When I first met the founders of Buffalo Wild Wings, it was 1991 and they had about six locations. They wanted me to try everything on the menu, so we went to the biggest table in the house and began ordering. The wings were hot. But the business potential was hotter.
I'm a franchise consultant. My job is to help turn brands into franchises, and turn franchises into giant franchises. So when I meet with a potential client, I want to know: Are they ready? Jim Disbrow and Scott Lowery, the founders of Buffalo Wild Wings, were clearly ready. Their unit-level financials were great. They were eager learners. We had a good growth strategy.
But here's what really sold me: They understood what they were building. It wasn't just a great brand. It was a Money Machine. I have consulted with literally thousands of businesses, and not everyone understands this, or is willing to do the work required. But I am telling you: The most successful entrepreneurs I've ever worked with all understood that a business is ultimately just a Money Machine.
So what is a Money Machine? Good question.
It's something that provides a reasonable return on investment (ROI) to you as its owner, regardless of whether you have ever even set foot in an individual operation. You can pay yourself dividends or reinvest in your future growth. But ultimately, your Money Machine should provide you with an ROI that is commensurate with the risk you are taking by going into that business.
Franchisors and franchisees both build Money Machines — because even though their businesses are different, the same principles apply. So let's make sure you're building your Money Machine the right way.
Related: We Crunched 5 Years of Franchise Industry Data. Here Are 4 Big Trends You Should Know About.
There is no universal model of business success. But there are commonalities. I call this the "small business success cycle" — which is in the chart above.
Start at the 12 o'clock position, where the chart says "Ongoing consumer desire or need." If you're not solving someone's desire or need, you have no business — so you must do that, and do it sustainably and repeatably. Then you need ways to convince prospective buyers why you are a better choice than your competitors.
Keep going around the cycle. As you do so, you need to fulfill your brand promise at a price and margin that provides you with adequate profit. You must also maintain a relationship with your clients or customers through communication. and then use their feedback to continuously improve.
These ideas may sound simple, but their execution is complex. Each step requires its own systems and measurements. So before we go further, we should pause on the two most important measurements of all: ROI and Key Performance Indicators (KPIs).
First, ROI. If you go into business, you're investing money and time — and hoping for a good return. It should be that simple. Ideally, you want that return to be north of 20% annualized (plus a market-rate salary if you plan to work in the business) — although, with many small businesses, you may not be able to achieve that kind of ROI in the first couple of years. You should adjust that number up or down based on the perceived risk associated with your desired startup. For example, if your Money Machine required a sizable capital investment in an unproven business model, your risk would be substantially higher, and thus your required ROI should also be higher.
Next, KPIs. Think of these as the inputs into your business's system. Each of them has target ranges that, if achieved and combined successfully, will allow you to manufacture the output of profitability.
KPIs vary substantially depending on your industry, so you need to understand yours. For restaurants, a few of........