Franchising 101
Franchising 101

I grew up as the son of a McDonald’s owner. My father, Mike O’Brien, had the opportunity to become a franchisee at 48 years old. Dad served his country in World War II, he overcame a reading disability to graduate from college using the G.I. Bill and he tried every way he knew to become a successful businessman – and failed every time. It was not until an old high school acquaintance in Sioux City, Iowa called to ask if he wanted to partner up in a McDonald’s franchise that dad finally hit a home run. He moved his family South and opened up a store in Jacksonville, Arkansas on January 3, 1973. It became the first McDonald’s in the Southern United States to surpass the $1 million in annual sales milestone.

It was once said that McDonald’s Entrepreneur Ray Kroc created “more millionaires than any other American in history.” My dad was one of them. McDonald’s is often credited with creating the franchising industry as we know it. In 2019, there were over 750,000 franchise establishments in the United States. While the largest individual franchise segment is quick
service restaurants, the business models are broad. Some of the top franchise opportunities include hotels, car dealerships, real estate companies, fitness centers and salons. Pre-Covid, U.S. franchises employed over 8.5 million people and created over $750 Billion in economic output.
That is 3% of the entire Gross Domestic Product of the United States.

Over the years, I have seen many people succeed in franchises. But, I have also seen some people lose a large part of their life savings by investing in something they really didn’t understand. Entering the world of franchising should not be an emotional decision. You shouldn’t open up an ice cream shop just because you like the way the product tastes. Franchising is a business – and it’s a cut throat business.

In my professional opinion, the biggest mistakes are made by first time franchisees. As with any skill, you get better with experience and by making mistakes. I grew up in the franchising industry with McDonald’s. I am now the Principal in a partnership that owns 13 Sonic restaurants in the South. I could literally write a book about McDonald’s history from 1980 (when I started paying attention as an 11 year old) to the present day. I have seen every strikeout and every home run they have hit for 40 years. In 2020, I decided to take this lifetime of experience and turn it into a consultancy primarily advising first time potential restaurant franchisees.

It’s painful to see people fail. Before I was born, my father opened up his own restaurant prior to getting the opportunity with McDonald’s. His business failed in Sioux City, Iowa. He didn’t have the supply chain, the marketing or the brand appeal to survive. I remember the stories he
told me. He had a dream, but he didn’t have a real business plan. In 1973, McDonald’s gave him the platform he needed to be successful.

There is a lot of mythology around restaurants. For years, I heard the myth that “90% of non-franchised restaurants fail in the first year.” Well, a five minute Google search showed that to be a highly controversial and likely inaccurate claim. I quickly found estimates of anywhere between 20% and 60% failure rate in the first year. So, who should you believe? My answer: No one. Do your own research. Any business, franchise or non-franchise, is a huge undertaking. Here is my quick analogy to get you in the right state of mind.

Do you want to be married? If yes, do you want to be married for one year or for the rest of your life? Well, if you want to be married for the rest of your life, then you need to do some research. First, do you get along with this person? Second, do you get along with this person’s family. Third, does this person have a good job or access to some wealth because you are both going to need money to live. Fourth, does this person want to have children or no? Fifth, does this person want to live in the area where you met them or do they want to move every five years to a different state? Sixth, do you want to put in the work that a marriage requires to be successful?

These are all logical questions and you really need to get an answer to every one of them (and many more) before you get married. But, let me tell you this, it is likely easier to get divorced from this person you wanted to spend the rest of your life with than it will be to recover from making a capital intensive, poorly informed and rash decision to enter the world of franchising. So, if you are willing to ask the questions and put in the research, you might be able to find a franchise that could last a lifetime. On the other hand, if you go into such a venture thinking: “I’ll get out of it in a year if I don’t like it,” then you have the wrong state of mind.

There was a time where I gave away my advice for free. Then, I realized two things. First, if I wasn’t charging someone for advice then I probably wasn’t given them the top shelf treatment. You get what you pay for in life. Second, my time is valuable. I have other businesses to run,
investments to make and I also want to spend time with family. I decided if I was going to advise people on massive investments of their money and time then I was going to be compensated for the effort.

If you want to hear more about retainers and fee structures, please email me at pat.obrien@lapidarycg.com. I would love to help you be successful in a franchise. Even more than that, I would love to keep you from making a huge mistake if the franchise you are researching isn’t the right fit for you at this time.

Franchising 101