Rick: Good afternoon, and welcome to the Tuesday webinar series, “Chiropractic Economics Webinar for Doctors of Chiropractic.” I’m Rick Vach, editor in chief of “Chiropractic Economics.” Today’s webinar, “Benefits of Franchising,” is sponsored by The Joint. And as always, our program is being recorded and will be archived at “Chiropractic Economics” website, chiroeco.com/webinar for one year. Our expert is on-board here today to speak with you. And when his presentation’s complete, we’ll follow with a Q&A. You can submit questions throughout the presentation by clicking on the appropriate icon on the right side of your screen.
Our presenter today is Peter Holt, who is president and chief executive officer of The Joint Chiropractic. The Joint is a publicly-traded company since 2014 and is based in Scottsdale, Arizona. Today, it operates over 560 chiropractic clinics in 33 states, utilizing both the franchise and company-owned or managed model for growth. Mr. Holt joined the company in May of 2016 and has presided over its remarkable period of expansion. Mr. Holt has more than 30 years building and managing franchise systems in a wide variety of concepts. Mr. Holt, thank you for taking the time to participate in our webinar and for sharing your expertise with franchising. And before we get started, Mr. Holt, can you please give us a brief background on your work with The Joint.
Peter: Absolutely, Rick. And thank you very much for those kind words. And I also want to thank all of the participants on this webinar. I started building and managing franchise systems over 34 years. And while I’m not the founder of The Joint, I’ve been a patient of chiropractic for over 30 years. And The Joint got started in Tucson, Arizona in 1999 with a doctor of chiropractic who really had this amazing idea. His idea was he wanted to take chiropractic to the masses, to make it accessible to everybody. He wanted to put it in a retail setting, make it affordable, make it accessible, make it convenient, no insurance. And it was a remarkably successful business.
And what happens so often in this retail area when you’re building a business and then you have a product or service that people love, you’ll find your clients or patients or customers come in and say, “Oh, my gosh. This is so amazing. Not only do I love your product or service, are you a franchise?” And he had that call, as well. And so, he started franchising. So, in 2003, Dr. Garretson started franchising. And while he was a great doctor with a brilliant idea, he had less understanding of how to build and manage a franchise system. And so, to fast forward, I came here about…and again, [inaudible 00:02:36] 2016 with really the responsibility of really trying to unleash the power of the franchise model. And that’s really what we’re gonna talk about today is not just simply the chiropractic model but the power of franchising. And I think it’s one of the most powerful and unique ways to build a business by getting a business, any development business, that has their strengths and weaknesses, whether they’re going to use a franchise model or a licensing model or an agency agreement, and they all have strengths and weaknesses, and franchising is just one of those choices that a business has, whether you want to be the franchisor or to be a franchisee.
And so today, what I’d like to talk about is just a couple of things is, one, what is a franchise? What I’ve learned over the years is that there’s not a really clear understanding necessarily of what is, in fact, a franchise and how that operates. What I’ve learned is how important roles and responsibilities between a franchisee and a franchisor to understand to effectively manage that business. We’re gonna talk a little bit about the benefits of franchising. Why would somebody want a franchise? And then, specifically, about why the benefits of franchising is interesting in the chiropractic community. And then, finally, I’ll give a couple of quick tips on what you should think about if you’re gonna buy a franchise or consider a franchise. And then, we’ll open it up to that Q&A.
But I love this quote, “There is nothing more powerful than an idea whose time has come,” by Victor Hugo. And if you think about where we are today is that chiropractic, as you all know, has been around since…well, we just celebrated 125 years of existence. And the challenge is, is not the power and efficacy of chiropractic. The challenge we face is really it’s so unknown by the general population. I was reading this study recently and over 50% of the American people don’t even know what the word chiropractic means. Thirty percent are scared. You know, and they know that it’s kind of a back-cracking experience. And they’re a little scared. But with somebody helping them to overcome that fear, they can overcome that and try chiropractic. And then, about 16% of the American people have tried chiropractic.
And what we have found is by moving that chiropractic clinic into that retail setting, making it affordable, making it accessible, making it convenient, is that we’ve been able to open up chiropractic to people who traditionally has not had access to it before. So, it just feels like we’re at the right time and the right place. We all know that we’re a nation that is going through a pandemic…a lot of pandemics, but a pandemic of pain caused by obesity, the opioid overdose epidemic. So, there are so many aspects of pain that we are going through as a nation. And chiropractic can be such a powerful tool to help alleviate pain in this country.
I like to start by really defining what is franchising. Now, franchising is a highly-regulated way to run a business. And it turns out that the Federal Trade Commission has a definition. So, if you fit this definition of a business, then you must, in fact, comply with all of the rules and regulations that govern franchising. And it’s very simple. There’s three elements. So, if your business has these three elements, that, number one, you use a trademark, number two, you provide a business system, and, number three, you have a payment of $500 or more within the first 6 months of operation, then you fall under the definition of the Federal Trade Commission for franchising. That means you comply with all of their rules.
Now, there’s also state regulations for franchising. So, if you look up between the state and federal, there’s over 45 different agencies that a franchisor has to comply with or file with in order to sell franchises in the United States today. So, that’s a very technical definition of franchising. I have never found that very helpful. And so, over the years, I’ve really developed what I believe is, out of my experience of what…how would I really define what franchising is. And I like to start by talking about what it’s not because, again, there’s a lot of misconception, I think, around the franchise model.
One of the things franchising is not is it’s not an industry. Our industry is chiropractic. The industry can be, you know, frozen yogurt or automotive after-market. In fact, there’s over 250 different industries that utilize the methodology of expansion when franchising. And so, it’s a methodology. That’s all it is. And, in fact, as a franchisor, if you really think about what we do here, is we run two parallel, unrelated businesses. One is concept, chiropractic, frozen yogurt, automotive after-market, and the other is methodology. You know, I’m using that franchise model to convey the information, to support a franchisee, to build a brand. And so, there’s a lot of commonality regardless of concept in that franchise model.
Secondly, it is not a guarantee for success. Anybody who’s out there telling you, “When you buy my franchise, I guarantee you success,” I don’t think understands the concept of franchising. There are very few guarantees in life. And buying a franchise is not one of them to guarantee your success. And we’ll talk about success in franchises. But if you really look at the franchise model, what we’re doing is helping somebody who wants to go into business by themselves and reduce the number of mistakes they would make as a start-up concept. And that’s a really powerful tool that accelerates growth of businesses. But that’s not a guarantee. You still have to do the hard work. You’re still running a business. But we’re reducing those mistakes that you would make in the building of that business, which allows you to make other mistakes, which gives you a greater chance of survival.
Third, franchising is not a get-rich-quick scheme. And if you’re looking for a get-rich-quick scheme, buy a lottery ticket. The odds are against you but that’s something you can do. And the franchising, especially in this retail space where we’re talking about…I’ll talk a lot about our concept as a small-box retail. And what I mean by that, is it’s just that 1000 square feet. They’re lined up in a row where you shop. There’s, you know, the strip mall or a daily-use center. It’s where you get a haircut, buy a frozen yogurt, send a package, and now, do chiropractic care. And there’s some very specific aspects of what it means to operate a business in that space. And over the years, what I have learned is that retail, and this is a retail concept, yes, it’s a medical service in our case, but this is retail, it’s a lot of work. And it takes a lot of time, and you’re dealing with landlords, and customers, and patients or, in our case, patients, employees, and all the issues of what it takes to build a business. So, buying a franchise doesn’t eliminate all that work that has to be done in building a business.
So, if we know what it’s not, how do I describe what franchising is? And there are a couple points I want to make here. And one of them is franchising is a business of accelerated growth. So, as a franchisor, if I’m not interested in opening up a whole bunch of units in a relatively short period of time, there’s probably better ways to build a business because franchising’s complex. I mean, you have this very unique relationship between the franchisee and the franchisor. You have this contract. You have all these aspects that you need to be able to understand and govern to do this successfully. And so, they’re all solvable but there are elements to take into account.
And so that if your goal is to build that brand and build that brand in a relatively short period of time, franchising as a business model is one of the most powerful ways we have to build a brand in this country. So, it’s all about accelerated growth. We, for example, have come out with today, as you heard Rick say, we have 560 units operating in 33 states. Our goal is to have over a thousand units by the end of 2023. We couldn’t meet that goal if we were not utilizing the methodology of franchising.
Secondly, franchising is a business of managing expectations. This is a very unique relationship between you as the franchisee and the franchisor. And what I would say is that I think managing expectation is one of the most important aspects of life. It’s not just franchising because if you think about your own life, the noise of it, the energy, the concern. It’s not about what happens to you. It’s about what happens to you versus what you think should happen to you. And so often, we’re over-promising and under-delivering and mismanaging those expectations. But it’s really important that if you’re going to successfully build and manage a franchise system that you’re clearly setting the expectations of your franchisees and then telling the franchisee what you can do as a franchisor so that we can manage the expectations and people are satisfied and accepting their role and responsibility and know how to play it.
This is why I can’t get out of the franchise model. Franchising is a business of relationships. This isn’t just simply, “Okay. We sign the contract and then we’ll see you 10 years later.” Franchising, very often, is compared to marriage. And, in fact, in some states, it’s easier to get a divorce than to break a franchise agreement. So, we’re entering into this typically a 10-year term that it’s going to outline the way in which we’re gonna work together in that 10-year period.
And it’s in that management of the relationship that you’ll be able to define the success or failure of that franchise system. So, I have been, like I said, doing this for a long time. And I have franchisees that I’ve been in touch with, concepts of over 30 years ago. We’re still in touch. We’re still friends. And part of that is just this incredibly powerful, long-term relationship that you build as you’re managing this business.
Franchising is a community. And this is one that I would say if that you remember nothing else from this concept, especially if you’re operating in a kind of retail setting, there is nothing more important to understand how critical it is to anchor your business in the community that you serve. Now, again, we’re in retail. We’re in that strip mall. So, who is our patient base or our customer base? I can tell you our customer base. They are going to live and work or travel within the 5 to 15-minute radius around that box. That’s it. You know, I don’t need to educate the entire country about the fact that this one unit is open because the only people who are gonna come into that store, or that clinic in our case, live, work, and travel in that radius. Now, we all know if a doctor changes, you know, locations or moves across town, you absolutely will have your following, and they will follow you. Not all of them, but especially when you’re a concept based on convenience and it’s so easy for me to get there, to get my adjustment, to get out, you can’t build a business simply on that following. What you’re building a business on is the accessibility of being able to serve the patients that live, work, and travel in that 5 to 15-minute radius around that box.
And there’s all kinds of activities that we do to anchor ourselves in the community, you know, whether it’s working with schools, working with hospitals, working in the Better Business Bureau, all the groups around you because these are your customers. And the more they’re aware that you’re there, the greater chance you have that they’ll open the door when they find themselves, “Oh, my gosh. I’m in pain. There’s The Joint. That’s chiropractic. I’ll go in.”
And finally, and this is truly the franchise model, is that you are building a business for yourself but not by yourself. And this is really important. What’s really important to understand is that every one of our franchisees, they own the business. This is their business. They paid a franchise fee to come in. They paid for the buildout. They’re paying for the time to get to break even and be profitable. They own this business. Now, what we’re doing is we are licensing them to use our brand. We’re licensing that franchisee to use our operating model. But we are helping them. So, they’re not in business by themselves but they’re in business for themselves. So it’s a really important aspect that drives, I think, franchising across this country.
We always want to talk about success. Everybody wants to be successful. We want to be successful in franchising. And we have a board member. His name is Jim Amos. And I think that he has one of the most beautiful definitions of success. And I’ve asked each of you listening to take a step back and define for yourself, when you say, “I want to be successful, what does that mean to me?” Now, we do a franchise training class every month. And I do a presentation much like we’re doing today. And I talk about, you know, what is your definition of success? And we go around the room. And each franchisee will tell their story of how they are defining success. And what I have seen over the years is that you really have two aspects of this definition of success that will come out in that conversation. And one is measuring. You know, I want to reach certain economic goals. I want to be able to pay for college for my children. I want to make a certain, you know, metrics that are important to me. So, you have this very specific meeting goals as a part of how people define success.
The second thing that definitely comes out in this conversation is aspirational. People are looking for something that’s relevant to them. This is what I love about the chiropractic community is our doctors and you, as I know, are…it’s a calling. I talk to doctors all the time and I ask them, “Why did you become a doctor of chiropractic?” I ask doctors this all the time. And I can tell you in all of those times I’ve asked that question I have never once been told, “I did it for the money.” I’d say that most times the answer I’d get is that, “I had an experience when I was a child in high school and college. Traditional medicine couldn’t help me. I found a way to a chiropractor. It was so transformative that I wanted to do that for others. I was called to do that for others.”
And I think that is just such a powerful, powerful part of what it is to be a doctor of chiropractic. And so, that aspirational side of success has always been a part of the definition that comes out in this conversation. And that’s why I love Jim Amos’ definition of success is, “The pursuit of a worthwhile dream.” And so, the pursuit gives us that sense of measurement. And that worthwhile dream gives us that sense of aspirational, doing something larger than ourselves. And that, I think, is just one of the most beautiful definitions of success I’ve ever heard.
Now, my definition of success, as you can see on the slide, is very, very different. I think success is because I’ve survived every mistake that I’ve made to this moment, and I’m still alive. I mean, I really believe that life itself is a gift. And we take it for granted so easily. And it’s so important. And what I love about franchising is that if you think about franchising, and I have a lot of different ways I describe it, is what we’re doing is, as I said earlier, we’re helping reduce the mistakes we make as we build a business. In fact, a lot of times, I’ll describe franchising as the business of selling mistakes. And if you just think about in your own career, okay, are you better at what you do today than you were when you started?
And, of course, you are. Where did that betterment come from? It came from experience, making mistakes. Oh, my gosh, I’m never gonna do that again. That was terrible. Oh, my gosh, that didn’t work. Don’t do that again. And so, out of that experience of learning from our mistakes, we’re able to improve or minimize the mistakes we’re going to make. And that’s what that franchise model is doing is sharing that collective wisdom with you as a franchisee so that you don’t have to make those same mistakes.
The other thing I love about franchising as a model is it really does provide that channel for life energy in the sense that when you’re out there and you’re just starting to put a significant portion of your life savings in a business, my experience is people care about it. It’s really important to them. You know, they’re just not out there and saying, “Oh, you know, I’ll make this investment. It may work. It may not. Who knows?” My experience is that franchisee is, you know, they’re coming in. They’re praying. Maybe their hand is shaking. They’re writing a check probably that was bigger than any check they ever wrote in their life, maybe except for their house. They’re taking it seriously. And they’re passionate about this. And it’s that vested interest, it’s that investing in themselves is what is such a driver for them to be a part of that franchise community or the ones that they decided to acquire.
And franchising provides that model because you’re not an employee. It’s not a union. This is your business that you’re investing in. And you’re investing in yourself. And you’re tying yourself to a concept or a model that you really care about. Very rarely have I ever seen a franchisee come in and say, “You know, I don’t really care about what we’re doing here. I just care about the money but tell me how much I’ll make, and then I’ll decide if I’m going to do it or not.” And I would tell them the same thing that this is probably not for you, you know, that if you want something where you don’t have to worry about it or you’re just trying to figure out an investment, buy stock. We’re a publicly-traded company. It goes up. It goes down. You don’t have to do anything but make that decision to buy our stock. But if you’re interested in investing in yourself and building a business and being part of a wider community, then that franchise model becomes a really interesting way in which to build that business.
So, what I learned is how critical it is to understand the roles and responsibilities of a franchisee and a franchisor to be successful in franchising. I just cannot emphasize this point enough. What I’ve learned is there is really nothing intuitive about being a franchisee any more than there’s anything intuitive about being a franchisor. Our Dr. Garretson who started this concept had a beautiful idea and an amazing experience, but he didn’t understand how to be a franchisor, how to transfer that technology in a relatively short period of time, how to build up a network. And even as a franchisee, just because you pay a franchise fee and you sign this big franchise agreement doesn’t mean you know how to be a franchisee. And so, what we need to do is take that step back and ensure that, okay, I want you to understand my role as a franchisor, and I want you to hold me accountable to it. And I also want you to understand your role as a franchisee, and I’m going to hold you accountable to that role. And when you do that, I think the only way that you can truly unleash the true power of that franchise model.
So, what is the role of a franchisor? Now, it’s pretty straightforward. These aren’t complicated conversations. It’s just not intuitive. And I can tell you as a franchisor, there are two fundamental roles that you can hold me accountable to. Number one, I am responsible for creating and maintaining the franchise business model, that system. You know, this is what we’re licensing a franchisee to use. And I’ve talked to a lot of people come to me and say, “Say, oh, Peter, look. I’ve got this great idea, and I want to franchise it.” And I say, “Well, show me your model. Show me what you’ve done.” And he goes, “Oh, no, no, no. It’s an idea, and I’m gonna franchise it.” And I’m like, “Well, you know what? You don’t have anything to franchise. Franchising is a methodology, you know. It’s not a business. And so, if you don’t have a business, you have nothing to franchise. So, go build your business, then come back, and we can talk about the methodology of franchising as a way in which to expand.”
The other thing that’s important as a franchisor is to build that brand equity. This is not just simply about creating a series of clinics across this country that are providing high-quality chiropractic care. We’re actually the first company in the world that is branding a medical service. And so, we’re creating that [inaudible 00:22:32] kind of in the consumers’ mind about what that brand means. And so, it’s important as a franchisor that we continue to build brand equity. And we’re gonna talk about how does a franchisor do that. But this is a brand-building exercise. This isn’t just simply running a clinic. And that’s an important aspect to what it is in terms of responsibility as a franchisor. Otherwise, I could have 560 clinics across the country all with their own name, maybe with common services, but not a brand. It’s a very different way to build a business.
Excuse me. So, as a franchisor, how do I perform my role? Again, it’s pretty straightforward. Number one, you have to continue to research and develop the franchise operating system. Especially in a retail space, what do we know? Nothing stays the same. We have to evolve. We have to change. We have to be moving as our consumers are moving because if you lose touch with your consumer, your business will go out of business. It’s that simple. There’s nothing more important as a business. I don’t care what the business is, is that the minute that business loses its touch with its customer or its patient, it can’t stay in business because your patients won’t stay with you or your customers won’t stay with you. So, it’s essential that we continue to research and develop and to keep the franchise model current. And, in fact, our franchisees are some of the most powerful tools we have to ensure that happens. And we’re gonna talk about how that happens in a minute.
So, we’ve got to keep the model current. If you are in this system today, so, we started franchising really in 2010, and you go back to talk to some of our franchisees back then, and then you talk to the new franchisees coming in today 10 years later, you would find it’s an entirely different experience. Why? Because our model has continued to evolve how to generate patients, how to run the clinic, how to lay it out, how to deal with your operations, how to deal with the IT side of this. All those aspects of what it takes to run a business we’re evolving and improving and changing over time and making sure that we’re staying relevant to our consumer. That’s how you’re gonna stay in business as a franchisor.
Secondly, you can’t just take that research. You’ve actually gotta implement it. So, you’ve gotta develop those new strategies and programs. If you think about what we’re doing here [inaudible 00:25:03] a franchise concept I work with is what we’re really doing is building a retail distribution system. And every time I add a node to that system, the system becomes more valuable. The nodes become more valuable. And what I have learned over the years is I have never worked in a franchise model that didn’t evolve over time. So, it has to evolve as the consumer base evolves. And this is where it’s not just the research but it’s actually the implementation of these new strategies and programs that keep us current and keep us in business.
Finally, one of the most important aspects of being a franchisor is to manage this powerful relationship that makes franchising such a successful method of growth. And because what happens is that… I was reading a study the other day. And it was saying that…and I think it’s one of the most tragic statistics that I have heard is that 75% of the American workers are disengaged from the work that they do. Now, to me, that’s just horrifying. Seventy-five percent of us are disengaged from the work that we do. Now, where do we spend most of our time? At work. And so, 75% of us are disengaged from where we’re spending most of our time. And I find that just so hard to accept and just tragic, quite frankly, because as I just told you, I think life itself is a gift.
And then, so, this relationship with our franchisees and between the franchisors, these are not disengaged people. These are people who put a significant portion of their life savings on the line to use your model and your brand to build a business. There’s a level of engagement and concern and power. And that’s so important that we manage this relationship between the franchisee and the franchisor because when you do that, then you truly can release that really powerful, powerful energy that makes these businesses so successful because it’s not just, “Okay, my 9:00 to 5:00, I go in, I go home. You know, it doesn’t really mean much to me.” These are people that are absolutely passionate about what they’re doing. And the management of that relationship is really how to harness the power of that passion.
So, that is the role of a franchisor. Pretty straightforward, hold the franchisor accountable. But equally important is to understand the role of the franchisee. And that what I will tell you, the number one responsibility of a franchisee is to learn the franchise operating system. I can’t tell you how often I’ll…I hear this franchise. They sell the franchise. They sign the agreement. They pay you the money. And then what’s the first thing they say? “Oh, it’s different here. We have to do it differently.” And I’m like, “No, no, no, no. You don’t understand that. It’s not different here. Yes, California’s different from New York. I am not arguing that point. What I’m telling you is that you cannot tell me anything you want to change in this franchise system until you learn it. Now, I’m interested in your ideas, but not at this point. You must learn the business. You must learn our operating system. Now, if you’re not interested in learning our operating system, you probably don’t want to be a franchisee. And I’m not even sure why you’re here. But what you have to start with is learning that operating model.” And it all starts with them. There is no role more important that a franchisee can do than to learn that operating model.
Now, that’s not enough because this is a doing business. So, if you learned it but you don’t implement it, you don’t utilize it, you don’t actually make it happen, then you might as well not even know it because this isn’t an intellectual exercise of learning how to run a franchise model. This is a building of a business in a retail setting, in our case. And it’s essential that you not only learn the system, but you actually operate the system. You follow the rules. You pay attention. You are following the operating model that we’re providing to you. That’s really critical. Now, once you’ve done that, once you’re there, now, we can have this conversation to provide that constructive feedback to enhance the system because this is what I can tell you. This is what I have learned in franchising is that listen, we’re a retail concept, as we said. We want to stay relevant to our consumer. How do we stay relevant to our consumer? I can tell you how we stay relevant. We listen.
We listen to them. Our customers tell us all the time what’s important to them, why they like this, why are we doing that, why this is important. And they’re telling us. And historically, if you’re just an employee of an organization, let’s say you’re working in a big box retail. And you’ve got this big rack of dresses, and nobody’s buying them. And your customers are telling you they don’t like them. And why aren’t you doing this? And so, you go to your manager and say, “Hey, manager, nobody likes the blue dresses.” So, what does the manager say to that employee, that party that’s closest to our customer? “I don’t care if they don’t like it. Just sell the blue dresses or I’ll fire you.” That’s how it works. And so, what’s important in this franchising model is you’re not just that line level employee who’s listening to the customers tell us what we should be doing. You are an investor. This is your business. This is your life savings. And so, I’m telling you a no is not a no. So, you have this passion to share your ideas about how we can be improving, how we can be better.
And one of the ways that I would describe franchising is franchising is the business of forced listening because that you are not my employee. You’re not a union member. You are a part of this relationship and that I promise you as a franchisee because this is so important to you, you are going to make sure that I’m heard, that you have that [inaudible 00:31:05]. Now, I will be the first one to say that every idea that a franchisee has is not a good one. Just I’m telling you. Just because you have an idea doesn’t mean it’s good. What I will tell you, the corollary to that statement, is that the best ideas come from our franchisees. And that’s why this constructive feedback, enhancing the system is an essential element of the franchise model. And I can tell you story after story after story about the innovations that have been created not by the franchisor, not by [inaudible 00:31:44] but by the franchisee. A great example, just a very quick one, is there was two Subway franchisees, two Subway…a franchisee had two Subway sandwiches in Florida. And he had slow sales over the weekend. And so, he decided that, “You know what I want to do? I need to do a special marketing. I’m gonna do a foot-long $5 sub.”
He talked to his franchisor and said, “Listen, I have this great idea. I’m gonna do this promotion. I think it will be really good. It will bring people into the store.” And the franchisor said, “That is the stupidest idea I ever heard. You’re gonna cut your margins. You’re not gonna make it up from volume. You’re hurting the value of the sandwich. Don’t do it.” Now, he wasn’t breaking his franchise agreement, but he went ahead and did it anyway. And guess what? His sales exploded. So then, all the other Subways in that region, of course, said, “Oh, my gosh. What are you doing?” He talked about his promotion. They all started doing it. All of a sudden, national said, “Oh, my gosh. Why are sales increasing so much in Florida?” So, they go down and talk to him. “Oh, my gosh, what a great promotion.”
It was rolled out nationally. Now, their competitors are following, you know. So, one idea from one franchisee transformed that whole process. That’s the power of the franchise model. And that’s why it’s important that we receive that constructive feedback, so we continue to enhance the system. And believe me, I have never had a franchisee that’s willing to hold back when they feel they have a great idea. I’ll listen to it, as I said, but not all ideas are the best ideas, but they will provide us the best ideas that will help the rest of the business.
And finally, for that role of that franchisee is they have to do the same thing the franchisor does, is protect this incredibly important relationship. As anyone knows that has been married is that you cannot have a relationship with one. It’s both parties have to be 100% committed to that relationship. Now, it doesn’t mean there won’t be conflict. And, of course, there’s conflict. I’ve been married for 37 years. And I promise you that we’ve had conflict about just about everything that you can imagine, except for one thing. We’ve never fought over values. And so, those shared values bring us together and allow us to overcome the differences you need. If everybody in the room is agreeing, then something’s wrong because we need that feedback, that input how to stay relevant, how to improve, how to be better.
I talk a lot about franchising. And franchising is the business of enhanced learning because it’s not just your own mistakes you’re gonna learn from, that we’re taking best practices across the network. And then, we’re pulling it back in. And we’re putting it into a package and rolling it out across the network, and all boats rise. So, you create this huge opportunity to be able to continue to accelerate the growth of your business based on the experience or mistakes made by other franchisees. This is the power of a franchise model. And it’s in that protection of that relationship that it ensures that that listening is taking place.
Now, again, what we want to do in this world of success… In the franchise model, the very structure of franchising requires a couple of things. It’s, number one, as we’ve just talked about, understand the unique roles we each play. Number two, play those roles to the very best of our ability. And then, three, recognize that you are bringing out the best qualities of the entire system. You are not in a business by yourself. You are a part of a national healthcare phenomenon, in our case. And in any of these franchise models, it’s not just about that one unit in the local market. You are a part of a national team or an international team or maybe regional. And so, that’s the power of being a part of a network.
So, now, let’s talk for just a little bit about why franchising is so beneficial. Now, like everything, it’s got strengths and weaknesses. But there are some pretty powerful reasons to be a part of a franchise system. And one is that power of the brand. And if you think about a brand, all’s a brand is, is the shortcut to a consumer’s mind. And when you say, “Mercedes,” or when you say, “Apple,” or when you say, “The Joint,” I mean, whatever comes to mind, maybe The Joint is cannabis, because we’re still working on the building of our brand, but it’s the power of a shortcut to a consumer’s mind of whatever your product or service is. And it’s a really powerful tool to get people to open that door to understand your business and to come back. And that’s why that brand is…we’re so attracted to brands. In the 21st century, it’s only becoming more and more relevant as we’re making our consumer choices.
Number two, you’re part of that operating model. These are the tools and systems and support that you are benefitting from, rather than making all those mistakes for yourself and learning from them. And maybe you survived, and maybe you didn’t, but what you’re truly utilizing is the experience or the collective wisdom of the entire system over however long it’s been in business and benefitting from it. So, in a funny way, we’re no better than the latest franchise we’ve just opened because that’s where the best thinking has been put out to make sure that’s a successful unit.
And then, finally, you’re leveraging. We can do things in the system that are almost impossible to do if you’re not a part of a larger network. And it’s really simple like marketing is that if you’re trying to market and do your own marketing in your community, you can just imagine if I only have X number of dollars to spend, whether it’s on a TV ad or a radio ad, well, it becomes impossible, of course. But if I’m collectively… Let’s say that we have 30 franchise clients in a market. So, then, we want to collectively put that money together. All of a sudden, we can use that power to do radio, to do TV, to do much more aggressive ways of educating consumers about the business. And you’re leveraging vendor relationships. There’s all kinds of… There truly becomes great value in size. And you can do things that are so hard to do on a single-unit business. So, that’s one of the reasons you see franchising, regardless of concept, is so powerful because you’re leveraging size to build the business to the benefit of everybody.
Now, what is the benefits of franchising chiropractic? Now, this is kind of interesting because if you think about it, that one of the biggest challenges that we face as a franchisor is getting somebody to think that chiropractic could be franchised. I mean, yes, everybody thinks about fast food being franchised, and hotels being franchised, and car rentals being franchised, but no one really has been thinking about chiropractic as a franchisable model. And it’s an opening field for us. It’s educating consumers because one of the first things they’ll say to themselves is, “Oh, my gosh. I didn’t even know that chiropractic was franchised. And then if it is, all right. I got over that hump. It is a franchise. But if I’m not a doctor of chiropractic, how could I be a franchisee?” And what we learn is we actually can, in fact. You know, franchisees don’t have to be the doctor of chiropractic. If you look at our network of the 560 units, about 25% of our franchisees are, in fact, a doctor of chiropractic. But that also means that 35% are, in fact, hiring the doctor of chiropractic.
And one thing that’s so interesting is this consumer awareness by putting chiropractic in the retail setting. Now, if you look at last year, for example, when we closed out the year, we had 513 clinics in operation by December 31, 2019. Now, to me what is interesting is in that year period, 585,000 people opened the door to The Joint for the very first time. Now, just think about it, 585,000 people opened that door for the very first time to The Joint. Now, to me, what’s even most important about that number is 26% of those had never been to a chiropractor before, never. So, just imagine how… We’re all consumers. Just think about in that retail setting when is the last time that you opened the door to a shop and had never used that product or service before? In our case, 26% had never been to a chiropractor before. That’s powerful. And why is that happening? Because by moving it into that retail setting, making it affordable, making it accessible, is that they’re learning. It’s like, “Oh, my gosh. You know this is what I thought. There’s The Joint. That’s not cannabis. That’s chiropractic. I’ll go in.”
And what you ought to know better than anyone else is chiropractic works. The biggest challenge that we face in the chiropractic community is not enough people understand the efficacy of chiropractic. And what we find is when they come in, and they try it, and they utilize it, it improves their quality of life through that routine and affordable chiropractic care, it makes a difference. And it’s educating the entire community, not just The Joint. We are educating people across this country about the power and efficacy of chiropractic.
And that’s what we’ve recognized over the years is this need for cohesion and cooperation in the chiropractic community. We need to work together more effectively. I often tell this story, it’s like, why do I brush my teeth every day? Why do I go to my dentist every six months for a checkup? Why do I change my mattress every seven years? Because the industry comes together and gives you all of this messaging about you need to brush your teeth every day. You need to see your dentist every six months. You need to change your mattress. Buy milk. Buy pork, whatever it is. Collectively, working together and not to any one individual’s benefit but educating the consumer about whatever that is important to that product or service is. And that’s what we as a chiropractic community need to be more and more focused on to the benefit of all of us because we understand how effective chiropractic care is in helping people improve their quality of life.
And then finally, you focus on your strengths as a franchisee is that not all doctors want to be businesspeople in the sense of running their books and figuring out how to market to patients and how to do all these aspects that are required to run a business instead of doing what they love most, and that is treating their patients. And so, by providing that operating model, we’re telling you, “Okay. This is the type of location that we’ll approve you to go into. This is how you lay out the clinic. This is how you’re going to do the marketing. This is how you’re going to run your book. This is the IT platform that we’re going to use to house all of our electronic patient records.” These are all systems in place that you don’t even have to think about. And that’s a very powerful tool that allows that doctor to focus on what’s most important to them, and that’s treating their patients. And that is what…the power of franchising brings to chiropractic.
Now, this is actually my last slide. And just to give you a couple tips is if you’re going to…if you really think about, “Do I wanna be a franchisee? How do I evaluate that franchise opportunity,” this is what I would say more than anything else. Focus on the concept that’s most important to you. What I’ve learned is people are attracted to concepts. So, the people who bought frozen yogurt are different from opening an automotive after-market, a postal and business and communications services, or chiropractic. And that is driven by what is important to them. If you’re sitting there at a point in your life where you want to invest a considerable amount of money to build a business, I promise you, you’re gonna invest in something that’s important to you. And so, that’s a really powerful qualifier. You’re trying to figure out, out of these roughly 4,000 franchise systems that operate in the United States today, which one? Which one do I want to be a part of? And what makes sense?
And so, focusing on what’s important to you is a really powerful qualifier to help you narrow down where you want to spend your time. Secondly, go to the location. Get a feel for it. You know, be a customer. Get a feel for like, “Is this something interesting to me?” I said this is actually how The Joint started franchising. In fact, virtually every franchise system out there, it’s a retail concept that gets started, and somebody comes in and says, “Oh, my gosh. I love this. Are you franchising?” And they think, “Why not?” So, they do. And so, it is important to get a feel for what this looks like, feels like, be a part of. Am I happy as a customer? It’s kind of, you know, the warm brush of idea of investing in what you know and care about.
And thirdly, what’s really important is, as a franchisor, I’m required to present to prospective franchisees the franchise disclosure document, the FDD. And this is a document that has 23 points to it that gives you an enormous amount of information about the franchise concept, how to give you…what it’s gonna cost to build out, who are the people behind it, the history of the company, audited financials, how many years do we have open, how many have we closed, how many have we transferred, how much litigation have we been? I mean, it’s a wealth of information about the franchise if you’re considering purchasing it. So, it’s a really important document. I know when somebody hands you this big document, that it can feel overwhelming. And the franchise owner’s not giving it to you to negotiate. He is giving it to you to make sure you understand what you are considering being a part of. And so, there’s just a lot of information there that will give you, I think, the key information that you need to help you make a good decision about that concept or not.
And then, attend a discovery day. This is an important time. Most franchisors, not all of them, but most franchisors will have a discovery day where they will invite franchise prospects who have fallen, you know, along the line but they’re at the point where they want to go visit the corporate headquarters and spend time with the people behind the business and talk to the marketing people and the operations people, and the IT people, and kind of get a sense of their role and how they can help you, and how does a franchisee fit into this world of franchising. So, it’s an important time where you get to ask the questions with the key players of that franchise system.
And then, finally, validate with other franchisees. And so, this one, by validate what I mean is that, in our case, there’s 560 units out there. You can go to those units and talk to their franchisee and say, “Hey, look. You know, I’m considering buying this franchise. Are you happy with it? Did the franchisor manage your expectations? Did they do what they said they’d do for you? Is this a profitable business? Are you happy? Would you buy this franchise again?” And so, you can…you know, again part of that franchise disclosure document is that I’m required to list every single franchisee that’s in our network with their address and their phone number. I’m also required to list all the franchisees that left. And so, again, you have a source of information. You can just, you know, go around the town to the stores or clinics around you to validate. But you also can use that document to get in touch with potential or existing or former franchisees to get a sense of what it’s like to be a part of this business. So, with that, I’m gonna stop talking for a minute. And we can open it up to Q&A. I really appreciate your time and attention. And thank you very much.
Rick: Thank you, Mr. Holt. This has been extremely informative and some great insight into The Joint. We’ve been collecting a few questions. First off, do you have to be a doctor of chiropractic to be a Joint franchisee?
Peter: You don’t. And this, I think, is one of the misconceptions. Very often, when somebody’s thinking about buying a franchise is, “Do I have to be,” in our case, “Do I have to be a doctor of chiropractic?” And, as I said, if you look at The Joint, we have roughly…in that 560 units that are in operation, we have over 1,500 doctors under that umbrella. And of those 560 units, the 25%, the doctor is, in fact, the franchisee, but the majority are not. And so, what they’re doing is they’re hiring the doctors. We also run corporate units either managed or owned by the corporate, by The Joint. And that’s so that we are actively hiring doctors as a part of our, you know, managing of those corporate units.
Rick: Thank you. And another question came in. How has the pandemic affected The Joint’s model? Have you found the volume of patients to have grown more due to the various shutdowns, especially after chiropractors were deemed essential workers early in the pandemic?
Peter: That is such a great question in that we are now nine months into the pandemic, and what I would tell you is what’s been so interesting to me is the question of if you can get your head back into March when this happened and no one knew it was gonna happen, you know, would we be deemed essential service, which we were, and worked very closely with the associations to ensure that was the case, and that what you found was that the metrics that were most impacted by our business was new patients. And that kinda makes sense to me because if you’re a new patient and that you’re new to The Joint and new to chiropractic and you’re in the middle of a pandemic, I mean, you’re not gonna leave your house unless you really feel it’s essential to you.
But what we found is that those patients who did open the door, they converted. And for us, conversion means they joined as a member. And that auto model is that, you know, you can come in and just get an adjustment, you know, any time that you want. But you could also join as a member, and that for $69 a month, you get four adjustments in that month. And what we found is the conversion or those people who walked in for their first time and joined as a member is some of the highest conversions that we’ve seen as a system. And I think that’s been very much driven by the fact that this is a different quality patient because if you’re coming out in the pandemic, you’re coming out because you’re in a lot of pain.
Now, what’s interesting is if we just think about the impact on The Joint is yes, very early it was clear that chiropractic care was considered essential. You know, in April about 10% of our network was closed. Today, 100% of it is open, except for one clinic in an airport in Austin. But that doesn’t matter because if our doctors wouldn’t come into the clinics and serve our patients, we can’t stay open. And what’s been so humbling to me and gratifying is that the vast majority of our doctors truly see themselves in the frontline of healthcare in this country and have been in our clinics serving our patients. And it’s an admirable thing to see, the commitment to their patients.
Now, having said that, what’s really interesting is that okay, that’s great. We’re essential. That’s great. The doctors are there. But if the patients don’t show up, then what difference does it make? And what we’ve seen over this pandemic to date is that our patients truly see this as essential to their healthcare and that they are coming in. So yes, we’re seeing not as high as the new patients come in the door, but our existing patients are staying with us and staying with us longer. And so, what I would argue is that we have been remarkably resilient in this pandemic as a business model and I think, again, because of our doctors and because our patients truly see this as essential to their health.
Rick: Thank you for that. And another question that came in from Lindsay, “What are the best marketing tactics that help the franchisees as the franchisor?”
Peter: Well, you know, again, it’s not complicated. And I’m sure… There’s three sources of patients for us. And they’re probably not much different from the average clinic is that those three resources, the number one is the same one we all know, referral. You know, you give great service, you know, to your patients. They refer friends and family. “Oh, my gosh. You’ve got to go to my chiropractor. He’s amazing.” Forty percent of our new patients are a direct relationship, are a direct source, as referred from friends and family. Now, I’m a baby boomer. I have actually never chosen a medical service, whether it was a doctor, a dentist, a chiropractor, that I didn’t get a personal referral from friends and family. But the millennials and younger, they do it a different way.
And so, they’re not going to friends and family for their referral. They’re going to Dr. Google. They’re going online. They’re doing a search, pain, close to home chiropractic. And so, what you’re seeing is that your presence online is an essential way we’re generating new traffic in our clinics. We probably spend more money, collectively, both our franchisees and corporately, on our digital marketing campaign than anything else we do in that marketing strategy. And that’s, right now, 35%, 40% of all of our new patients are a direct result from our digital marketing campaign. Then, the balance is really coming from what I would call that guerilla marketing techniques. And this is what’s so important, is educating the consumer in that 5 to 15-minute radius around that box that you’re there. And it could be coupons to the neighborhood. It could be sign throwing. It could be relationships with the gyms, with the schools, with the hospitals, and making sure that they are aware that you are there. And those are the framework of what I would say is the most important ways that you can look at generating new patients for a chiropractic clinic.
Rick: Thank you for that. And another question, how is malpractice insurance handled?
Peter: Well, malpractice insurance would be handled in many ways just like it would be at any clinic. Every doctor must have it, at least that standards that are required…minimum requirements of that malpractice. We have [inaudible 00:53:53] brokers that offer malpractice insurance to our doctors. Because these are independently owned and operated businesses that we’ve been talking about today is that if it’s a franchisee, they are required to have the name insured for the corporation because, again, if you are a patient, a patient doesn’t know the difference between a franchised unit and a corporate unit. They just know it’s The Joint. And so, if they get upset and they’re gonna just sue, they’re gonna name everybody they know. They’re gonna name The Joint. They’re gonna name the franchisee. They’re gonna name the doctor. They’re gonna name anybody they that they can. And then, those independently owned and operated businesses, and that name insured means, okay, that we are not a part of that business other than that we are licensing the brand and the operating model. And so, that they all have to have that level of insurance. But the fact of the matter is our insurance probably is no different from the insurance that any doctor or chiropractor would carry in order to run their clinic.
Rick: Thank you. And a question from Richard, how do I find out what’s in my area?
Peter: In terms of what’s in my area, if you live by like where the clinics are, you absolutely can go to our website, thejoint.com, and location. And that will tell you every location that we have in the country. It will also tell you the locations that are coming up. If you are specifically interested in is there room in my area to open up The Joint, you can also go to that same website and just click on Franchise Opportunities. And that will open up a whole webpage that talks about the information on being a franchisee, you know, quotes from our doctors and our franchisees, videos, and it really lays out the step-by-step process, if you’re interested in learning more about The Joint as a franchise opportunity.
Rick: Thank you. We’ve got about three minutes left for questions. Patrick asked, “What about states that require clinic owners to be chiropractic or immediate family of chiropractors such as Florida?”
Peter: Absolutely. And this is, again, just part of the business that we are operating. You all know is that, you know, there’s actually 23 states in the District of Columbia that have, you know, the corporate practice of medicine responsibility or structure. And so, for example, in California where we have, you know, almost a hundred units operating between our franchisees and ourselves, is that if you are not a licensed practitioner in that state, you are not allowed to own that franchise. So, this is why you hear me talk about our corporate units. We either own them, or that we manage them. So, in all of the units that are in California, we have entered into a management agreement with a professional corporation, which is licensed to practice chiropractic in the state of California, and that they actually own the clinics in California. And we just help manage them.
Now, in the state of Arizona, for example, and New Mexico or South Carolina, all of where we have corporate units, we actually own those clinics outright. So, it is a level of complication but one that’s…you know, obviously, there’s a lot of medical businesses that move through that structure in order to provide the services in that state.
Rick: Thank you. And another question, what’s the initial investment?
Peter: In our case, the initial investment is we have a one-time franchise fee of roughly $40,000. The average build-out in our clinic is roughly around $150,000, $180,000, depending on the market. It feels like California always is more expensive than some of the other markets. And then, there’s gonna be the manage it to try to get it to break even. And so, I’ll tell you as kind of a general rule of thumb, you know, if I was a franchise coming into this business, I would want to have access to that roughly $250,000. And most of our franchisees will borrow that. So, a third liquid, two-thirds of that [inaudible 00:57:49] borrowed in order to buy that franchise. So, Rick, did I lose you? Did I lose you there, Rick?
Rick: Oh, I’m back on. Sorry about that.
Peter: No problem.
Rick: At this time, we’d like to thank our sponsor, The Joint, and Mr. Peter Holt for today’s webinar. We’re gonna try to answer any questions we didn’t get to in a follow-up email. And thank you for all attending. Remember, this webinar, including our speaker’s PowerPoint presentation, has been recorded. We’ll alert you via email when the webinar is available online. Thank you, again, for attending, and we look forward to seeing you next time. Have a great day.