Jim Rotche began his education in franchising under Domino’s founder Tom Monoghan several years ago and has since opened many other franchises that have gone on to open hundreds of locations and employ thousands. Rotche never tired of cultivating franchises and most recently put Title Boxing Club on the path to having 1,000 locations by 2013. He says that people who are process driven are best suited for opening franchises, and that technology has hurt and helped the industry; helped by reducing costs, but harmed by creating the opportunity for mistakes to go viral. Knowing these things, he said, can help a beginner succeed. For more on this continue reading the following article from TheStreet.
Veteran franchise executive John Rotche began his career in franchising at Domino’s Pizza(DPZ), where he spent many years under founder Tom Monaghan.
Domino’s was sold to private equity firm Bain Capital in 1998 (it later went public), but Rotche’s time in the pizza franchise kitchen was up, though he wasn’t done cooking.
He left to serve as chief operations officer at Krispy Kreme Doughnuts(KKD), but left Krispy Kreme in 2002 to start DUCTZ, a single van air duct cleaning business following a severe respiratory illness of his son. In 2007, Rotche sold DUCTZ to Belfor, a property restoration company and later created the Belfor Franchise Group. Three years ago, he launched a second business, HOODZ Kitchen Exhaust Cleaning. The franchise has more than 150 locations.
Now he has put on the franchise gloves, becoming president of Title Boxing Club in May. Rotche had been consulting for retired pro-boxer Danny Campbell and now-CEO Tom Lyons when they approached him for advice on how to best execute franchise plans for their boxing workout classes, but the partners decided to bring him into the ring full time. Title Boxing Club is on pace to have 500 clubs open or in development by the end of 2012, and 1,000 clubs in the U.S. and Canada by the end of 2013.
Rotche shared his tips for finding and running a great franchise.
Who is an ideal person to be a franchisee?
Rotche: All the best franchisees are people who are used to following systems, whether it be folks from the military, police officers, firefighters, people who are process-driven. Those who don’t do as well are the ones that want to just do it their own way and think they can do it better. In fact, talking to people during the discovery day process, many times I’m [saying] ‘I don’t think you will be really happy in the franchise industry.’
Very early on the franchisees are going to outgrow the franchisor in terms of knowledge because they have their life savings in the business and they are typically there morning, noon and night. At corporate, sometimes you can get a little distant from the brand or the product. The franchisees are so close to it. At the end of the day, the franchisor is really the band leader — to catch the bad ideas and seek out the good ideas. We want to find people who are comfortable working within a process and who are also sharing ideas that they have. And they have to be okay if [a franchisor] chooses not to use the idea. You can’t go rogue on us.
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How has technology changed the franchise industry?
Rotche: It’s made everything so much more transparent, which is good and bad. For example, if one Domino’s Pizza goes and does something unthinkable when making a pizza and it goes viral, it can hurt a brand so quickly. Yet on the positive side, technology has reduced spending for small business owners. Whether you’re using Facebook(FB) and Twitter or LinkedIn(LNKD) and different forms of social media, that’s a lot more cost effective than the old days of buying newspaper inserts and direct mail campaigns.
In terms of the franchisor side, technology has brought franchised systems closer together because it’s so much easier to communicate with your franchisees and for franchisees to communicate with each other.
How easy or difficult is it for franchisees to get financing today? How has the difficulty in getting financing changed the franchise industry
Rotche: It’s easier. It’s still a ways from easy. The Small Business Administration has made some pretty big changes to their [programs]. The community banks are starting to really get involved with small business so it is easier, but it’s not what it was and to some degree that’s not a bad thing. It’s been regulated a lot more.
[Less money available has] a domino effect. Let’s say if the business model required them to invest in a 5,500 square foot space and required X-thousands units of inventory and X-thousands of dollars for a construction build out, well, we know that it’s harder to get money and the odds are the pool of people that are sitting around with that pool of money is smaller.
So what you need to do then is get the business model to work in a 3,500 square foot space. Unfortunately, this is where everybody suffers. You must go to suppliers and [negotiate inventory and supplies] for lesser cost. The smaller that initial investment is for that franchisee, the larger the candidate pool is. It’s forced everyone to kind of right size their business.
The other thing that happened in the franchise business is franchise brokers that were typically paid 70%-80% of the franchise fee — some franchisors will give up 100% of franchise fee to the company that finds them a candidate because they know they will have 10 years of royalty — now what’s happening is people are starting to keep that franchise fee and not outsource everything and not bank on trailing royalty streams.
How do you pick the right franchise system?
Rotche: There are four main things I look at.
- Can you believe in the brand? Can you see yourself wearing that jersey? Do you believe in the culture, ethics and integrity? Can you be excited about the brand? Have you met the leadership team? If you can’t check that box then the next two things don’t matter.
- How good is their model? Does the model work? Is it a viable business? Can you make money? Can you do validation? Have you talked to other franchisees?
- Is it sustainable? When you buy a franchise you need to make sure all the blood, sweat and tears and money is going towards an asset you’re building that you can sell. Life happens, and that will require you to make a change in your life and you just want to make sure that everything you have been doing is sellable.
- Are your expectations in alignment with the franchisors? If you’re expectations aren’t in alignment with the reality of the business, it’s probably something you shouldn’t move forward with.
What are some rookie franchisee mistakes?
Rotche: A lot of mistakes that I will see are when franchisees first come into a system: They don’t follow the system. It’s counter-intuitive. Very often franchisees, and I will never understand this, they try to make their own system. It’s probably the biggest mistake that franchisees make is they just don’t trust the system.
Other surprises are it’s always harder than they thought. Once the bliss and the honeymoon wears off it’s a real job.
If you had to name one industry that would be the next hot franchise area, what would it be?
Rotche: Group fitness with a focus on boxing. But seriously, I think wellness and not just exercise. It’s why the spa industry is really coming back. People are starting to spend more money on themselves and that’s why you are seeing more group fitness concepts.
But membership businesses really. You’re seeing a big thriving business on membership just because there is perceived value and the inherent value of membership where people want to be a part of communities.
I gave the keynote speech at the Dealmakers’ Summit in Chicago. It’s kind of like Match.com between money and brands and lot of these questions were asked. This was probably the most resounding. What venture capital people are looking for is wellness.
This article was republished with permission from TheStreet.