In Edible-Alpha® podcast #55, Tera talks with Jason Schleip, a consultant with Southwest Wisconsin’s Small Business Development Centers (SBDCs) who helps small businesses around the state of Wisconsin start, manage, finance, sell and grow their businesses. Jason co-founded Falbo Brothers Pizza with a friend in 1992 in Madison, WI as a student at the University of Wisconsin-Madison, later growing the business to a multi-state franchise that he eventually sold.
Falbo’s existed as one location for 3 years, though Jason started scouting a 2nd location within after a year of being open. He initially wanted to place the second location next to a Big 10 campus, replicating the success with the 1st restaurant in Madison, eventually landing a 2nd location as a franchise in Iowa City, IA, owned/managed by a former employee from the Madison location. He opened a 3rd store was in Boulder, CO, but that proved too difficult to manage a store with different suppliers in a different market than they understood, and that store was eventually sold.
Although franchisees take on the risk and manage the day to day operations of the new operation, the risk of failure is much lower, with franchises succeeding at a 78% success rate vs. 25% for a stand-alone restaurant. Jason standardized everything about what the franchisees could do with their franchise location except the look of the store itself, in part to allow franchisees invest more in the business rather than a specific store aesthetic. And, future locations that open worked in suburban and more middle class cities if they focused on what those customers wanted, like lunchtime for professionals and dinnertime for families.
The process of franchising was informal with his first couple of franchisees, and he didn’t charge initial franchise fees at first. Franchisers make money through:
- Initial franchise fee for setup costs,
- Controlling product sales (by buying product, then selling to the stores after marking it up), and
- Royalties, which come off of top line sales of the franchised business in return for the support and process development of the franchiser. This is often the biggest source of income for franchisers. Jason was hands on a franchiser and made store owners feel like he was earning his royalty check.
Jason sold the business when it was doing well with 13 locations in multiple states. He sold it on December 31, 2016 by listing it with a business broker who could do it confidentially and helped vet potential buyers. The process included seller financing and took about 15 months with Jason staying on as a consultant to the new owner. Jason reflects that as a franchiser you could try to just sit back and collect your royalty checks, but the industry changes quickly and you have to change with it. He advises entrepreneurs that is not a straight line or easy path to success. With a combination of hard work and luck you can make a business work, though he also reflects that competition and prices for food businesses in the current environment make it difficult to compete and replicate the same success now.