I’ve watched a lot of franchise systems rise. I’ve watched a lot fall. Some collapsed fast — a bad concept, an undercapitalized franchisor, a market that wasn’t ready. But most of the failures I’ve seen weren’t dramatic. They were slow. A system that never quite got traction. A franchisor who couldn’t translate a great business into a great system. Units closing one at a time until there was nothing left.
After 35 years on every side of this industry — franchisee, franchisor, advisor, author — I’ve had enough vantage points to see the patterns clearly. And the patterns are consistent.
I captured them in my book Five Pennies: Ten Rules to Successfully Build a Franchise Mega-Brand. The title comes from a story about a SUBWAY executive who used five pennies to explain franchise economics to her young son — five pennies out of every hundred that have to flow to the franchisor as royalty, without squeezing out the franchisee’s own profit margin. It’s a deceptively simple idea that reveals everything about what franchising actually is: a system built to make franchisees profitable first, because without their success, there are no pennies for anyone.
Here’s what the winners understand — and what the failures almost always get wrong.
Winners make franchisee profitability their north star. Failures chase franchise fees.
Rule No. 1 in Five Pennies is the foundation everything else is built on: tee up your franchisees for mega-success, not failure.
I’ve watched new franchisors stand at IFA conventions bragging about how many franchise fees they’re going to collect — “$20,000 per franchise, ten locations, that’s $200,000 for us!” The math is right. The thinking is completely backwards.
A franchisor’s wealth and success are by-products of having wealthy and successful franchisees. That’s not a platitude — it’s the operating principle that separates franchise mega-brands from franchise disasters. The franchisors who focus on unit-level profitability from day one, who obsess over whether their franchisees are actually making money, are the ones who build systems that validate well, expand efficiently, and produce the royalty income that makes the whole model work.
The ones who focus on franchise fees first run out of road fast. Struggling franchisees stop paying royalties, stop renewing, and start calling lawyers.
Winners understand that franchising is a mega-relationship business. Failures treat it like a transaction.
Rule No. 2 in Five Pennies is one I’ve seen prove itself out more times than I can count: franchising is a relationship business above all else.
I once consulted with the CEO of an established restaurant chain who had built a concept worth franchising — and was destroying it through sheer combativeness with his own franchisees. He didn’t understand the fundamental difference between a legal relationship and an operating relationship. The franchise agreement defined the first. The culture and philosophy he created defined the second. And his culture was adversarial, defensive, and focused entirely on what franchisees owed him rather than what he owed them.
The result was a system bleeding cash through lawsuits on both sides, with franchisees who had lost all faith in the brand.
The mega-brands I’ve studied — the systems built to last — operate on both relationship levels simultaneously. The legal relationship protects the brand. The operating relationship is where the brand actually lives. The franchisors who win are the ones who treat every franchisee as a partner who trusted them with their savings, and who run every interaction through that lens.
Winners know franchising is not a drag race. Failures try to grow faster than their infrastructure can support.
Rule No. 3 in Five Pennies is the one that trips up the most well-intentioned emerging franchisors: franchising is not a drag race, it’s more like the 24 Hours of Daytona.
I met a pair of new franchisors at a conference who had figured out how to open and support single units beautifully — their franchisees were profitable, the system was solid, the training worked. So they started selling large Area Representative agreements to accelerate growth. The problem? When I asked them who on their staff directly supported their Area Representatives and held them accountable for territory performance, they gave me a blank stare.
They had outgrown their infrastructure. The support system that worked brilliantly for single units didn’t scale to ARs managing multiple locations. Rapid expansion without the support model to match it is how good concepts become cautionary tales.
The winners pace growth to what the system can actually sustain. They understand that a franchise system with ten profitable, well-supported units is worth infinitely more than a system with forty struggling ones.
Winners get franchise-specific expertise. Failures assume business success transfers automatically.
Rule No. 4 in Five Pennies makes this point directly: don’t have an accountant remove a brain tumor.
Franchising requires franchise-specific skills. I’ve watched successful grocery executives, restaurant operators, and corporate managers buy franchise systems and immediately try to run franchisees like employees — issuing directives and expecting compliance the way their corporate org charts demanded. It never works. Franchisees are independent business owners who have paid for the right to operate your system, not direct reports who take orders.
The executives who make the transition successfully are the ones who recognize — quickly — that they’re in a completely different business. Franchising doesn’t operate like a corporate chain. It requires a different management philosophy, different support skills, different legal knowledge, and a fundamentally different relationship with the people running your locations.
Winners build and systematize best practices. Failures leave institutional knowledge in people’s heads.
Rule No. 5 in Five Pennies is about planting, cultivating, and harvesting system best practices — and it’s one of the most practically important disciplines a franchisor can develop.
I was once brought in as a witness for a franchisee group suing their franchisor for complacency. The franchisees were trying to create their own national accounts program because their franchisor had zero interest in helping them build one — despite the fact that it would have increased both franchisee revenues and franchisor royalties. The disconnect was stunning: a franchisor so disengaged from system improvement that their franchisees had to sue them to get their attention.
The franchise mega-brands are relentless about identifying what works within their systems, formalizing it, and deploying it everywhere. Best practices aren’t accidents. They’re the product of deliberate systems thinking — watching what your best operators do, understanding why it works, and building it into the operational DNA of the entire brand.
Winners are ruthless about franchisee selection. Failures let financial pressure drive the decision.
Rule No. 6 in Five Pennies is called “Stack the entire deck with strong franchise owners” — and the word “entire” is doing critical work there.
I once took a call from a man creating a new franchise concept who had decided to write his own FDD using internet templates and set his franchise fee at $2,000. When I pointed out that “easy in, easy out” means franchisees without real financial skin in the game walk away when things get difficult, he wasn’t interested in hearing it.
The principle he was missing is one that the best franchise systems understand deeply: the quality of your franchisee selection determines the quality of everything downstream. The wrong franchisee doesn’t just underperform — they damage your brand, drain your support resources, generate legal exposure, and poison your validation story for every future candidate who calls them during due diligence.
The winners build a clear profile of who succeeds in their system and hold the line on it, even when the financial pressure to close a deal is real.
Winners stay close to where the rubber hits the racetrack. Failures lose touch with the unit level.
Rule No. 7 in Five Pennies uses the story of Krispy Kreme to make a point that should be stenciled on every franchisor’s wall.
Krispy Kreme’s hot doughnuts were extraordinary. Their in-store experience was legendary. Then they started distributing through convenience stores and gas stations to accelerate growth. The result was a product that bore the Krispy Kreme name but none of the Krispy Kreme experience — stale, mass-produced, completely disconnected from what made the brand worth anything in the first place.
As a franchisor, you don’t make your money when a royalty deposit hits your account. You and your franchisees earn it when the point of sale system rings up a sale for a satisfied customer. Losing sight of what’s actually happening at the unit level — what customers are experiencing, how franchisees are executing, what the brand looks and feels like on the ground — is how strong brands quietly erode.
Winners create partners in growth. Failures build vendor relationships instead of system alliances.
Rule No. 8 in Five Pennies is about going beyond the standard business of licensing locations and creating programs that elevate the entire system.
The franchise mega-brands — SUBWAY, Super 8, 7-Eleven — didn’t just license locations. They built national accounts programs, purchasing cooperatives, technology platforms, and marketing programs that created genuine competitive advantages for every franchisee in the system. These programs require vision, investment, and the willingness to think at the system level rather than the unit level. But they’re what transforms a franchise into something more than a collection of individually-operated locations.
Winners manage their systems with NASA-level discipline. Failures react to crises instead of anticipating them.
Rule No. 9 in Five Pennies draws on my experience founding Computer Doctor and Expetec — two technology franchise systems that taught me what it means to manage a complex, interdependent operation with real precision.
The NASA analogy isn’t accidental. Mission Control doesn’t wait for something to go wrong before paying attention to it. They monitor every variable, identify anomalies early, and intervene before small problems become catastrophic ones. The franchise systems that manage with that same discipline — real-time performance data, structured field visits, proactive franchisee communication — catch problems when they’re still fixable.
The ones that manage reactively are always playing catch-up. And in franchising, catch-up is expensive.
Winners understand the financial requirements of growth. Failures treat franchise fees as profit instead of investment.
Rule No. 10 in Five Pennies is the one I wish every new franchisor would read before they sell their first unit.
I once sat at a roundtable next to a brand new franchisor who had just collected a large check for his first three-unit franchisee sale. For thirty minutes, a senior franchise executive and I tried to explain that the money was already earmarked for the support infrastructure, the training program, the field visits, and the operational costs he’d be incurring. He wanted to put it in his pocket.
Franchising costs money before it makes money. The support structure that franchisees need doesn’t build itself. The training program that produces great operators requires real investment. The franchisors who treat early franchise fees as profit are systematically underinvesting in the very infrastructure that determines whether their system is worth anything to future franchisees.
The bottom line
Thirty-five years in this industry have taught me that franchising is one of the most powerful business models ever invented — and one of the most demanding to execute well. The franchisors who build great systems are doing something genuinely difficult: replicating quality at scale, through people they don’t control, in markets they don’t manage, under a brand they’re responsible for protecting.
The ten rules in Five Pennies came directly from watching what separates the systems that achieve that from the ones that don’t. They’re not theory. They’re pattern recognition from three and a half decades in the trenches.
If you want to go deeper, Five Pennies is available on Amazon. And if you’re building a franchise system and want an honest conversation about where your system stands against these rules, that’s exactly what I do at Helgerson Franchise Group. The first conversation is free.
Schedule time at calendly.com/hfgfranchise, text me at 941-399-1486, or use the contact form on this site.
Lonnie Helgerson, CFE, is the founder of Helgerson Franchise Group and VeteranOpportunity.com. He has founded six franchise systems, served on the IFA Board of Directors, and chaired the IFA VetFran Committee twice. He is a U.S. Army veteran and the author of Five Pennies and Buying a Franchise: Is it Right for Me?