Ideas: By Anthony Reza Solhi -- blog

Anthony Solhi Advises a Cabbie: Stick with the Business You Know

2009-07-08T06:50:00Z

When I ran my franchising business, I made it a point to work with my franchisees, offering them advice from my own experience to help them be as successful as possible. Of course I like to think of myself as a unselfish person, motivated by genuine concern for my fellow man but, of course, it was in my interest to help the franchisees. In so far as they were successful, so too would be the company. I had everything to gain from helping them become as wealthy as possible.

Though I am no longer in the franchising business, old habits die hard.

The other day, I was headed to a business meeting and hailed a cab to take me there.

Now it is somewhat of a joke in North America to remark on the large number of immigrants who occupy the drivers seats of taxis in Canada and the United States. Many natives find it alienating to climb into a cab echoing with the sounds of Arabic pop tunes or in which a picture of the god Ganesh greets passengers from the dashboard, but I always welcome these little reminders of my own experience as an immigrant to this country. I know what it is to struggle at difficult jobs for very little money in a new and strange land.

So it was that I struck up a conversation with this particular cabbie. I told him that I was a Canadian citizen from Iran and I asked him where he was from.

“I am from Bulgaria!”, he said. He was obviously very happy to talk of his old home with someone who understood the experience of having to leave it behind.

“Oh. Bulgaria”, I replied. “I have been there. Beautiful country. My family actually originated in Azerbaijan.”

So we got to talking and eventually he asked me what I was doing in my life and I told him a little of my story. When I got to the history of 3 for 1 Pizza & Wings he became very excited.

“Oh! You have been in the franchising business?”, he asked. Then quickly added, “I want to buy a Tim Horton – but the damn thing is so expensive. I heard they cost a million dollars.”

I sat back and listened to him talk about this a little more. He proceeded to describe his ambition in glowing terms as the car continued on its way. It was his dream, he said repeatedly, “to buy a Tim Horton's.”

When he finished, I looked up at him through the rear-view mirror and said, “Listen. My advice to you is this: Don't buy a franchise.”

I saw his eyes as I said it. He was crestfallen. I was denigrating his dream. But there was also a look of puzzlement in his face.

“Why?”, he asked.

I said, “Tell me, how much do you know about the food industry?”

His answer:

“Zero”.

“You never had a restaurant?”

“No.”

“Did you run a food-related business?”

“No.”

“OK.”, I continued. “Now tell me, how long have you been driving a cab?”

“17 years.”

Now perhaps you as a reader can already predict where this conversation is going but it is amazing how so often we cannot see in our own lives the mistakes we so easily see others making.

So I told him, “You have been a taxi driver for 17 years and now you want to go out and buy a Tim Horton: Do you know that the majority of people who, like you, get involved in something they have never done, never make it?”

He said nothing. I asked, “How much money do you have?”

“I worked 17 years. I saved 25 thousand.”

I said, “25 thousand! 25 thousand only?”

“Yes.”

“That's certainly not enough to get a franchise.”

The truth is, getting a franchise is a kind of Hollywood dream for many immigrants. Everybody wants to get into franchising. Advertising (about which I know a little something) can make a franchise appear a certain path to success and security. And so it can be. But too often, ambitious people become distracted by unreachable goals and miss the big opportunities that are right at hand.

I told him, “I got my start in franchising myself. Before I became the president of a franchising company, I ran a small pizza store and was very successful. But I've never had reason to advise anyone else to do it. It's just not something you should leap into without having some idea of what you are committing too.”

At that point, I paused. Considering what I should say next. How best to get my message across.

“Listen.”, I told him. “You and I both immigrated to this country. We know what it is like. We know that we immigrants are often very much committed to our work. But there is another side.

“We swing from tree to tree like monkeys.”

Now I had his attention. “Swing from tree to tree – like monkeys?”

“Yes. I said. When we have one job, we dream of another! We want to get ahead – of course -- but always it is something else we need to be doing that will make all the difference.”

I went on: “Here's what I always told the people I dealt with: Even if you are washing toilets, stick in that business and become good at it!”

“Toilets?”, he asked, incredulous.

“Yes.' I said. “Even toilets

“Because in business -- in this country -- doing business is like driving in a mountain – not like driving on a prairie. It is always uphill and downhill. Look at GM and Crysler. Uphill and downhill. This is true of every business. Don't think things are going to be so smooth you are going to make two million dollars a year for life and for the next 500 generations. That is B.S. You are going to have challenges.

“But the key is experience -- knowledge. Knowledge is power. Knowledge is success.

“You can survive in the valleys if you know the business. If you don't know the business, in the troubled times: That's when you lose. If you are in a business you know 'like the back of your hand', bad days: You know how to survive; good days: You know how to jump -- to go faster!

“Stick in the business you know and you will always be successful. Don't jump for one tree to another. Stick with the tree you are in."

By this time, the car was pulling up to my stop but I had a few minutes still before my meeting. I could tell he was thinking about what I said. As I reached for my wallet, I asked him, “So how much do you know about Tim Hortons?”

“Nothing”.

“Nothing? You know nothing but you are willing to go spend a million dollars on a business? And you know nothing?”

He was silent.

Fact was, it was all very good advice I was giving but my taxi-driver friend had unresolved ambition and I'd only taken away his hopes. I had given him no way to achieve greater success.

“Listen”, I said. “I know only a little bit about the taxi business. I don't know a lot but I know a little.”

About all I knew was that taxi licenses are limited: An enormous waiting list exists for these licenses and most of those who get them, do not use them; they rent their licenses out to others. But I also knew that these licenses can be purchased from their owners on the open market – for the right price.

So I asked him, “Do you own your own taxi and your own plate?”

“I wish!” he exclaimed. “If I owned my own plate, I would be a happy guy.”

“How much does a plate cost?”

“About $100,000”.

“Ok. 100 thousand. If you owned your own plate, how much more profit could you earn each month?”

“About $2500 more every month.”

“You know this business very well?”

“Yes. Like 'the back of my hand'. I've been doing it for 17 years.”

“If you own your own plate, you will be happy?”

“Yes. Of course. Not only will I be happy but, I told you, I will be making 30 thousand extra a year.”

“What if one day – just close your eyes and imagine – you own ten of these plates.”

He started laughing, “Are you joking? That's my dream! I would not need to drive. I know a guy, he has 17 plates. He's not working. He's just renting to other people. He collects 800 dollars-a-week from everybody. ”

“Do you have good credit?”

He said, “Yes.”

“Ok.” I said. “Have you ever heard of something called an S.B.L.?”

“SBL?”. He asked. “What is that?”

“It's something called a 'Small Business Loan'.”

(In point of fact, the program name was changed in 1999 and is now referred to as the CSBF program, or “Canadian Small Business Financing” program -- but I didn't realize that at the time.)

“Every Canadian is entitled to apply for, and get, a small business loan once in their life. Of course it requires a business plan that has to be approved by the bank. The government of Canada – if I am not mistaken – will back the loan, up to 75% or 80%. That makes it very low-risk for you.

“Get somebody – an accountant – to make a business plan for you. Go to your bank and say, 'I'm starting this business' – because taxi business is a business – say, 'I want to buy my own plate and this is how much I'm going to be making extra and this is how I am going to be able to make my payments to you', and show them your plan.

“Now make sure you make your payments on time because a good relationship with your bank is how you get good credit. Later on...you know what...you don't even need an SBL. You can go to the bank and they will finance you for second, third, and fourth, fifth, sixth plate! They will back you. After all, you've proven to them you know what you are doing. You've proven you know the business like the back of your hand!”

He was amazed.

“You know what? I didn't know that! You are the first one to tell me this information. No one gave me such advice – and from just a guy in my cab!” He laughed.

“My friend it is not so unusual for me”, I said. “Once I gave this kind of advice all the time to the people who worked for me. If you know how to help someone become successful, it costs nothing and makes everyone richer to pass on a little information.”

“But you are telling me I can go to my bank and I could get money to buy my plate?”

“Yes. Of course you could. Up to 250 thousand. Maybe you can even buy two plates – if you can put a good business plan together. One you drive and one you rent and have another drive for you.

“Now.” I said, “Would that make you happy?”

“Oh that's my dream! I would love it!”

“Well”, I said. “Can I ask you. If you have been in this business for years, why would you ever have wanted to go into a business that you don't even know?”

“Well. I just heard that it was a good business. Look at how busy Tim Horton's are. How could it not make me wealthy?”

That was his answer.

And that is the problem with many people: They become deluded by a Hollywood fantasy. They think, “”Hey. I want to own my own restaurant”; “I want to own my own franchise”; “I want to own my own pizzeria.” They imagine these properties as investments that will earn money for their owners with little supervision. They do not realize how much “water” it takes to make it go – how much sacrifice is needed to be successful.

To run a restaurant business is not easy. It is a tough business; it is a good business; it is a profitable business, but you have to work very hard.

When I was president of 3 for 1 Pizza & Wings, I encountered several franchise owners who found themselves unpleasantly surprised by the level of commitment their outlets required. One couple in particular – a husband and wife – both had previously been employed by revenue Canada. Their combined incomes from salary had summed to around $150,000/year. That's good money. Very good money. The kind of money they would have been very lucky to make from a $120,000 investment in a pizzeria. Returns of 100% or 200% are extremely rare in any business.

It just doesn't work that way.

The majority of the people who own franchises – franchises as ubiquitous as even Tim Horton's, which can cost a million or even two million dollars to buy – their return on investment is between 8% and 11%. In fact, the profit margin for most restaurants is no more than 2%.

But back inside the taxi cab – and with my meeting time rapidly approaching -- I had only a few moments in which to underscore my advice to this cabbie.

I said to him, “The main thing you need to realize about franchises in the food industry...you are only buying yourself a job.

“If you do a good job, you earn more. Of course. But do not think that you can buy a business, hire a manager to run it for you and expect to make money. Your best bet is to stick with the business you know and take advantage of opportunities available to you.

“Put that business plan together and go to your bank to get that small business loan.”

“Now one more thing,” I said, as I was exiting the car. The cab driver was so excited now, he got out of the vehicle as well to walk over to my door. “Get an accountant to help you with that business plan but don't pay him the whole fee up front. It costs about $1200 to get a business plan together. Just pay him $200 up front – and don't buy their bulls--t! – you can pay them the rest when the loan comes through and make sure that's a condition of your contract with him.”

The cab driver looked at me – as he closed the passenger door behind me. “You are telling me that one day I can own someday maybe 10 plates?”

“Yes. I am. I'm telling you one day you can own more than 10 plates – if you know what you are doing”

“I am an idiot!”, he said. “I was just thinking about going into different business: Restaurant business, donut business -- whatever; meantime, I didn't realize I know this business like the back of my hand.”

I told him, “A lot of people...they make the same mistake as you. There is so much fish in their own damn pond but they want to go and fish in another pond.

“Stick with what you know. And become not good -- become professional at it.”

After that, he looked at me like I was his guardian angel. “You changed my life today,” he said, as he shook my hand. “That is what I am going to do. There is no way I am going to think about any other business.”

Whatever Happened to those Franchisee Deposits?

2009-06-18T08:00:00Z

A few years ago, I wanted to purchase a car.

I wasn't sure I would be able to secure the financing but I so desperately wanted to purchase the one car I had in mind that I put down a $1000, non-refundable deposit on the purchase. My deposit showed my good faith to the seller and, in return, he held the vehicle in reserve for me while I investigated my credit situation.

For five months he held that car for me.

During that time, many other buyers approached this seller and offered to buy the car. Each time he would answer, “I am sorry but Reza has put a deposit down on this car and I cannot sell it.” Had he broken our deal, he could have unloaded the car much sooner and gotten his money that much quicker. He could have been earning interest on that money.

But he kept the deal and held the car for me.

Sadly, after five months of trying, I discovered I was unable to secure the credit to buy the vehicle (hardly surprising given that I'd just lost my business, home and previous vehicle to creditors).

Did I then approach the dealer and ask for my deposit back?

Of course not. The deposit was lost. I had received already all the service to which that money entitled me: The reservation of the car for five months.

Did the fact that he kept my deposit make him a thief?

No. Of course not. He was entitled to the money as some compensation for his financial loss.

A deposit is something like an engagement ring: You don't get it back if you leave the bride standing at the alter. You're lucky you're not on the hook for the cost of the wedding!

The deposit acts as an incentive for both buyer and seller to adhere to the terms of their agreement. The seller is encouraged to incur whatever costs are associated with closing the deal (in this case, the cost of storing a vehicle for five months) while the buyer is encouraged to follow through with the full purchase so as not to lose the deposit sum. The deposit is also there to compensate the seller in some small way should the deal not go through.

Because I had a thousand dollars on the line, I worked very hard to secure the financing I needed to buy that car. I was very disappointed when I failed to do so. But the seller received some compensation for his wasted time.

When prospective franchisees placed deposits with my company, they did so under essentially identical terms (though with a lot more lawyering involved). The deposit initiated the complex process of building a pizza franchise location. In most cases, several toll-gates interrupted this building process at which points the franchisee was contractually obliged to pay additional deposit sums. The purpose of these check points was to insure that the deal was still going though and that the franchisee remained committed to the agreement.

This was important because through this entire process, my company was spending far more money on the location than the franchisee ever would. Franchising companies are the principle investors in every franchise location. Our enormous costs are recouped only over years of operation.

At the end of the building phase, when the location is ready, the franchisee is expected to turn over the remainder of the down-payment.

As bad publicity decreased the perceived value of our brand, many of our buyers decided to back out of the deal here at the end of the process. That would have been damaging enough to our company but these persons also wanted their deposits returned.

Many people say to me, “Anthony. Why didn't you just give them their deposits back? Wouldn't that have been easier than facing them in court and adding to the negative publicity?” I say that of course I would have preferred to do that. The problem was that the deposits did not exist. Those monies had been invested in the location.

Few people, who are not themselves entrepreneurial business owners, realize that businesses largely operate on credit. The money sunk into start-up costs for a typical franchisee does not come out of some company cash reserve. It is borrowed by the company from the bank. The bank invests in the future of the company based upon past performance. The company risks the borrowed capital as wisely as possible, with the intention of repaying the loan from profits earned.

In most cases, deposit money was spent almost immediately on costs associated with negotiating the initial deal. But many times that amount was invested by my company to pay architects, designers, builders and installers. None of these folks could give money back to me, and compared to that overhead, the deposit fee was pennies.

3 for 1 Pizza & Wings: Casualty of the Media Narrative

2009-06-11T06:42:00Z

When the press reports on a story, it packages events in a narrative that can easily be understood. Typically, that narrative has protagonists and antagonists – good guys and villains. When the press took notice of conflict within my franchise company, it decided the franchisees would most easily earn the sympathy of readers and that I would play best in the role of villain.

If a news story is to contain any truth at all, it requires a very ethical journalist to tell the tale; for the press faces powerful incentives to write narratives that sell papers. If the “David vs. Goliath” story, in countless variations, is one that readers enjoy, the media will want to write that story again and again.

If you read a story in a newspaper or watch a report on television, in which sympathy is given only to one side, it's generally safe to assume you are being lied to. All of us know from our own life experience that in every conflict there is some truth on all sides. No story can be completely true if one side is universally condemned.

During the crisis that hit my company, I learned how dangerous the media can be. I gave only one press interview and I was so horrified at how I was portrayed, I never spoke to the media again. From an hour-long discussion, less than half a sentence was broadcast – a statement that made me look like a heartless bastard – even to me!

At the time, I felt deprived of options. I am not the most charismatic guy when giving speeches, nor do I have a sympathetic look the camera loves. I was just a businessman struggling desperately to save my name and my company. I had no way to speak to the public except through the media and the media refused to let me speak on my own behalf.

The internet has given me a new voice.

I can now speak directly to the public in my own words.

It is now too late to save my business but it is not yet too late to save my reputation. For too long I have allowed the slanders against me to go unanswered.

3 for 1 Pizza & Wings was a Legitimate and Successful Business

3 for 1 Pizza was founded in 1991, spun off from a company I started in 1990. At the height of the media storm, my operations had been running strong for more than a decade.

This was never reported in the press.

3 for 1 Pizza & Wings was actually the fastest-growing pizza franchise in North America (in fact, we discovered that some of the legal fees of our accusers were paid for by our competitors).

This was never reported in the press

3 for 1 Pizza & Wings had been started by me when I was just 23 years old and a new Immigrant to Canada myself. I had founded the company on the strength of a new idea: Putting pizza and chicken-wings together on a home delivery menu. My company was the first to combine the chicken-wing phenomenon with the pizza home delivery business.

This was never reported in the press.

These facts were never reported because they were inconsistent with the narrative the press had constructed. They told you that 3 for 1 Pizza & Wings wasn't a real company. They told you that 3 for 1 Pizza & Wings was nothing more than a giant ponzi scheme. They told you that 3 for 1 Pizza & Wings was just a shell game designed to defraud investors of their money.

How could a phony company be responsible for such market innovation?

How could a phony company have transformed an industry?

How could a 23 year old, inexperienced entrepreneur have masterminded such a malicious scheme?

None of that made any sense so you were never told about it.

What you were told and what they wanted you to believe was that Anthony Solhi was a crook who stole from his franchisees and that was all you would ever need to know about him. That was what would sell their newspapers and their advertisments.

Advice to Those Considering Opening a Franchise Business

2009-04-11T16:46:00Z

In my entrepreneurial career, I have experienced the franchise business from the perspective of both the franchisee and franchiser. Many people know me as the former president of the 3 for 1 Pizza & Wings franchise. Not as many people are aware that I am also a former franchise operator. I got into the pizza business in 1989, when I opened up a 2 for 1 Pizza location. Back then, a $30,000 dollar investment (split with a partner) was enough to get me started with my own pizza kitchen and storefront.

It wasn't long after we opened that I started losing money!

Considering getting into the franchise business? You may start losing money too, unless you make yourself aware of some hard realities of franchise operation – realities that I mostly had to learn the hard way.

In Small Business, Who Makes the Dough Makes the “Dough”

A surprising number of prospective franchisees get into the business expecting ownership to free them of the need to work for a living.

I was one of them.

When I opened my first store in '89, I hired two managers to run it for me. Two young fellows who shared the same name: Masood and Masood.

For many weeks I left the store in operation, expecting sales to eventually pick up, but they never did. I went to the managers I had hired and asked them how things were going. “Things are bad boss.” they told me. “No one is coming in. We can’t sell any pizzas. The store is not making any money.” I was very worried.

After three months, I realized the business would soon go under if something wasn't done to save it. At any rate, I'd run out of money with which to pay Masood and Masood and so, sadly, I had to let them go. I took over direct management of the store myself. I started making pizzas.

Then something else happened, something rather unexpected. I started making money.

Overnight, business turned around. I had more customers than my limited pizza-making experience could handle. The phone was ringing off the hook with order after order and the front counter was rarely clear of customers waiting in line for pizza. What could explain it? Had I discovered some latent talent in myself for making the greatest tasting pizza in the city?

The mystery was soon solved when, a few weeks after I had reluctantly let them go, Masood and Masood opened their own Pizza franchise with a $125,000 investment.

The truth is, in every small business, money is going to be made. The only thing in question is; who takes it home. Is it going to be you? Or will it be Masood and Masood?

Congratulations. You Are Now the Proud Owner of a Job.

Managing a franchise is not complicated. If you are capable of balancing a checkbook and managing your family's personal finances, you are qualified to run a franchise operation. What you may lack, however, is the ability to manage your expectations. Manage this first, before you get started.

In 1989, I thought my $30,000 investment had brought an end to my life of hard work. I expected my new franchise outlet to operate by itself. I imagined it a wealth-generating engine that could be left to grind its gears while I got on with the serious business of enjoying my youth. I was shocked to discover that the motors wouldn't run without my hands constantly turning the crank.

What you can reasonably expect of your franchise operation is limited by the initial financial investment you can afford to make. Its moneymaking potential and the direct responsibility it will demand of you are largely determined by that up-front price tag that gets you started.

Unless you have a lot of money to invest, you should expect to do most of the work required to keep your business operating. With $100,000 or more on hand, you might be able to get yourself a turnkey establishment, requiring little direct supervision. With 20 to 30 thousand dollars, you're really just purchasing yourself a job. It may even be a job for your entire family.

The franchise business, regardless of industry, is typically a hands-on business. I had the opportunity to learn this same truth a second time…from the perspective of upper management. I had hundreds of franchisee partners over the years with 3 for 1, and invariably, the franchisees that made it were those who managed their own store directly.

Are you capable of managing your own store?

Being smart or being educated is no guarantee you've got what it takes. It takes a lot of work, a lot of hard work. Expect it.

You Are Invested in The Success of the Franchise

All franchise businesses set standards of practice to ensure consistency between outlets. A Big Mac tastes the same at every McDonald's establishment the world over. The taste of a coffee from the Tim Horton's in St. John's Newfoundland is the same as that in Victoria, British Columbia. This level of consistency requires that every outlet cooperate with quality control policies determined by head office.

Most franchise enterprises also make deals with suppliers and resell a standardized supply kit to franchisees. Supplies ranging from primary ingredients and soda pop, to straws and napkins, all must be purchased from home office to provide that consistent, franchise experience for the customer.

Adherence to these policies is not cost free. Placing fewer pickles on the hamburger saves a few pennies on each one. Not discarding the stale coffee at the rate required by company policy reduces the rate at which the bean supply is exhausted.

Sticking with the company plan can seem expensive, as the same supplies can sometimes be purchased locally for less than the price demanded by the franchiser.

All franchise operators are therefore exposed to a constant and pervasive temptation to cheat the system and a great many succumb to this temptation. It is obvious that doing so harms the entire franchise. It is less obvious that, in undermining the success of every other franchisee, the cheaters also harm themselves.

Your business is far larger than the four walls of your local establishment. As a franchisee, you are invested in the success of the entire corporate enterprise: Your business does better as the reputation of the company improves. Cheating may save you money in some immediate sense, but it will always bring down the overall value of the franchise in which you are a stock holder, and you will never get rich by depreciating the share price of your stake in the company's success.

The reverse is also true: Head office cannot succeed unless you do. The franchiser has no interest in exploiting you or robbing you of profit through overpriced supplies. Doing so only hurts you both.

Because the enterprise as a whole depends on individual success, the franchisee is actually quite powerful within the organization. Should you become a franchisee and find you have an issue with supply prices or any other corporate policy, bring your experience to head office. Most franchise businesses have systems in place for adapting to changes in the marketplace that only their front-line franchisees can detect. If you are having a problem, they are having it too, even if they don't yet know it.

Stick with the Franchiser's Plan

When I took over from Masood and Masood, my first pizza franchise was earning each week, the tidy sum of $6000. When I sold it, 12 to 13 months later, that same store's weekly earnings were more than $21,000.

There was no secret to my success. I owed it all to the most obvious of principles: Strict adherence to corporate policy.

The better the experience customers have of the franchise as a whole, the more likely are they to visit any specific location. And the better the experience customers have of one location, the more likely are they to visit other outlets participating in the franchise. This is obvious.

Less obvious is the fact that consistent quality, even at one location, builds ongoing customer loyalty that keeps people coming back, again and again. In fact, savvy customers will detect when one specific location affords them a better experience than another.

I found that many of the new customers I attracted over the course of the year in which I ran my 2 for 1 Pizza franchise came to me dissatisfied with their experience at another 2 for 1 location. Time and time again customers asked me why my pizza tasted so much better than the last they had bought from another 2 for 1. I told them only that I was following company policy. I didn't say that some of my franchise partners were obviously cheating: Cheating on quality and supplies.

If you do become a franchise owner, never drop out of the supply network. Doing so hurts the company's broad-based purchasing power. And if you cut corners on quality, it harms the customer experience for the organization as a whole. You will ultimately pay a price for that. Don't blame the franchiser when you do.