I have a confession – which will either positively or negatively impact my credibility. You decide. My confession is that within the first six months of operating our franchised business, we lost money. Sales were actually up a little, but profits were down (even below those of the previous franchise owner, as we had purchased a franchise already in operation). That frightened me…because the previous owner got out of the business due to not making the amount of money he had planned.
Now, part of the reason we lost money is that the minute we purchased the business everything started breaking – the freezer needed repair as did the ice machine, almost half of the blenders stopped working (within days of each other), and a number of other issues quickly surfaced. We had purchased a café that specializes in smoothies (as well as a variety of wraps, sandwiches and other healthy food items), so you can imagine how important ice and blenders are! It was obvious the previous owner had stopped putting money into maintenance and he got out just in the nick of time, leaving us to foot the repair bills. (Lesson #1, if you are buying an existing business, have the seller warranty critical items for a certain period of time.)
Another reason our profits were lower was differences in payroll. Sixteen days before we bought the business, minimum wage increased by $0.60/hour (almost eight percent). For those of you operating a small retail business, you know how tight your margins are to begin with. Eight percent is sizable in an all-hourly workforce. But that wasn’t all…the previous owner had been scheduling himself in lieu of one or even two employees to save money, and he’d been doing that for at least nine months (which is why it was somewhat hidden in the financials during our due diligence process – which leads me to Lesson #2 – ask for the last three to six months of employee schedules and worked hours so you can determine how your payroll may differ than the previous owner). He also refused to pay overtime and paid his employees only what he scheduled them, not what they actually worked. Illegal, I know, but that’s what he did. (And, he ended up being taken to the National Labor Relations Board by a Shift Leader he erroneously classified as an exempt salaried employee, and paying out more than $18,000 in back wages. Lesson #3 – know the critical aspects of employment law well enough to keep yourself out of trouble – or have an advisor who does. Thankfully, we already knew that lesson.)
As I was lamenting about our labor percentages to the franchisor, they told me something I needed to hear – “You don’t have a labor cost problem, you have a revenue problem. You need more sales, and your labor will come in line.” Now, I know what you’re thinking – the franchisor makes money off your sales, not your profits. But, even so, they were exactly right. We were scheduling correctly for the business volumes (and not scheduling ourselves, because we already knew that our time was more valuable spent building the business than the $8.25 an hour wage we would save if we worked the cash register or food line). So, we dusted off the marketing plan we had created six months prior when we purchased the business and got to work. (Lesson #4 – the business plan and marketing plan your franchisor likely had you create should actually be used – it’s not just an exercise required to get approved as a franchisee.)
We parlayed our modest increase in sales during the first six months to more than 8% in our second six months, and it’s grown substantially from there. (During the second year of operations we were up 21% in sales and another 5% up in operating margins.) How? Here are some of our high-level strategies. (In future posts, we will expand further into the detail on these.)
- Divide and conquer – Kriss spent countless hours in the café ensuring first and foremost that the service levels our employees provided to each and every customer was unparalleled. If we were going to spend money marketing to increase sales, we needed to make sure we would retain every customer we brought in. Secondly, he learned how to maintain and service our equipment himself. It’s amazing what you can find on the internet – or what your service providers will share with you. We knew that once our profitability was in line we could consider using outside vendors again if we wanted to. (Note: if you have any equipment under warranty, be sure to know what you can do and cannot do personally before you work on the equipment. Also know if there are any preventative maintenance requirements to keep the warranty valid. The last thing you want to do is void a warranty. Also know what your warranties cover – your repair or maintenance may actually be included.)
Michelle spent enough time in the café to get to know the employees, but the majority of her time was spent executing the marketing plan and handling the back-of-house functions (accounting and administrative work). If you are a solo-preneur, I highly encourage you to train your best employee to do some of this work. You probably have at least one person who wants to learn and grow and has potential to do more than they are doing (and if you don’t, hire someone like that). Teach them to do the paperwork/data entry, and/or use your most outgoing employee to help execute the marketing plan. If you try to do everything yourself, or feel that you are the only one who can do it right, you will limit your success and approach “burnout” quickly.
- Don’t recreate the wheel – We scoured all of the resources our franchisor had to offer relating to marketing information and ideas. I am constantly amazed at how few franchisees use the resources available to them. The fees you pay your franchisor are not just for the benefit of using the brand name – almost all franchisors have libraries of marketing materials for your use, and frankly they have a vested interest in your success and benefit from your increase in sales. If you can’t find what you need, call your Area Developer or Franchisor and ask for help. That’s what they are there for – but don’t expect them to do it for you; they are a resource, you are the business owner.
We are also fortunate that we have access to an online Franchisee Forum where any of the brand’s franchisees can post questions or suggestions, and others (or representatives of the Franchisor) can comment on them. We’ve found some of our best ideas from other franchisees. If you don’t have such a forum, pick up the phone or personally go visit other franchisees – especially franchisees who are successful. They are generally very willing to help others because it benefits the brand. Do NOT spend a lot of time with negative franchisees. They aren’t going to help you achieve success, and remember the adage that you are the average of the five people you surround yourself with the most. Surround yourself with the best, most positive, most successful people you can.
- Love your employees – or find new employees you can love. Your employees represent yourself and your brand to your customers. Are they doing it well? Are they doing it in a way that creates loyal customers who advocate your business to others? Frankly, are you creating an environment that enables your employees to do that? How you treat your employees will almost always be reflected back on how your employees treat your customers. Want your customers to love you? Then love your employees. You often don’t need new employees to do that, by the way. People are generally starved for recognition and praise. If you find things to praise your employees about, they will almost always do more to get that praise again. And when you have to correct employees, do it in a way that’s respectful and they will respect your feedback. We employ a lot of teenagers in our café. Think about their lives – they often have two working parents, they are digitally connected to almost everything and everyone, and they have instant access to almost everything they want to know via the internet. Their face-to-face interactions are primarily with teachers giving them direction or their parents – yet, research shows that parents today spend an average of 19 minutes a day actually conversing with their teens. That means their interactions with you have an opportunity to be the most significant in terms of the amount of adult communication they have – make that time count, and make it positive. It will make a difference in your business and on them personally.
- Take care of yourself – If you want to have a successful business, you are going to work hard. And, there is no real substitute for you in your business. As most any franchisor will tell you, owner-run businesses are the most successful. (That doesn’t mean you can’t have a successful manager-run business – but no one will care about your business and your results more than you.) That said, you need time away from your business, and you need to have people you trust on your team who can handle things while you’re away. Michelle has to schedule an out-of-town trip to get Kriss out of the café. Have someone who will hold you accountable for taking care of yourself. And honestly, the employees need time away from Kriss as much as he needs time away from the business. Why? So they can prove they have the ability to do the right thing even when he’s not there – and they feel empowered when he shows that he has that trust in them. Also, if he doesn’t take time away, he gets burned out and it shows. You may not think your own burn out is apparent to the people you work with, but trust me – your employees either see or at least sense it. And it impacts how the business operates and the service your customers receive. So, for the sake of your business, your employees, your customers, and your sanity, take time off. Book a trip and prepay it to force yourself if you have to.
All in all, losing money was the best thing that could have happened in our business. It was a great motivator to do things differently – actually, to do things right. In future blog posts we will expand even more on what those “right” things are. But for now, will you take our survey to let us know what your primary pain points are in your business and share what you need the most help with? There are separate surveys for Franchisees, Area/Regional Developers, and Franchisors and Brokers/Consultants. We want to ensure we are providing information that will benefit you the most.
To your success,
Kriss and Michelle Shriver