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Imagine this: 20+ franchise locations thriving with just your part-time involvement. Sound like a dream? Let me tell you how I do it using the power of people — what I call “STIC People“. Franchise ownership comes with various models, but one standout is semi-absentee. The allure? Operating a profitable side business with minimal involvement. Yet, its controversy stems from the misguided notion that success depends solely on the franchise brand. After two decades and 20+ franchise locations, I can confidently say it’s not the business but the person managing it that truly matters.
Learning from experience
My journey into entrepreneurship began as an Anytime Fitness franchisee. Initially, I envisioned myself fully immersed in the business, running it as an owner-operator. However, life had something else in store for me. A surprise offer from my former employer made me reconsider my approach, and I pivoted to semi-absentee ownership. I needed a day-to-day operator for the business and thought of a former coworker. I convinced him to become my profit-sharing manager. After implementing the right systems, I only spent about an hour per month on the business. There were periods I dedicated more time, especially when opening a new location, but once the business was up and running, nearly 100% of daily operations were run by my manager. We soon expanded to four profitable locations, all running semi-absentee.
Years later, I decided to sell two locations, but there was a catch. The buyer wanted my manager with the deal. I agreed, assuming I could promote another employee to take over, while my focus was set on other businesses. The outcome? Membership, sales, and profits plummeted with my two existing locations. I sold the remaining locations for a fraction of what they were worth at their peak. This taught me the true value of my profit-sharing manager and forced me to define what characteristics I was looking for. Today, I own five franchise locations and only spend a few hours quarterly managing them using this STIC person system.
The STIC person
So, how do you begin the hunt for the perfect partnership? Start by creating a list of potential candidates from past colleagues. But not just any colleagues – I’m talking about “STIC” people:
S (Skills): They should possess the necessary skills.
T (Trust): You need to trust them implicitly.
I (Incentivize): They should be individuals you can sufficiently incentivize.
C (Capacity): They must have the capacity to take on the responsibilities.
I have a pretty strong network, and I’m often asked my secret to growing and maintaining this connection to talented individuals. It’s because I maintain a list of my STIC people and consistently check in with them. I started my last two businesses with people I used to work with, even though we hadn’t teamed up for over five years. I knew what they were capable of and trusted them, so we stayed in touch, waiting for the right moment to join forces again.
The art of crafting compensation plans
The incentives you offer play a crucial role. While it’s essential to protect your financial interests, remember: “Pigs get fat, hogs get slaughtered”. With someone managing your business daily, granting you freedom of both time and profit, don’t screw it up by being too greedy.
Through my experiences, I’ve found a balanced approach, blending both immediate and future incentives, to be particularly effective. Here’s a glimpse into my formula:
1. A Well-Balanced Compensation Model
At the heart of my compensation strategy is to provide a blend of competitive base pay, enticing benefits, and a commission structure. For instance, consider this model for your STIC manager:
- Base pay: $60,000
- Commission: 3 to 5% of sales
- Profit sharing: 5%
- Benefits: Comprehensive medical, dental, vision, 401k, and paid time off.
To provide a real-world example, I applied this system to a franchise I owned, earning around $800,000 in sales and a 20% profit margin. The outcome? My STIC manager took home approximately $108,000, and as we expanded to more locations, his income saw a healthy increase. After accounting for his bonus, I was left with 95% of the profits, or $152,000.
However, compensation alone may not be enough to retain this person long-term. You have to consider other incentives.
2. Incorporating Long-Term Incentives
A solution to this challenge is offering long-term incentives. It grants your manager the feeling of being a stakeholder. The first way to do this is to build a vesting plan allowing participation in some upside based on an exit of the business or number of years they work. However; my preference is to offer actual equity in the business. But this comes with two stipulations:
- I maintain majority ownership to prevent disputes that often arise in equal partnership scenarios.
- My partners are required to invest their own money, proportional to their ownership. Their skin in the game ensures commitment and dedication. In one of my franchises, I nearly broke my rule for a potential partner, only to stick to my guns eventually. He took a leap of faith, invested using his 401k, and now co-owns a franchise valued at over $2 million.
Day-to-day management structure
So you’ve found your STIC person. Now, how do you ensure smooth day-to-day operations? Here are the tried-and-true strategies we use to foster clear communication and ensure seamless operations:
- Daily Huddles: Daily collaboration and performance tracking create accountability and consistency.
- End-of-Day Reports: Keep an eye on daily metrics, from sign-ups to sales.
- Customer & Employee Pulse: Use tools like the Net Promoter Score for customer feedback and “15five” to understand how employees feel.
- Monthly Meetings: Consistent communication and goal-setting keep everyone aligned and the business on track.
While franchisors might tout the benefits of their semi-absentee models, remember that the success of this approach relies on you. With the right system and the perfect STIC person, the sky’s the limit. Happy franchising!