The FDD - One Size Never Fits All
Every brand has a story to tell. The better you can tell your story, the better you position your brand and the more franchises you will sell.
The story is what you are selling.
But there’s something else that is at least as important as your story. The Franchise Disclosure Document, or FDD for short.
The legal documents.
The story is what you are selling, but it’s the FDD and other documents that help prospects understand what they are buying.
The Price of Getting it Right is Getting it Wrong First
I bet if there were a contest for learning things the hard way I would win. And sure enough, way back in the late 80s, the first attempt at franchising my business concept was a monumental failure.
Not because the concept wasn’t right. It was. It had all the components to be a roaring success; great profit margins, needed service, not much competition, great logo, story and presence, very successful concept store, well capitalized and so on.
With all that going for me, what happened?
I made the same mistake that so many startup franchisors continue to make, some 30 years later. I went straight to attorney-designed legal documents thinking that was all I needed to be successful selling franchises.
What I ended up with were complicated and almost impossible to understand documents, full of legalese cloned from an established franchise concept.
I knew what I was selling, and still had trouble understanding what the documents said.
They not only didn’t match my story or franchise I was selling; everything was one-sided and strict as if I already had hundreds of successful franchisees.
But I didn’t, I was a startup.
Looking back, no wonder I couldn’t sell any franchises. I learned the hard way – getting it wrong first is expensive - but learn I did.
If You Can't Read This, You Better Read This
Sometimes I think people make things complicated because they think it adds value. Other times I feel like Mr. Einstein above that maybe they just don’t know what they are doing, so they try and baffle you with big words.
If I’ve learned anything about disclosure documents over the years, it is the simpler you can keep them the easier your franchise sales life will become, and the more franchises you will sell.
Think of it this way. You’re not selling to attorneys. Eventually, the buyer’s attorney will read the documents, but your buyer reads them first.
The harder it is for your prospect to understand what they are buying, what is required of them and what you will be doing for them, the harder it will be for you to sell franchises.
The FDD is required to be written in plain English, but the franchise and other agreements can be written pretty much in any format. My suggestion is to have everything (not just the FDD) written in easy to understand language, using as few words as possible, and as close to plain English as you can get.
The Template Mentality Trap
Have you heard the term "Disruptors?"
Disruptors are innovators - and seem to come out of nowhere. They take market share, make existing businesses change and adapt to the new normal, if they can, or force them out of business altogether. Uber is a an excellent example of a disruptor. So is Tesla. And Amazon. Google. eBay. I’m sure you can think of more.
Disruptors are incredibly successful because they don’t use the Template Mentality. They start with a clean sheet and make their own rules. Their business models are unique and different.
But in the franchise industry, the one-size-fits-all Template Mentality is alive and well.
Many attorneys, document mills, and even some high-priced, do-it-all franchise development companies fall into the Template Mentality Trap, churning out documents that many times don’t make sense at all.
In many cases, they have nothing to do with the franchise you are selling.
If your business is unique, different and profitable, chances are you are a disruptor as well. Maybe on a smaller scale than the examples above, but your business stands out because you are different. An innovator.
The franchise you are offering, and the legal documents must match your unique story perfectly. They cannot be an afterthought or something you feel forced to do to just “get legal.”
When it comes to your legal documents, continue to be different and innovative – and you won’t get caught in the Template Mentality Trap.
Somebody Stole My Franchise Sales
If your goal is to sell lots of franchises, and it should be, that just isn’t going to happen with a boilerplate or pre-packaged franchise offering created with little or no thought as to how saleable or appealing it will be to franchise buyers.
If you let someone design your franchise offering and FDD that has never sold a franchise, especially a startup franchise opportunity, chances are you never will either.
Without actual startup franchise sales experience, they can’t possibly know what it takes to design a saleable franchise offering from the ground up, so they copy another concept.
What you’ll end up with are documents cloned from another similar, established franchise opportunity, when you are a startup.
They just fill in the blanks.
Love is in the Air
We love lower cost startups and know precisely what it takes to design and successfully market them in a way that is entirely different than established franchises.
This isn’t the time for harsh, one-sided documents, which are what you will get if you use established franchise programs, fees, and documents as a guide. The Template Mentality.
Just like when you started the business you now want to expand through franchising, we can show you how to start your franchise business small and build from there. For example, you can raise fees, reduce the size of territories, toughen up your agreements and require more from your franchisees as your system grows and prospers.
No matter what, a lot of thought needs to go into how saleable your concept is, not how much money you will make when you have X number of active franchisees paying royalty. After all, if you don’t sell any, those calculations don’t matter.
When designing a franchise opportunity, the legal decisions are easy.
The business decisions are the hard ones - and it's the business decisions that will make or break your offering.
Are We There Yet?
A little FDD background.
The Franchise Disclosure Document (FDD) is a mandatory disclosure required by the Federal Trade Commission (FTC). It must accurately summarize and explain the franchise being offered including information about you, your franchise company and system.
You cannot legally sell a franchise to someone who hasn’t been disclosed following the Federal Trade Commission (FTC) rules regarding disclosure.
The FTC requires the FDD include copies of all agreements the franchisee will be signing (Franchise Agreement, Confidentiality Agreement, any License Agreements, etc.) as well as the Operating Manual table of contents and number of pages, Financial Statements, and the Training Schedule.
In addition to the FTC franchise rule, there are 15 states known as “registration states,” that require additional information and review of your franchise offering before you can sell franchises in those states.
You don’t have to register in registration states unless you are offering franchises in those states.
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If you would like to learn more about how we can help you with your franchise program, or just have a question looking for a straight answer, give me a call at 321.392.3000 Ext 1, or use the Contact Form to set up a call.