Start With A Win - Unlocking the Hidden Key to Franchise Success | Peter Holt

Episode Date: September 27, 2023

Do you want to know the critical elements of success in the franchise world?In this episode, Adam and Peter Holt, one of the top CEOs in the industry discuss them and they emphasize the importance of staying focused on the unit economics of a business and the need for a sound concept, not just a passing trend. Peter shares insights on the roles and responsibilities of franchisees and franchisors, highlighting the value of a good network in the franchise community. They also explore the power of leveraging resources and the significance of community involvement in building a successful franchise. Peter D. Holt has been managing franchise systems in both domestic and international markets for over 30 years. Currently, he is President and CEO of The Joint Corp., the largest franchised network of chiropractic clinics in the world with over 900 clinics nationwide. The Joint is a publicly traded company on NASDAQ (JYNT).Peter boasts three decades of franchise industry experience. As the former CEO of Tasti D-Lite LLC, he transformed licensed outlets into a successful franchise system and orchestrated the acquisition of Planet Smoothie. Holt also played pivotal roles at Mail Boxes, Etc. and served on the International Franchise Association (IFA) board, demonstrating his commitment to the franchise community. He holds a Master of Arts degree from the University of London and graduated with a Bachelor of Arts from the University of Washington.00:55 Started at IFA knowing nothing about a franchise or trade association 03:20 Concept or methodology?07:15 Most powerful tool to educator the consumer is…08:54 This has to be sound, or franchising won’t help11:30 What really is franchising?15:27 This is the power of a franchise model!16:30 Franchising is the business of what?19:43 Again the most powerful tool to educate the consumer21:01 A regular entrepreneur is missing this…and the value of being in franchising?           https://www.thejoint.com/ Connect with Adamhttp://www.startwithawin.comhttps://www.facebook.com/AdamContosCEO https://www.linkedin.com/in/adamcontos/ https://www.instagram.com/adamcontosceo/ https://www.youtube.com/@LeadershipFactoryhttp://twitter.com/AdamContosCEO Listen, rate, and subscribe!Apple PodcastsSpotifyGoogle Podcasts

What does a franchise CEO have to say about how business is run today? Today we find out on Start With A Win. Welcome to Start With A Win, where we unpack franchising, leadership, and business growth. Let's go. And coming to you from Start With A Win headquarters at Area 15 Ventures, it's Adam Kantos with Start With A Win. Today we have Peter Holt. Peter has been managing franchise systems in both

domestic and international markets for over 30 years. He's currently the CEO of the Joint Corporation, the largest franchise network of chiropractic clinics in the world. Get this, with over 900 clinics nationwide. The Joint is a publicly traded company on NASDAQ. Peter, I feel you, man. I've been a public company CEO, too. Peter, welcome to Start With The Winds. Good to see you, my friend. Hey, Adam. Pleasure to be here.

Awesome. Hey, why don't you tell us a little bit about yourself? Well, a little bit about myself is that I started franchising actually 37 years ago on staff at the International Franchise Association. And I had just finished my master's in Latin American history from the University of London. I had come back from London to Washington, D.C., because if you're going to do policy analysis of U.S.-Latin American relations, and that's what I wanted to do, where would you go? You'd go to Washington. And just through a funny series of coincidences,

I got hired by the International Franchise Association. And at the time, I was assistant director of development. The only thing I knew about franchising at that point was that McDonald's is a franchise, and I'm not really particular about that food. And I knew even less what a trade association did. And that in that process, my job was to run around and recruit franchisors to join the association and to make sure that they rejoined every year. And so in that process, I absolutely fell in love with the business model of franchising. And so here we are 37 years later. I just can't get out of it. It's just too interesting. Wow. And give us a little flyover of the joint. Tell us about the joint.

The joint, in many ways, it's a very, very classical story about startup franchisors in the United States and kind of the challenges that they have to face to survive and thrive. The joint got started in 1999 by a doctor who had this brilliant idea. He was in Tucson, Arizona, that he truly wanted to bring chiropractic care to the masses. And at the time, this is in 99, that chiropractic care was kind of behind the curtain. It was in office buildings, medical facilities, not easily accessed. And his vision was, you know, I'm going to make it affordable. I'm going to make it in a retail setting. I'm going to make it without insurance.

I'm going to make it without employment. There'd be art on the wall. There'd be music. And what so often happens when that franchisor, when that entrepreneur has this really great idea, he opens up the door and it was unbelievably successful. And so you have these patients or customers coming in and saying, oh, my gosh, this is amazing. And what so often happens is those same customers say, this is so interesting. Are you franchised? Yes. And so our doctor said, you know what? Why not? And so in 2003, he started franchising. Now he had a great concept and he was very, very good as a doctor. He was a lousy franchisor. And what he did not understand, which so often happens with these young entrepreneurs, is they don't understand the difference between concept and methodology. And as a franchisor, you are managing two parallel unrelated businesses.

It could be frozen yogurt, postal and business communication services, chiropractic care. There's over 300 industries that are utilizing the methodology of franchising. And so without him taking the time to understand methodology, the challenges that he faced was that he was not really structuring business appropriately. And so he had a great idea, but was really unable to execute it as a franchisor. Now, coincidentally, these two brothers saw one of his franchise units operating in Austin, Texas in 2010 and said, oh my gosh, this is exactly what I'm looking for. And so they ended up talking with the doctor. They bought the concept. It was actually in bankruptcy at the time. And that when the joint core formed, which is a company I'm working for,

this is in March of 2010, there were eight franchisees that came into the system. So 99, 2010, eight. Wow. You and I both know that's not franchising. No, no, that's not profitable either. So to say the least. And so then these brothers hired a professional CEO, actually the founder of MassageM, but he had retired and sold to private equity, asked him to come in as CEO. He did. And so when we went public in November of 2014, we had 242 systems on the ground. That's franchising. So in less than four years, you go from eight to 242.

We went public and then we haven't looked back since. So today we're with over 900 units and continuing to grow. Great. Great. Yeah. You, you mentioned the, uh, you know, the kind of the dichotomy in franchising and for our listeners that are new to franchising, you have franchisee, which is one of the franchise units, you know, you drive through a strip mall and you see a million of them. Um, and then you franchisor, which is the headquarters company, which is what Peter is the CEO of. So that company itself sells franchises, opens franchises with franchisees. And you mentioned the two words in franchising, the concept of franchising, you know, the concept of franchising, and then really the system of the particular franchise itself. Give us a quick flyover of the dichotomy of those two things and how they are different in operating business. Well, what's so interesting to me, Adam, is it's it's

they're actually agnostic to each other. They're unrelated. Right. And that's that's exactly why franchising can be a methodology that applies across these 300 different industries, because it's not industry specific. Now, we know that franchising is more engaged in the retail sector than in, let's say, B2B and other venues. But it's not stopped it from utilizing almost any form of business development has been able to utilize the methodology of franchising. And so what makes it so interesting is that, and we talked about, I've spent most of my career in what I'm going to call small box retail. So what are we talking about? It's that strip mall.

It's anchored by the supermarkets at thousand square feet. It's where you get a haircut, buy a frozen yogurt, now get chiropractic care. And it's a very unique space. And it's really important to understand that space if you want to be effectively managing your business in that space. And so for me, when I drive around, all I see is these little boxes. And these little boxes all have the same cost. They've got the same landlord. They've got the same rent. They have the same potential customer base because it's only the people who live, work, and travel in that five to 50-minute radius around that box that are going to open that door when they want that product or service. And so there's just some really interesting attributes that apply cross-concept. So whether

it is frozen yogurt, whether it's chiropractic care, whether it is postal and business and communication services, how are you transferring the technology of your operating model to that franchisee? How are you generating leads or customers? Because you all have the same customer base. So what are the methodologies that you're using to make that customer aware that you're there when they need that product or service? And what we do know in that small box retail space, the most powerful tool that we have to educate that consumer about your product or service is storefronts. Right. If you think about it, every single brand, you know, that has been in that small box retail space has utilized the methodology of franchising to grow, except for one. As far as I'm aware of, in that real small box retail space, there is one company that has not used franchising to grow, except for one. As far as I'm aware of, in that real small box retail space,

there is one company that has not used franchising, and that's Starbucks. And they've had their own path and obviously been very successful at it. But the vast majority of us, whether it's Jimmy John's, Subway's, Haagen-Dazs, Ben & Jerry's, you picked the joint, you picked that concept, and you will find that it was built

on the model of a franchise. Peter, so when you look at what causes successful franchisees and how they start growing their businesses, because that's what we want is successful franchisees. What is your opinion on that? How can our franchisees, how can anybody who wants to be a small business owner as a franchisee out there find some sort of success in this methodology? Absolutely. And that's what's really important to understand, Adam, is that franchising is not a guarantee to success. Franchising is simply a methodology to grow a business. So if the business itself is not sound, franchising won't help it.

Right. Yeah, exactly. And so that's why you really have to focus as a franchisor. What I've learned in all these years is that you must stay focused on the unit economics of the business, because if you are focused on that and you're getting that right and you have a concept, it's not a fad, it's a trend. And then you're able to continue to continue to serve your customer base and that customer base. You'll evolve as your customer base evolves. Then you have a fighting chance to make this work. And what I've also learned, so first of all, concept has to be sound. Methodology does not change that. Secondly, is that what I've learned in all these years is that one of the most important things to understand is the roles and responsibilities between the franchisor and the franchisee. Now, what I've learned is there's

absolutely nothing intuitive about being a franchisee. So just because somebody paid me a franchise fee, signed the franchise agreement, do they know how to be a franchisee? Do they know what they're supposed to be doing? Of course not. We have to teach them. And if you don't know what their role is, then how do you teach them what it is? Just as the franchisor has a fundamental role, and boy, you better understand it, and boy, you better play it. And you tell your franchisees, this is my role. This is what you're going to hold me accountable to. This is your role, and I'm going to hold you accountable to that role. And so what I've learned over the years is the more effectively that you can make sure that all parties understand the roles and responsibilities

of being a franchisee and being a franchisor is one of the most powerful tools you have to make sure that that concept is going to be successful because otherwise you're managing all of these mismanaged expectations. So if that franchisee came in thinking, oh, okay, I'm going to pay you this big fee. I'm going to sign this agreement. You're going to do my marketing. You're going to do my operations. You're going to do my IT. I'll just sit back and collect the cash. Now, is that how it works?

Nope. That's not how it works. No. And I talk all the time. And again, most of my experience has been in retail. And when I'm talking to prospective franchisees, I'm saying, oh, let's get this straight. Retail is a lot of work that you're dealing with customers, you're dealing with landlords, you're dealing with employees, you're dealing with all kinds of things. And boy, you

have to be able to put the work in. And so if you're not looking to do that kind of work to build a business, because it's hard to build a business, whether it's a franchise business or an independent business, it's hard. Now, we do know that you have a better chance of succeeding historically on that franchise model because if you really think about franchising, Adam, I have so many different ways I talk about it. You know what franchising really is? It's the business of selling mistakes. Oh, there you go. I love that. The business of selling mistakes. What are we doing here? We're creating an operating model. Well, how do we create that operating model? Well, we do things and it's like, oh, that doesn't work.

I'll never do that again. Right. That's working. That's interesting. We're going to put more of that into the model and we're going to continue to revolve and evolve and evolve and evolve and evolve. And that operating model ultimately just gets better and better and better, both by what the franchisor is trying to do to support it and to enhance it. But more importantly, from the franchisee's perspective. I talk to our franchisees all the time.

I do a franchising opening class for all of our new franchisees, and it's this two-hour presentation I do. And at one point, I say to them, OK, now listen, I want you to write this down. This is really, really important. And so I'm saying, OK, I'm watching them. They're careful. The CEO's telling them, OK, write this down. We're going to write it down. And so I say, OK,, I'm saying, okay, I'm watching them. They're careful. The CEO's telling them, okay, write this down. We're going to write it down.

And so I say, okay, now listen, write this down. Every idea that a franchisee has is not a good one. Now write that down. And they're like, oh, no, that's not right. And so I say, okay, no, wait, let me give you the corollary that the best ideas come from our franchisees. And that's that dynamic tension. That's that capacity of the franchisor to be working effectively with the franchisees, managing that relationship so that you can hear those new ideas, those new plans.

They're on the line dealing with the customer every day. And that gives them a perspective that's hard to have when you're sitting in the puzzle palace and trying to figure it all out. Now, we have a portfolio of corporate units, so we do get a lot of that same online direct information, but who has it? It's my employees. Now, do employees tell you about what's going wrong at the clinic level or why this should be different? Few. Most of know, when they get frustrated, what do they do? They quit. You never see them again. Well, a franchisee can't quit. And so they have to come to you and say, listen, you need to listen to me.

This is important. And if you're effectively managing that relationship, you're hearing what you need to, to continually make sure you're keeping your concept relevant to the consumer that you're serving. And your franchisees are doing that for you. This is an amazing point, Peter. And thank you for bringing it up because you're absolutely right. The best ideas come from the field, but not all the ideas that come from the field are good ideas. And I mean, it's, it's something that you and I have both lived being a franchisor, as well as, I mean, we're a franchisee here also at Area 15 Ventures and multiple different brands.

But ultimately, here's proof of concept, folks, if you're listening to this. Here are three proofs of concept that the best ideas come from the field. The Big Mac, the Filet-O-Fish sandwich, and also the, what is it, the breakfast Egg McMuffin. Those three things come from the field at McDonald's. And Adam, there's so many other examples of that. Oh, totally. And it's structural. This is what's so interesting to me.

It's structural in the relationship. So let's say you're big box retail. And so you're sitting there and you're on the floor. You're selling the dresses. And you know that you are talking to your customer every day and they say, you know what? We hate these blue dresses. They're crazy. Why are you trying to pitch them?

So what is that? That lowest paid employee in that big box retail goes to his manager and says, hey, nobody likes the blue dresses. So what does the manager say to that employee? Sell the blue dresses or I'm going to fire you. Right. And so, I mean, that's the relationship. And so in that franchise model, that franchisee is not the lowest paid employee to the business, that they are somebody who's invested a significant portion of their life savings to use this brand and use that operating model. And so a no is not a no.

And so absolutely, it is in that push, push, push, push, push. And so as long as you are effectively managing that incredibly important relationship between the franchisee and the franchisor so that you are listening to what's being told to you, not all things are worth listening to. Right. But all the important stuff is there. Totally. listening to what's being told to you now not all things are worth listening to right but but but all the important stuff is there totally so then your job as a franchisor is to make sure that you're hearing that and believe me your franchise is gonna make sure you hear it i've never had a problem with franchisees making sure that they are heard that's right they have to it's called vested interest. And that's what's so interesting, again, about the franchise model itself

is by creating that vested interest. And that's simple. You put a significant portion of your life savings on the line. You get a level of engagement that you will not get in any other form of business development. And that is the power of the franchise model. Totally. I mean, you're 100% right, Peter. And I mean, we've both lived it for so long. We know the proof of the franchise model. Totally. You're 100% right, Peter, and we've both lived it for so long.

We know the proof of concept in this idea. Let's take this one layer down, and I want to ask you about this. This is really important to me. Franchises are community, and all of our franchises exist within our local communities, and that franchise owner, that franchisee is part of the community. How does that impact the growth of the business? And what is the part of the franchisee to go out and become part of the community to create public interest and consumer interest and things like that? And actually bring customers in the door to ring the register?

How does being part of the community impact that business? Adam, you are touching one of the things I get stressed so hard in that same franchise seminar that I do for our new franchisees. I go through a whole series of kind of my personal definition of franchising. And one of those elements is exactly what you just said. Franchising is the business of community. And especially in that small box retail space, because, and I tell them, I said, listen, if you don't listen to anything that I'm saying in this presentation, you need to focus on this point because that you're in small box retail. You will have a series of the only people who will come to your clinic, will live, work, and travel in that five to 15 minute radius around that box. And 15 minutes is a long

time. And so your success is going to be a direct relationship to your capacity to anchor yourself into the community that you're serving. Whether it's, you know, the sign thrower, whether it's the coupon drop, whether it's the outreach to the schools or the gym or whatever your concept is, is that joining the Better Business Bureau, making sure that you're online today with all your social media, because that's where so many of our customers are today. And so it's those direct activities that you focus on so that when that person is going through that daily youth center, I'm like, oh, there's the joint. That's not cannabis. That's chiropractic. I'll try

it. And so I tell them that, and it's so interesting to me too. And I've had this concept. I've talked to this a lot. It's especially again, in that small box retail space. So the young franchisor, they're really excited. They built it out. They want to save cash, right? They've got to be really, I mean, it's, it's, they got to get to break even. And so we, in our contract, for example, our contract requires them to spend a minimum of three thousand dollars a month in those local store marketing activities. Now, so many young franchisors, what do they do? They may have the same language in agreement because we all kind of have the same model we're working with. And do they enforce it? No, no, they don't. And so what's happening here? And this is what I would say to that young franchisee. Listen, you are going to spend it front and make sure that you're minimizing the

time it gets you to break even, you're going to spend it. There's no point in saving now. This is when you've got this amazing moment to do your grand opening and then your ongoing spend because we're not proctoring gamble here. I don't have $75 million to get you to change your toothpaste. What I have is that little box with your storefront. And we know that storefront is the most powerful tool we have to educate the consumer about your concept or service. And so that's why it's so important to make that spend. And it's in the very, now this is talking about the model of small box retail and and so it doesn't matter whether it's franchising or not and what the power of franchising is now all of a sudden you you can

leverage that spend so for example when we have a whole series of clinics in a market will form a co-op and so all of a sudden they're not just spending three thousand dollars on sign throwing or whatever else is that they are now doing tv they're doing radio and this is to me one of the most interesting things that's changed in my career is in the early years, when you say TV, I mean, there were three stations to work with. And if you didn't have a national footprint, you couldn't even talk about a TV program. Well, today, you can literally target the individual subscriber to whatever they're watching, whether it's Hula or cable or whatever else, or YouTube watching with a school or a cable or whatever else, or YouTube videos or what? I mean, so all of a sudden you can do TV in a way you never could

have done years ago. And so collectively those clinics, those 30 clinics all in the same area can now contribute to this fund and do things they never could have done otherwise. Now we're leveraging the power of the model. That's it. That's. That's so interesting. That's it. I mean, that word leverage is so powerful when it comes to franchise growth and small business growth. Leverage is the one thing that small business owners, independent small business owners that are not franchise affiliated and are not part of a network, that's what they're missing, is that leverage to create scale. And, you know, there's power in numbers, there's power in your network. And I think that's one of the last questions I want to ask you, Peter, is, you know, people ask you, what is the value of being part of a franchise

network? We want to be part of a network. Why? Because there's more brainpower, there's more different ideas, there's more trial and error. There's more spending leverage. Tell us about the value of a good network. Well, and Adam, you just touched on all that, but there's something else you didn't mention, which is even most important, and especially for that small, independent entrepreneur. And let's talk about chiropractic for a minute. You know, chiropractic is a $20 billion industry. It is one of the most highly fragmented industries I've ever seen. There's 41,000 independent practitioners that are making up that $20 billion business. Now, in addition to all the value of leveraging your advertising, learning from each other, just imagine you have 900 units out there all doing the same thing.

You don't think we can learn from each other. Just think, imagine you have 900 units out there all doing the same thing. You don't think we can learn from each other? Another way I talk about franchising is franchising is the business of accelerated learning because you don't have to make the mistakes. And so as a franchisor, we're going out there, we're constantly looking at the best ideas, things that are working with its operations, IT, whatever it is, bringing it back into the network, rolling it out so everybody can benefit from it, all boats rise. Now, let's talk about that little independent practitioner, that chiropractor. He's working so hard. He's doing his own marketing. He's built up this very successful business. He's dedicated his career to it. Now he's ready to retire. For whatever reason, he wants to monetize that

investment. What's it worth? What's it worth? Not much. I'm going to tell you right now, it's not much. There's no goodwill associated with this. What does he have? He has a small box. He has a little bit of equipment. In our case, it's an adjustment table and a computer. And that he has no goodwill associated with that. He has a patient list. Now, instead of it being, you know, Dr. Holtz Chiropractic Care as the joint, now there's goodwill associated with that so he can monetize that investment. And so, for example, again, we're a public company. Last year, we had four high-performing clinics in the Phoenix Scottsdale market that we paid $5.6 million for. Wow.

We have a portfolio of our own corporate units. We build from the ground up. We also a portfolio of our own corporate units. We build from the ground up. We also acquire them from our existing franchisees. That's goodwill. I talk to some of these independent practitioners. I'm saying, look at what happens at the end of your

life cycle. What do you think happens? How do you retire? Exactly. And this is the power of the franchise model because, again, you may have the best hamburger concept in the world and it's right next to McDonald's. And let's say the sales are exactly the same. Who's going to get the premium when that concept goes up for sale? The one that has goodwill. Because what we're doing is not just creating 900 wonderful, highly running clinics that are doing a fantastic job of providing chiropractic care to this nation.

What we're doing is building an asset. And that asset has value. And that's why you participate in a franchise model. That's it. That's exactly right. I mean, you want proof of concept, just go to biz by sell and look at what small businesses are actually able to sell for if they're just by themselves. I have a friend going through that right now, and they're kind of like, well, nobody knows our brand outside of the two blocks around it. Exactly. The word is goodwill. It is, absolutely. So, Peter, this has been fascinating digging into franchising with one of the top CEOs in the franchise space. I mean, you've shared a lot of great information with us. But I have one final question I want to ask you that I ask all the great leaders on this show.

And that's how do you start your day with a win to create these successes? It's such a great question, because in the end of the day, what you know, Adam, is that what are we doing? We're problem solvers. Every day I go in the office and I have a whole new set of problems, smaller and bigger, that I have to address or work through my staff to address. I mean, nobody has ever hired me and said, you know, hey, Peter, come on board. Everything's perfect here. We're just trying to, you know, we're to pad our payroll. They hired me because there are problems and they believed that I could help solve them. And so for me, I'm a very early riser. I get up usually every morning at five o'clock. I was up

at five this morning. I work out with a trainer usually two or three times a week. And so, and I could do it by myself, but it's so easy to say, you know, I'm kind of tired this morning and, you know, I'll work out tomorrow or I'll work out later. So it gives me a discipline. And so I'm out there working with my trainer two or three times a week. In between, I used to be a big runner. So I was, I've done a bunch of marathons, qualified for Boston and ran Boston, which was an amazing experience. But now I'm doing more biking. And so what happens is every morning I start out by physically taking care of myself. And so no matter what happens through the rest of the day, I did something that helped me. So I could go through the worst day that you can imagine.

And believe me, I've had them. And I can at least take comfort in that, well, I got my workout in. There you go. I'm taking care of my body. And taking care of my body, that puts me in a better space to be able to deal with all the challenges that I'm going to face every day I go to the office. That's right. What a great way to start your day, folks. And I put out a video called Your First Meeting of the Day, and it's your me-ting, which is your meeting with yourself to get yourself going every single day.

I encourage everybody to run over to YouTube. It's just a short 20, 30 seconds, but Peter's right. I mean, this is a key business leader talking to you about how to start your day with a win. And he has a great start and that's with himself and the accountability of making himself better. So Peter Holt, CEO of The Joint Chiropractic, over 900 units franchised. Make sure you check them out at thejointchiropractic.com, I think it is, or thejoint.com? It's thejoint.com. Thejoint.com, awesome.

And they are a publicly traded company. You can find them in all your Wall Street research. Peter Holt, thank you so much for being on Start With A Win, and thanks for all that you do. Absolutely, Adam. Thank you. It was a pleasure speaking with you.