Thanks Mr. Toastmaster, fellow toastmasters, and honored guests.

Before I come to my topic today. Let’s have a recap of what I talked in my last speech.

In my last speech, I talked about the purpose of business: “to make money”. The purpose of work is not to work. You don’t want to work “in” your business, but to work “on” your business. Business is building a system, and once it’s ready, you can be eliminated. The key of business is leveraging. Leverage other people’s money, other people’s time.

I also talked why most small businesses fail. Because building a system is so damn hard. It’s too complicated. And the founders may not possess the credentials to build a business.

Remember?

Building a system that nobody has ever done it before is hard. There’s no question about it. And I ask myself, do I want to build a system? Yah.. Do I have the capability to build one now? I look at myself… no… I have not experienced any real business myself. I don’t have the credentials. So, do I still try to build a new system that I don’t know how, and I have 99% of the chance to fail and end up with nothing. Or, do I put building a new business a side, for a moment, and try to improve my credentials, and increase my odds to be successful in the future. And I think it for a moment, and say, I want the latter.

Since building a brand new system is hard, how about building an existing system? The system is out there, you just need to implement it. In start-up world, idea is not important. What’s important is the team, the execution. If I can go through the system building process once, even though it’s not a new system. It is a good practice. But the problem is, where do I find an existing system to implement?

And I guess you all have figured out the answer. Franchise.

Franchise is a business model that the franchisor licenses proven methods of doing business to the franchisees in exchange for a recurring payment, fees, and a percentage of the sales or profits.

You see there are two parties here? The franchisor, and the franchisee. The franchisor, is a “real” business that I mentioned in my last speech. The franchisor creates systems. Once the system is successful, the franchisor just sits there, and collects fees. That money, is called passive income, because no active work is involved. On the other hand, the franchisees, implement a system. All the risks involving building a system are removed. The only remaining risk is execution. How well you execute the system, assuming the system works, decides how successful you are.

The key in a franchise business is duplication. The franchisor creates a successful system. How to duplicate the system in new areas? Conqure new land, spread throughout the country, throughout the world. Duplication is tedious. It does not contain any new ideas. You just do the exact same thing again and again. However the inside routine boredom of duplication hides the ultimate success. McDonalds is arguably the most successful franchise business in the world. You can find more McDonalds than any other restaurants in the world. That’s the success of duplication. Duplication is also critical outside the realm of franchise. One of the aspects Google emphasizes most is scalability. Everything has to scale. And scale is duplication. That makes google so successful.

What’s the unique benefit of franchise to a franchisee?

Well, as I said again and again. It provides a successful, duplicatable system. It provides a quick start. As a franchisee, you don’t need to learn how to run a business. It’s already there. You have the brand; you have sophisticated training systems; you have cookbooks for everything. You just execute the plan. Do you know how hard it is just to build a brand? When I say McDonalds hambegers, you all know what to expect, right? But when I say Fei’s hambegers, what do you think? Franshising saves you a lot of trouble, and removes a large portion of the risk.

However, as a franchisee, you don’t have total control on your business. You are stuck with the rules. This is actually a double edge sword. On the one hand, if you have a super bright idea, you cannot implement it. On the other hand, you can’t implement stupid ideas either. So it’s hard to say whether it’s good or not. But as a starter, maybe it’s better to play it safe.

As you can see, franchising a business is significantly safer than starting a new business. As a result… remember the fundamental financial principle? The higher the risk, the higher the return? The franchising business will not provide you the same financial reward as a successful start-up business. Not to mention, you need to pay a lot of money to the franchisor.

Franchising can be expensive. It may includes hundreds of thousands of dollors at start-up, and recurring annual license fees. Or, depending on the exact business, you may need to pay a portion of your sales or profit to the franchisor….. Plus, the company training, which you have to attend, may be expensive…

For me, how do I franchise? I don’t have that much money. What can I do? If you want to know more, come and listen to my next speech. “Personal franchise”.

Mr. Toastmaster.

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Time: 7 minutes 24 seconds

Thanks, Mr. Toastmaster. Fellow toastmasters, and honored guests.

What is business? If you ask this question to a hundred people, you will get a hundred different answers. To me, business means three words, “to. make. money”. Business is providing a service or product “for a fee”. Business is not non-profit. It is for profit. If you think making money is evil, business is not for you. In business, money is essential; cash is the king. So if you want to do a business, you need to do everything around money.

Let me ask you another question. What’s the purpose of working? To get paid? To get paid to support you and your family? If you think that way, you are in an “employee mindset”. You want someone else to give you money in exchange for the time you spend working for them. But even that is not entirely true. Do you want to work in your 80s? Do you want to work till the day you die? No, right? You work today, because you want to retire in a future date. You want to retire after age of 65, so you can enjoy the rest of your life, without working. The purpose of working is not to work.

Yeah…. you can do that if you are an employee. But what if you want to retire in your 50s? in your 40s? or even in your 30s? Can you still do that by simply being an employee? hmm….. probably not. Because you cannot earn enough money to support you. But you can do that in one way. Be on a business, be the owner of the business.

But how to be the owner of the business? You can do that in two ways. You can either work “in” your business, or you can work “on” your business. And that makes a lot of difference. Say you own a dry cleaner, or a restaurant. But you work “in” your business, you work there 12 hours a day, 7 days a week. Is that the purpose? Do you enjoy it? Probably no. What you want to do is to work “on” your business. You hire somebody to work in your dry cleaner, or restaurant. You check their performance a few times a week, and release you from the 9 to 5 routine work. The purpose of business is to create a system, and once it’s ready and can be self running, you can be eliminated from the system. Does it make sense?

How can you do that? You may ask. You achieve that through leveraging. You leverage other people’s money, leverage other people’s time. When you start a company, you don’t have any money… you borrow money from your family, your friends, angel investors, venture capitalists. You leverage their money to achieve your goal. When you start a company, nobody works for you. You are the CEO, you are the sales person, you are the developer, you are the janitor. You are everybody. But as the company matures, you may hire a janitor, you may hire a developer, you may hire a sales person, and eventually, you may hire a CEO. Now, you eliminate yourself from the loop, but all those people work for you. You leverage their time to achieve your goal.

However, I have to admit, it is not easy to create a system. It is very hard. In fact, 4 out of 5 small businesses fail during their first 5 years. And 4 out of the 5 surviving businesses fail in the next 5 years. Creating a system is hard. It is partly because the system is complicated. It includes, operation, product development, sales, marketing, customer service. etc. etc. etc. They are totally different areas. More importantly, the system is brand new. Nobody has ever done it before. You have to try and error to see whether your assumptions are right. You just pray that your mistakes will not be too serious to correct.

Why most small businesses fail? Another important reason, I think, is the founders credentials. Do they know sales? Do they know marketing? Do they know product development? Do they know what they are doing? Many people are experts in one area. But they are often too idealistic for other areas. Among all the skills I mentioned, the most important skills are sales, and marketing. Of course that’s my personal opinion. I believe, no matter what you do, if you do that to a certain level, it is always people skill. It is especially important to the founders, the CEO, because CEO is first a sales person. You have to sell. You have to sell your ideas, you have to sell your products, you have to sell your vision, you have to sell your company, and you have to sell yourself. Marketing is also important, because it tells you what to sell, how to sell it, and sell to whom. So people skill is the most desired skill for entrepreneurs.

On the flip side, however. If you are the lucky one, you will earn millions, or even billions of dollars. Think about Microsoft, Yahoo, Google, Youtube… it goes back to the fundamental financial axiom: The higher the risk, the higher the return.

After my talk, I’d like to hear what you think business is; how you think to make business successful. If you want to hear my opinion, we can either talk offline, or come and listen to my next speech: “Franchise, a safer business”.

Mr. Toastmaster.