as owners don’t have to cover the shift. We know customer service is the most important thing in our business, but we fail our customers when we hire the wrong people.

Hiring the wrong people can kill your business. Do you constantly evaluate your hiring process? Do you constantly evaluate your team members and give weekly feedback?

You cannot expect what you do not inspect. Remember that the next time your employees don’t do what they are “supposed” to. Don’t blame an employee for a lack of service. Blame yourself. You hired the wrong person or you didn’t provide the right feedback.

As a customer, all I ask is that I’m the most important person in the world for the 30 seconds that it takes to make my tea. 

Is that too much to ask?

The goal is to help one person

I hold the door for one person, not five hundred. Actually, that's not entirely true. I try to hold the door for one person each time I enter an establishment and there's someone on the same path. If I do this 500 times a year, I will have held the door for five hundred people. But I can only do it for one person at a time.

This is a strategy, broken down by simple, easy to achieve goals.

How many people can I help at a time? Just like opening a door, I believe I can help just one. And that's where I have a renewed focus. Help one person at a time. Over the span of my lifetime, I can help a community the size of a small city if I take on this viewpoint.

Helping others for me is defined by sharing my thoughts, views, insights, and questions.

There are always going to be haters. There will always be people who don't agree with my opinions or offerings. Does it really matter? If I am true to myself, exposing my bare chests, and permitting vulnerability, shouldn't I have thick enough skin to deflect the pointiest daggers of detest?

It's not easy putting myself out there. It's scary. I started writing in a public forum over a year ago. In the beginning, I got a lot of positive feedback. I shared very personal unmentionable thoughts that scared the crap out of me when I published them. Yet, no one mobbed together and ran to my house with pitchforks and shovels demanding my head on a stick. Many people were reading my words and sharing my thoughts with their friends. I may have been making a difference to some of my readers. Then I ran out of stuff to say. More importantly, I stopped writing. I stopped observing. I stopped commenting.

Guess what happened next? People stopped reading. Over the next four months, I inconsistently published a few thoughts, but commentary and readership had dwindled. It was demotivating. Although I had received positive words of encouragement early on, the lack of readers coupled with one negative comment demotivated me to continue.

Then one day, I made a decision that I wasn't creating my art for other people. I would no longer promote my thoughts. But I would keep writing for my own benefit. The art of writing is a skill that I wanted to develop. I wanted to share my thoughts with my future self. I wanted to make a difference in one person's life: my own.

As I started writing more consistently, something magical happened. People started reading my thoughts again. Without any advertising, or sharing, my written thoughts picked up readers on its own. For someone to go out of their way to read my blog meant that they liked my stuff.

Writing for me and thinking that I may provide a single moment of inspiration for someone else has motivated me to share with the world again.  This time it has less to do with the amount of people reading. It has to do with helping/motivating just one single person. If I can do that, then I've done my job.

This new mindset comes from listening to a few cool podcasts and reading Seth Godin's The Icarus Deception for a second time.

Leaves of Earth

Sitting on my couch, looking out the window, I can't help but notice the birchtree on this snowy March morning. There is a leaf still clinging to a branch. For some reason the death of winter and the blustery days since last fall have not noticed this little fella as it maintains a stranglehold onto its source.

Within a few weeks, Spring will spray a whole new gaggle of leaves onto the old wooden branches of this birchtree. Will any of the new bosoms know of its cousins from an earlier time? Will time stand still for the new foilage until its death? All leaves die but does the leaf realize they only have 4 months to enjoy his life?

There have been 41 generations of leaves grow and die in my lifetime. Maybe I will witness another 40 generations of buds before the Autumn of my life arrives.

The tree is a leaf's source, its lifeblood, its energy.

Are people nothing more than leaves. We make plans. We build our paths. Winter must come. And with that we shall die while a new generation of budding leaves take our place on this spinning grain of dust, our source, our lifeblood, our energy.

Is there an energy greater than ourselves observing our lives as a short season, just as we observe that of a leaf on a birchtree.

The entrepreneurial transition curve

“A start-up puts you on an emotional roller coaster unlike anything you have ever experienced. You flip rapidly from day-to-day – one where you are euphorically convinced you are going to own the world, to a day in which doom seems only weeks away and you feel completely ruined. The level of stress that you’re under generally will magnify things. Incredible highs. Unbelievable lows at whiplash speed and huge magnitude. Sound like fun?”

MARC ANDREESSEN,  NETSCAPE  CO-FOUNDER

I remember the moment we decided to put everything on the line. We were going to build a business. Business had alluded my parents despite their desires. My wife and I were ready to risk our house, our careers, our savings, and our credit for a dream. We dreamed that we were going to be successful with a big house, with many businesses that paid us passively while we travelled the world.

It took 22 months to open the first business, a franchised restaurant. I was so excited the day we opened, I went to a quiet place and cried. I had finally started achieving my dream. Blissfully ignorant, I had gotten into the roller coaster of entrepreneurship.

The first phase of any roller coaster is climbing the hill. Filled with anticipation, the rider is excited, scared, and happy. But at no time, is there a fear of death. The fear of death or destruction only happens to those still on the ground, who fail to jump into the cart. Those on the ground don't see the point of the journey and hence don't embark. They wait and see to watch the result of their friends and loved ones get off the coaster. These people are either paralyzed by fear or they have no desire to be thrilled for a couple of minutes. There's nothing wrong with the people on the ground. They are hard-wired different than those who get on the ride. Same goes for those who never venture into the cart of entrepreneurship.

In this first phase, those in the cart are fuelled by Blind Optimism. Nothing could possibly go wrong. This is going to be an amazing ride, they think as they clickity click to the first apex of the ride. Same goes with entrepreneurs. The ride up the hill is also filled with blind optimism. The 22 months I waited coupled with the next 3 years after I opened, I was optimistic about everything in my business. I was making money. Business was good. Staff was challenging but on the most part good. One person showed me how to make more money through cost savings. I thought to myself, why do I worry about pennies, when I'm making thousands of dollars. 

Then an event changed my entire focus. The roller coaster was now released and I was weaving and bobbing through the loop de loops. With each turn, I became increasingly pessimistic about my operations. The transition curve calls this second phase Informed Pessimism.  Just like a real roller coaster, there is a moment that crosses most people's mind, "what if I'm on the first roller coaster that breaks away from the track?" Momentary fear makes the ride even more exhilarating. But in business, it starts to hurt. There is no safety of track. Business is built on people. And sometimes people don't do what they are supposed to do, including the owner. That's where I was. I stopped doing what I was supposed to do, primarily out of fear. I worked so hard to achieve that level of success that I didn't want to lose it. Everything I did was now based on fear. That was the moment I needed the most help. 

An employee taught me the power of pennies at year five. Some of my long term employees, who were used to the old, carefree Rick, didn't adjust well with the penny pincher person I had become. The same strategies that I dismissed while in blind optimism three years earlier were incorporated into the business. I was now ready to hear what other informed people were sharing. Fear drove the decisions to watch the business even closer. And the business was the most successful through the next two years.

Fear, as the catalyst, drove me to want to sell my businesses. I couldn't see the "light". I was so pessimistic about the future that I couldn't see how the business could succeed in the long term. The third phase of the transition curve is Crisis of Meaning. Being in crisis, there are only two options: get off the ride before you crash and burn or stay on the ride and find the fourth phase, Informed Optimism.

I wasn't optimistic in that business any further. I was emotionally drained. My family was falling apart. Everything I thought I had achieved was built a foundation of sticks. Luckily, we found buyers for our businesses before I hit rock bottom. I fully believe looking back, that I was on the track of terror leading to defeat. I was going to Crash and Burn. My biggest demon was my attitude. The potential defeat was my own doing. I couldn't take them any further. The businesses continue to operate today under renewed leadership, energy and most importantly blind optimism.

Every entrepreneur will go through the four phases of this curve. 80% of small businesses fail in the first 10 years of operations. So most don't get to Informed Optimism.  Knowing where you are in the curve is half the battle. Getting help at the informed pessimism stage is the key to surviving this entrepreneurial roller coaster and ultimately not hitting the Crash and Burn stage. Good Luck!

Reach vs Frequency

What is better reach or frequency?

Buying broadcast TV or radio, you choose a target audience, usually based on an age and a gender. The wider you make the age gap, the more likely you will reach some of your potential customers. They associate a number with your advertising and they give it a fancy name: Gross Rating Point (or GRP for short).  

Basically, GRP is a simple formula that multiplies how many average times the target audience heard the message by the percentage of the population that heard the message at least once. Again, advertisers give these terms complicated, physics-like names. They call them Reach and Frequency.

Unsophisticated advertisers think Reach is the most important number. They will go into detail why more people that hear the message will have a better chance for advertising success. They call this chance Exposure.

I hate the word "Exposure" when it's applied to marketing. You can't put a value on exposure. You can't calculate a return on investment. Did someone in a sales department come up with that word knowing full well that if you can't measure it, no one can deny it's effectiveness.

For an ad to get any traction with a target audience, it has to be the right message delivered at the right time, using the right medium to the right person.

I am exposed to over 5000 messages everyday. I will not act on almost any of them. I'm not the right people.

Forget about exposure or reach. Frequency is king. Think about it. The more you hear a message, the more apt you are to remember it if and when you are in the market for purchase.

We ran a campaign once with an average frequency of 13 on a small radio station. The budget was so small we couldn't afford to bring out the big guns. We chose the number seven radio station in the market. The message was fun, energetic, simple and remarkably different. We had very little exposure. 

Everyone thought we were crazy. The client didn't know any better. He just wanted to sell musical instruments.

The client sold out his inventory in three days without any in-store specials.

So the next time you want to do mass advertising, ask yourself a very simple question. Do you want to rent your customers or do you want to own them? Delivering a message via reach is like renting them. Whereas frequency buys ownership of your target audience.  

Target Marketing

The advertising world buys and sells media based on demographics. Mass media sells it based on age and gender.

If you want to do a radio advertising campaign, I dare you to call up the local station and ask for the number of listeners they have who are men, 42 years old, divorced, and are depressed.

Mass media doesn't work that way. You sell one to many. The message is delivered to the masses of listeners or viewers and the attention of those you're trying to reach will be grabbed if the message is appealing enough.

Mass media works like a bucket of water. If you have a big enough bucket, you will get enough people wet that there is a good chance your ideal customer will be one of them.

In the internet world, effective target marketing forces advertisers to have one-to-one conversations. There is a relatively new term called Avatars that describes the target audience.

In the old days, one could ask the mass media how many women aged 35 to 54 listened to their TV show or radio station. In a retail environment, this can still be effective today.

But what if you're not in retail? What if you're trying to leverage your business through e-commerce or on-line strategies? What if your business is not bound by geographic or logistical boundaries?

In the new internet world, if you are trying to have a conversation with an Avatar who is a 42 year old man divorced, depressed, and thinking about a career change, you can do it.

You build your messages geared to your Avatar. You send it out to the world talking directly to that person. While the rest of the world won't care about your advertising, the target audience you're trying to reach will feel like you're talking directly to them. 

Because you are! 

You're sending out a message in a bottle and dropping it into the ocean. Sounds ineffective. But wait. The internet is not like the ocean. It is not a vessel. The internet is just a series of connections from computer to computer or person to person. People are the vessel. The ones who don't pay attention to the message aren't the target audience. The ones that do will share within their tribes.

 

The internet allows you to talk to your audience with more impact, greater detail, and insight.  You have to find the tribe. If one doesn't exist, you have the privilege to create it.  

Do you think there are enough 42 year old divorced men who are depressed and thinking about a career change in North America? If you do, and you have a product that fits their needs, you might want to figure out how to target them on-line.

How many people have you helped lately?

The famous Zig Ziglar said, "You can only get what you want, when you help enough people get what they want".

That seems selfless enough. Find out what other people want, help them get it and mysteriously everything comes together for you.

When a new business is built, one of the first things entrepreneurs are forced to create is the business plan. The plan is comprised of competitive pressures, market size, internal strengths and weaknesses, pricing, promotion, product offering, and etc.

Reviewing the market size, entrepreneurs build an argument to the reasons their business will be successful. Budgets are developed. Number of clients required to satisfy revenues are extrapolated.

Most entrepreneurs dream about what the business will do for them. Instead, they should be asking what the business will do for their clients.

A good salesperson never discusses the cost of his product. He demonstrates how the product can fix a potential client's problems.

When I owned restaurants, my number one competitor was people eating at home. It was an impossible competitor to win against. Most people think the food cooked at home is healthier, cheaper and more natural. The problem with cooking at home is that the cook (primarily Mom) didn't have time to enjoy her family. And by the time she sat down, the kids were already filling their face so they could go play again.  Then there were the dishes and cleanup after the kids left the table.

So in thinking about the weaknesses of the primary competitor, I focussed on delivering excellent service to mothers without the hassles of preparation and clean-up.

Focussing on mothers helped my business to grow every single year we were in operation.  Would it be any surprise that Mother's Day was our busiest day of the year?

Stop selling to people. No one likes to be sold to.

Start helping people. Find out what your target audience needs and fill it with genuine, authentic, honest help.  Give some stuff away for free. Build the relationship. Demonstrate credibility.

People do business with people they like. Be likeable.

I live in a "want" world

There was a time when there was a clear line between WANT and NEED. My parents could have been categorized as working poor. With two children to feed and tend to, we weren't the type of family that wasted a lot of money. Toys were limited to two times per year: Christmas and birthdays. At birthdays, we could expect a cake, maybe a special meal, a gift from gramma,  one from our godparents and one from our parents. Gifts were the $20 variety, not the $200 variety that my children enjoy today.

We had what we needed. The stuff we really wanted was reserved for Christmas. I remember one year, I wanted an Atari video game system. I had a problem. My parents wouldn't allow video games to be played on their colour TV. Having an Atari didn't make sense if I couldn't play it. So I asked for TV instead. I waited until the following Christmas to ask for the Atari again. It took two years to get the object of my desire.

Happiness and wanting have no correlation. My sister and I were quite happy. We learned to play with simpler toys.

I try to teach my kids the uselessness of want. But it's hard. Namely because I have fallen into the same traps of always wanting more.

My son asked for a fish aquarium for his last birthday. Now that he has desire, he doesn't talk about them any more. He now wants a guinea pig. He is in consuming mode.

I think our children play the mental video they learned from us as parents.

Want's do not bring happiness. Want's are a moving target. The moment we satisfy it, the desire shape-shifts into a new shiny objective.

Yet, I'll hear, "When I get this bright, shiny object, I'll be happy". Bright shiny objects are not just limited to things. They can also be relationships, love, vacations, or vocations.

I recently read that happiness is derived from the appreciation of what you have, not what you want.

Last week, our family started a new ritual to highlight appreciation. Each person takes a moment before supper to say what they appreciated about their day.

At first, our 9 year old thought the process was dumb. Then our 8 year old thought he would be funny and not take the exercise serious. Each day, the 30 seconds gets more and more interesting and profound.

We are not a perfect family. But, in one short week, we have seen the power of the pause. All it takes is one minute to stop looking forward for what we want and to take a deep breath and enjoy what we have.

When was the last time you spoke out loud about the things and people you appreciate in your life?