Talking With The Wolf Of Franchises About How People Are Using Multi-Unit Franchising To Build True Wealth

by | Aug 4, 2022 | Podcast

FM 10 | Multi-Unit Franchising

 

The Wolf of Franchises dropped in to talk about all things franchising with a deep dive on multi-unit franchising and how some franchise owners have used this strategy to create true wealth. The Wolf is an up-and-coming figure in franchising and has built a name for himself by sharing fascinating stories on different franchise brands, interviewing successful multi-unit franchise owners, and putting out refreshingly transparent content. This is one you don’t want to miss.

Listen to the podcast here

 

Talking With The Wolf Of Franchises About How People Are Using Multi-Unit Franchising To Build True Wealth

I have the myth, the man, the legend. The Wolf of Franchises is joining us. I’m glad to have you here. I’ve been following what you’ve been doing. You’ve been at it for a while, putting some pretty big content out there and developing a big platform. Thanks for joining.

It’s good to be on, Dru. I started my content journey years ago.

Congratulations. You put out some interesting stuff. It creates a level of transparency in a way with franchising, which is typically a lot of the information and the stories you put out there behind the veil and scene. We can talk a little bit about it but we’d love to know a little bit about your story and how the idea of the Wolf came about and why it came about, what you’re doing with the platform that you’re building.

I worked in franchise development for years. We work with a variety of different brands across different industries. Through that, I saw time and time again multiunit owners who were doing well. To me, that was a eureka moment, discovering you can own ten franchises of Orangetheory or Applebee’s. There are many different franchises out there. That’s a way to make money, a lot of it. It was pretty eye-opening to me. I’m entrepreneurial at heart. I spend a decent amount of time on Twitter, following various people from various industries. No one was talking about franchises at all.

I was like, “This is a legitimate path to entrepreneurship.” It’s not for everyone but it should be talked about more and an option that more entrepreneurs consider, in my opinion. That was the inspiration for the account. I thought the whole Wolf of Franchises would be a fun take on it. The last thing I’ll say on that is I also noticed while doing franchise development that maybe transparency wasn’t always at the forefront of what was going on when it comes to franchise disclosure documents and the numbers being presented to prospective buyers.

To me, it’s a super important thing. It was a little shocking when I first entered the industry to discover people are making six-figure investments but not necessarily getting any financial intel from the franchisors. I was like, “How is that even allowed?” I’m aware of all the FTC regulations and all that good stuff. For me, it was all about, “Let’s bring this transparency to the front and then also share these cool stories of franchise entrepreneurs.”

You’ve done a great job. Everything you put out from your podcast to your great following on Twitter, the stories that you drop on Sunday morning. You’ve put out some pretty good stuff. What you nailed is buying a franchise is a funky thing. It is unique. I believe that most people buy franchises the wrong way. They typically fall in love with this widget.

They might be in California and have a pretzel or ice cream and say, “This is delicious. I need to bring this back to Charlotte, North Carolina.” Emotionally, they are in. They don’t think about the lifestyle reality of what it takes to run that business successfully. Maybe they look at the FDD or maybe the franchise salesperson glosses over the FDD with them. They don’t do a deep dive on the numbers and they get into it.

It’s like, “How come I didn’t think of this? How come the franchisor didn’t tell me that?” At the end of the day, it’s on the buyers to do the research. You’re doing a great thing bringing that level of transparency and putting up the numbers. We’re limited by the numbers that are in the FDDs for everybody’s protection. A lot of times, you got to get calibrated on what those numbers are. What are some of the things that you’ve seen in some of the feedback you’ve gotten from your followers that you find people are grasping onto with stuff?

For one, unless you’re within the industry like we are, you worked in development before even becoming a broker, you have the resources. We know how to find FDDs. They’re there on state websites. If you’re not in the industry, you’re not going to stumble on those websites from a Google search. If you do a Google search, you’re going to end up on several portals that are trying to collect your email and phone number. You’re getting hit with a barrage of phone calls and emails from a bunch of different sales reps. Before you know it, you’re in deep and it’s overwhelming. I’m not assertive and selling franchises.

I’ll only cover brands that are showing potential to potentially be big. If they have a decent Item 19 with solid economics that’s pretty much what I can go off of. If they don’t have Item 19, I don’t know much about it for the most part. They’ve appreciated getting to see that info because to them, they’re not able to. I have tweeted out and put out a piece of content that says, “If you want to look at a bunch of FDDs yourself, go to these websites.” That’s overwhelming even if you have access to it. Knowing what FDD is, how to navigate it and what the important items are, it’s a lot to deal with.

Giving people signals before they have to dive in further has been helpful. I’ve also got people who are maybe new to franchises because they’ve read my content, especially the podcast. It is where I take the multi-tiered owners. I present them to people like, “Here’s a real-life example of somebody who owns franchises and is doing well.”

That’s increased the interest from people that otherwise wouldn’t have looked at franchises but they’re also surprised at like, “What’s going on in this industry? No required amount of financial information has to be put in there.” It’s a give and take. There are the people who have been involved and they’re like, “This is cool that you’re doing this.” Some new people are like, “This is a crazy world.”

 

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It’s unique. We can sit there and talk about FDDs and Item 19s. For anybody who’s reading who doesn’t know what Item 19 is, it’s where a franchise company can publish certain financial representation information but there’s no standard to what they have to present other than they have to disclose what they are disclosing, which is a whole another thing to get into, to read the notes and understand exactly what franchise companies are presenting in their Item 19s. I say the word “can” because it’s optional. Ask a representative. The short answer is where you can get a little bit of financial information into the unit economics of a franchise. It still needs to be validated to a great degree by talking to franchise owners.

You’ve done a great job of cutting right to it and getting from the trench’s voices with the franchisees on your podcast and sharing their stories. It’s funny. I sit here and talk about people buying franchises every day. I’m like, “Some of the top franchises or businesses you’re probably going to dismiss on the surface.” You’re going to think, “There’s no way this business makes money. I want to go after something I’m super passionate about.” I’m like, “That’s hard to find.” There’s sometimes a different reality. You’ve had some folks on. What brands have you had people on that you were like, “I was surprised at how successful this franchise has been of this brand?” Any stick out to you?

An interesting one I’d say was Anytime Fitness. I had an owner there who built 1 location and acquired about 8 more. Another trend that I’m seeing is the people who are getting into these older systems and using that network of franchisees to acquire their locations. It’s a streamlined approach to the whole entrepreneurship through the acquisition playbook. I’m more on the younger side, considered a Millennial. To me, Anytime Fitness is like an old dad gym brand but I’m talking to this owner and they’re revamping a bunch of things. You still have your big box gym option if you’re a member there but they also are doing personal training classes. They have an app that tracks some fitness metrics.

I was surprised, honestly, at everything that the app brand has done to stay modern. Beyond that, I also had Mathnasium franchisees who owned about eight locations. I was under the impression that I thought that was a brand for the most part that only allowed single-unit ownership. I figured they were recruiting teachers who would take one store and that was their job and they weren’t going to be a teacher in a high school or something like that anymore.

That was pretty eye-opening to see that they have a multiunit option. It’s a lower investment per store. It’s not going to make as much as an Orangetheory, Anytime Fitness or other brands on a per unit basis but they’re profitable and right at scale. Like most franchises at scale with multiunit ownership, you can make some pretty solid money.

It’s Kumon that might limit the ownership to do a single operation or franchise. I know that from my days with Tutor Doctor. Education, fitness, you had an automotive guy on there with MiDAS that’s got twenty-some-odd locations.

It’s got 29 locations. That’s another example. His father owned some. That’s what tipped him off to the whole MiDAS franchise. What he’s done is he bought a franchise from his father. He took 1 off of his portfolio because his father had 6. He’s done exactly what I mentioned. He operates the first couple that he got into and does a good job. He’s done a strategic approach of networking with a lot of the franchisees and getting his name out there. They know him. He always is reaching out to them. He specifically targets the older ones. He’ll say, “We’re looking to acquire more. If you’re ever looking to sell, please reach out.” That’s how he’s gotten effectively from 3 locations to 29.

It’s a smart strategy if you think about it. It’s targeting an old brand that has 1,000 plus locations so that you know it’s a robust system. You’re not betting on an emerging brand. It’s a household name brand already, which I would say MiDAS is. Knowing that they have franchise owners in that system who have been there for a while and are on their way out. That’s what this person has done. In his 30s, he’s already at 29 locations. I thought that was a cool strategy that can be done with other brands besides MiDAS.

It’s funny. You don’t always hear about franchise resales because a lot of them don’t make it to the market. They don’t get listed with a broker and hit BizBuySell. If you can get in with a franchise that is growing in terms of the number of locations or already has a lot of vocations, there’s this whole economic ecosystem inside these brands that transactions and all kinds of stuff take place that most people never hear about.

It’s good. If you can figure out deals that are win-wins, the seller can avoid having to deal with the business brokers and all these third-party people that don’t understand the business. They can sell it to somebody who already understands the business, knows how to size up their business to figure out if it’s a fit and try to get a deal done.

I did that. I bought a franchise. The first person I went to sell it to was my neighbor. It worked. It’s because I knew he wanted it and I wanted to sell it. There’s a little bit of art that goes into making those deals that can tell people one of the big things like when they’re buying a franchise agreement. The transfer fee is a big thing to look at because down the line if you are planning to scale to multiple locations and let me disclaim this by saying, I’m not an attorney and you’re not an attorney so we are not giving legal advice but you want to look at how those transfer fees are structured.

If you have 5 locations open and you’re going to sell to 1 buyer, you should only have to pay 1 transfer fee. You shouldn’t have to pay 5 transfer fees on top of whatever else because it’s 1 buyer. It shouldn’t take the franchise or much more to help whatever they need to do to document that transfer.

If you’re a business owner, you’re going to do an off-market deal. Typically, for most owners, selling a business isn’t something that you’re doing often. It’s not a once-a-month activity. For most small business owners, franchise or not, it’s a once-in-a-lifetime activity. They don’t know what to do. I dove into this world too because it’s been interesting to me. They’re seeing the value of a broker that some people might see as the commission they’re taking but the reality is good brokers do not package up a business, take the financials and present it in a way that can get your business sold.

 

FM 10 | Multi-Unit Franchising

Multi-Unit Franchising: The franchisor support only goes so far, so you’ve got to keep your books clean. If you can’t do that, you have to outsource it.

 

It’s a major process but that’s why right when the franchise stays in the system, the resales, the franchisees can speak the same language. The MiDAS franchisee, Brian, who I had on my podcast, said, “I can know within ten seconds by looking at their numbers if it’s performing well or not.” He knows that business and its model inside and out. I do think it’s a much more efficient transaction if you can keep it internal.

A lot of the theme that you see of successful multiunit franchisees, and I’d love to get your take on this with the folks that you’ve gotten to know through your platform, is they’re always looking out ahead. They’re not in the weeds of the day-to-day stuff. They know how to recruit, manage and lead a team well. If it’s a multiunit franchisee that’s on their single location, they’re looking at real estate. Where are their 2nd and 3rd location going to be? Are there other things that you’ve seen from some of the multiunit franchisees that you’ve interviewed that you picked up on their mindset and how they go about scaling to multiple locations?

The top ones are all good at selling. If you think about it, every position is effectively selling. They have to sell to get customers in the door. If you’re hiring someone, you’re selling them on why you should be working for them. They’re able to communicate a vision to their employees that keep them on board. As they scale, making sure that that vision stays intact. Jamie Weeks is the one that stands out for me who owns 140 Orangetheory. They got up to 300 plus employees and he was still able to keep in touch with every single one. I don’t even know how that’s possible. 

It was impressive. He did admit at a certain point it was impossible. That was twelve or so locations, one that he tapped out and couldn’t stay in touch with every individual employee. These folks are incredible sellers in every aspect of the business. They’re able to wear a lot of hats. They’re also financially savvy. This is why when I think of multiunit ownership, it’s not for everyone because to negotiate multiple leases, however many employees are required, differs by brand. Some are more labor-intensive. Managing it all organizationally is a challenge. You’re the one who has to do it all. The franchisor’s support only goes so far. You’ve got to keep your books clean. If you can’t do that, you got to outsource it and scale your marketing.

I remember speaking to an F45 owner in Ireland on the podcast. He got to a point where it was three locations in a neat. He hadn’t outsourced any of his marketing or anything like that. Every location was either double the work or triple the work. He eventually got to the point where the cashflow allowed him to then outsource it to the system as a whole. Being able to figure out those problems without letting things collapse is something that all these owners are able to figure out. 

They seem to have tips and tricks and ways to cut right to it. They know that 20% of their business drives 80% of the results. They know how to quickly get a pulse in that business. It was the Jamie Weeks’ episode and this has stuck with me, the three questions that he asks people that he’s hiring. The scale of Orangetheory and in any business, hiring people is a massive piece of that thing. You have to figure out efficient ways to do it. Do you remember what the three questions were? 

I do. It was hilarious. That’s the only time I’ve been interviewing someone on podcasts and they flip it on me. I ran with it. It’s, “What was the first concert that you ever went to? What was the first car you ever had? If you could only watch one movie for the rest of your life, what would it be?” That’s when he asks every employee. He doesn’t want it to be an interview. He wants to know someone’s story. That helps inform him if they’re going to be a good hire and a good fit for his organization.

It’s from a culture standpoint. Especially the movie question because he talked about if somebody named some boring movies, I don’t know if you’re going to be a fit into this fun people-oriented culture. That’s what they need to have at Orangetheory. I have a Master’s degree in Human Resources. It’s the complete opposite of that but it’s so true because, with those three questions, you get the conversation going. The person starts talking. There’s other stuff that you can use to get the conversation taken a different way but you also get a lot of insight into where they are in their life and if it’s going to be a fit for the operation.

It’s fascinating that he does that. I got it because culture is most important to him. If I’m getting interviewed, I’d prefer those kinds of questions. There are cookie-cutter interview questions like, “Can you give me a time when you made a mistake and how you learned from it?” Jamie found a way to get the heart of a person. Here’s the last thing I’d say too on these multiunit franchisees. If I was entering a franchise system, after getting able to interview some of the top ones in respective systems, like in Orangetheory with Jamie, if I bought into a franchise, I would be looking at who are the top five franchisees and I need to become their friend.

I need to be a partner. I’ll find a way for them to mentor me. You want to replicate what they’ve done. The reality is especially as the bigger franchise grows, there are going to be some disparities in performance. The ones who are doing well, there’s a reason for it. Sometimes it’s luck. I’ve talked to some franchisees who are like, “This was our first location. It’s crushing it.” It so happens that locally, they have XYZ reasons why they think that that one outperforms on average every other location in the system. For the most part, the top owners are the top owners for a reason. I would try to become their friend as fast as possible.

That is such sage advice because I know people that are happy to pay the royalty, which candidly, after 5 to 7 years you’ve been operating the business, the royalty can feel a little bit like a tax in a way. You’ve learned the business. You don’t feel like you need corporate anymore. The corporate might not be giving you as much support or whatever it is but they’re happy to pay it because they get access to people, other franchisees and multiunit franchisees that they can compare notes with, pick up the phone, call and ask them a question. The answer that they give them could save them tens of thousands of dollars or help them make hundreds of thousands of dollars by being able to cut right to it. I’m going to ask you a question about what you would be looking for in buying a franchise based on everything. Do you own any franchises? 

No. I was close to it before I ended up partnering with Workweek on my content. I was looking at a franchise, theCoderSchool. Workweek came into the picture and showed me their vision and how they can help with content and things we can do in the franchise industry. I’m full-time with my newsletter and podcast.

How many followers do you have on Twitter? Is it 40,000 or something?

 

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I’m a little over 50,000.

It’s starting to exponentially compound a little bit, isn’t it?

Yes. It’s cool, honestly. It’s like a real-life example of compounding great. As your following grows, it becomes easier to reach more and more people. Your content gets shared more naturally. It does get easier over time. Building that foundation, I ground for nine months straight and got a couple of thousand followers. I had one viral tweet about Quiznos of all franchises. To paint a picture for folks for the content side because a lot of people see it and are like, “That was awesome. It’s fun.” Follower accounts are such a superficial vanity metric. I fall into this trap before too. I’d say, “I want to do that and have a lot of followers.”

It took me 9 months to get 4,000 followers. That was this past March 2022. Early March of 2022, I was at about 4,000 followers and then I had that viral tweet about Quiznos. We’re doing this on July 5th, 2022 and I have 51,000 plus followers. That’s a 3 or 4-month time where I gained 46,000 followers. If I quit at any point before that, none of this is happening. I’m not on your show now. Content is a long game. You got to be in it and stay committed. If that tweet doesn’t go viral, maybe it takes me another nine months to pop. You just don’t know.

It took persistence to stick with it and delayed gratification, I’m sure. It’s not easy but you figured it out. You probably knew at some point you were going to figure it out. You don’t know how and where but you’re working at this thing, getting better, smarter and wiser at some point. Where did the idea for the Quiznos tweet come from?

The newsletter is the bigger focus because that’s monetizable. I’ve been obsessed with the newsletter business model for a while. I am generally entrepreneurial. I’m focused on franchises and all my content is but I do love reading other businesses and different things. I fell in love with the Morning Brew and The Hustle, which are two business-y and startup-oriented newsletters. They’re written in a casual tone. That’s why I gravitated towards them. They ended up both getting acquired. Morning Brew got acquired for $75 million and The Hustle for $20 million. That blew my mind.

In newsletters, people may look at them and think, “This is another email that I’m getting,” but it’s a real legit business at the other end of it. When it comes to the newsletter, it’s more detailed. I realized Twitter can be at the top of the funnel that will drive to the newsletter but I had to broaden that content scope to make it interesting to more people. The reality is people who want to buy a franchise are not that many. There were 15,000 franchise purchases a year on average. The data and the industry are about to find but the point is there are not that many people buying franchises every year.

When it came to Quiznos, I was like, “Let’s find cool stories within these big franchise brands that everyone knows.” Everyone knows McDonald’s and Burger King. Quiznos at one point was huge. They had that hilarious commercial that aired during the Super Bowl in the early 2000s. I was like, “This is a crazy story.” They went up to 5,000 locations and crashed down to 200-ish. That’s an epic collapse. I was like, “Let’s give this a go.” That was my 4th or 5th thread that I’d been dropping on a Sunday that was all more mainstream franchise topics. I don’t know why. It just happens. Sometimes you get lucky with the algorithm but it popped. Growing from that point forward has been a lot easier.

It could be because Quiznos is still a household name. People know who Quiznos is. The people were probably like, “I never realized that happened. I wonder what happened to it.”

That was it. It tapped into nostalgia. One of my takeaways was that people still love Quiznos. The number of retweets and mentions I got and the replies of people saying, “Forgot about Quiznos but I loved this sandwich from them,” which they were around and not Subway. It turned into, “I wish Quiznos could replace Subway,” in the replies. I thought it was funny because I didn’t realize that many people still loved Quiznos. There’s still potential for them. I don’t know if they ever saw it. Some people want Quiznos, for sure.

It’s better than Subway. It’s not a terrible sandwich. I grew up in Philly. We’re used to hoagies and other boundaries like Charlotte, North Carolina. My best hoagie is Jersey Mike’s. They get decent bread. Quiznos is not a bad sandwich. I’m curious. What was it from the tweet that led to Quiznos’ downfall? 

They lost the plot. I’m capitalistically driven. I do want to make money and have a good life. I don’t know what it would feel like to be in the position of the CEO and the owner of Quiznos to see your franchise taking off and the amount of money they’re probably making from royalties. Quiznos specifically started their supplier for food and paper products. They named it. It was a separate entity. They required all their franchisees to buy those products through them. They were not charging them fair prices. They realized quickly that they could make way more money off supplying their franchisees with a product than they were even making off the royalties. 

They put a lot of focus there but then they also were saying, “Let’s get as many sales through our units because that’s going to require franchisees to keep buying more food and paper products.” They were hitting franchisees from both ends. Not only would the franchisees have to pay more for their supplies but they were also then being mandated to offer not a $5 foot-long subway. They had to do low prices. They weren’t profitable.

 

FM 10 | Multi-Unit Franchising

Multi-Unit Franchising: If I bought into a franchise today, I would be looking at who are the top five franchisees and become their friend.

 

Franchisees, especially after the recession, a lot of them got credit limitations tightened. They started closing. As you start closing, there’s less brand fund money coming in. Quiznos’ corporate can’t do as much for franchisees. They were already hurting them, to begin with. Lawsuits came piling in and the reputation was trashed. It all came tumbling down. 

The guiding principle for a good franchise company is if you focus on your franchisees, happiness and profitability. Each one’s going to be a little different for each person in the system but as long as people are happy and profitable in their worlds, you’ll be okay. Focus on making your money off the royalty. Get royalty self-sufficient. That is the first mountaintop to get to. It takes a long time for a franchise company to get there. If you can get there and you’ve got happy and profitable franchisees, the world is your oyster. You’ve built a valuable enterprise that some private equity company will come around and give you a big pile of cash for. 

The thing that confused me is yes, it’s a slower approach and all that but if you’re at the top, you could still make more money than you need in one lifetime without ripping people off. Why not do it that way? I don’t know what it is with the sub-franchise but Subways have a lot of issues with not treating their franchisees well. There are similar complaints and they’ve seemed to somehow survive through it all though. They have a ridiculous unit count. I agree. Profitability at the store level for your franchisees should be, first and foremost, the focus. There are a few franchises that do that well but Quiznos was not doing that.

To transition a little bit into social media marketing because that has a lot of allure, especially with franchise owners or franchisors reading, did you build your audience organically without any paid advertising on your platform?

On Twitter, yes. The newsletter we’ve used paid. That’s through my partnership with Workweek. Their founding team at Workweek came from The Hustle which was acquired for $20 million. That newsletter had 2.5 million subscribers when it got acquired. These people know how to grow newsletters. Content is the focus. They’re big believers in what you can do if you have good content.

I’ve subscribed to way too many newsletters but some of them are every time you get an email, it’s them trying to sell you a product. We’re trying to create value for the subscribers. Through that, you get more subscribers. With enough eyeballs on anything, you can monetize it through advertising. That’s their general thesis. It starts with good content. We’ve done Facebook and Instagram ads though to get subscribers to that. We’re at 25,000 plus subs. 

It’s the same thing as the Quiznos analogy. You got to put up good content continually that is meaningful to the audience that you’re building. As soon as that starts to fade, then your audience is going to get stale pretty quick and probably drop off. It’s the same guiding principle to keep it simple. Focus on the things that are going to provide long-term success. You can do that. At the franchisor level, it’s your franchisees. At the franchisee level, it’s your people a lot of times.

You got to get the business profitable and get to a point where you can afford to pay people. There’s a little bit of delayed gratification that typically comes in with building a franchise too. You’ve got to invest and put out a lot of money. You’re going to have a lot of your money going out before you have money coming in. It’s the long game. You’re not getting into this for short-term cashflow returns. You’re getting into this for a long-term opportunity, both from the financial standpoint and the lifestyle standpoint as well.

It’s delayed gratification across the board. Honestly, it’s probably the secret to building any successful venture business. I’ve tried my hand at hacks. There are all these wealth hacks out there but the real hack is probably you have to put in the time and effort. It’s not going to come overnight. It sucks but that’s the way it is. I interviewed a Five Guys franchisee. He owns thirteen locations. He started as a manager. That was a cool story. He was managing eight locations for a franchisee and was like, “I can do this on my own.”

He didn’t have any network but he hustled his way to raise some money to be able to afford an acquisition of another franchisee. He moved his family to Arizona where the locations are and acquire five at once. It’s an inspirational story. I remember asking him on the podcast and he shared it on my podcast so he’s fine with me saying this. He takes about $100,000 salary. If you think about it though, I’m thinking going into that episode, “This guy owns thirteen Five Guys. He’s making good money every year,” but he’s like, “No, I need to build a reserve of cash. I’m paying off debt covenants,” through the lenders that he’s taken on some debt to acquire his locations. 

He’s thinking long-term like, “I’m going to be taking this salary for at least a few more years, if not far more. This portfolio of businesses that I’m building has a ton of value.” You’re dead right that if you want to build a multiunit organization, you do have to probably defer some of your gains for a while for the betterment and health of your system.

He probably structured his lifestyle to be able to fit within that $100,000 salary. That’s all it’s needed. That’s why a lot of franchise companies want their franchisees to keep their jobs in the short-term. Brick and mortar, multiunit or semi-absentee want you to keep your job in the short-term if you feel like you have enough bandwidth to be able to pull off both. That’s why a lot of times, you see the advertising, “Keep your job and start a franchise.”

One of my buddies owns fifteen Sport Clips. He bought ten in 2021 from fellow Sport Clips franchisees here in the Charlotte area. He built 2, acquired 3, got the 5 and then the neighboring area developer wanted to get out because their kids didn’t want to take over the business. He struck a deal for picking up all ten of them. He still has a W-2 job with a big corporation.

 

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That’s impressive. I’m surprised they’re able to do that all, honestly. I feel like I’ve noticed this with the guests I’ve had where after a certain point, they get to a certain scale and dive in full-time. If you can do it all, why not? It’s more cash for him. That’s also another example of owners of these bigger systems. That’s pretty much how it goes. If they don’t have kids that are going to take it over, it’s like, “I got to sell.” It’s a lot easier for them to sell to another owner. It’s good for him for being opportunistic.

He told me he planted the seed with the franchise that he ended up buying out. It was like, “If you’re ever thinking about selling, I’d be interested in having a conversation with you.” It’s like the movie, Inception. It grew and then found out the kids didn’t want to take it over. He was the first call and they struck a deal.

That’s a good brand too from what I’ve heard. I spoke to, back in my development days, a fourteen-unit owner in the Tri-State Area. He seemed happy. I’ve heard only good things from that brand. 

It’s one of those you’re not going to get rich off one but if you can rinse and repeat to multiples, the opportunity can get pretty significant. He told me he’s got one district manager who doubles as a manager of 1 store and is also a district manager for every 3. He’s got five DMs that are also overseeing one of the stores. It’s a career path for them in that world to cut hair as much. 

I wanted to do a deep dive in one of my newsletters on the benefits of multi-unit ownership. That’s part of it what you touched on. We over glorify the local mom-and-pop small business owner. Don’t get me wrong, I’ve tons of admiration for any entrepreneur but it seems that once someone becomes more successful when they’re not stuck in one location working and grinding in their same store every single day, once they get a couple, get some financial freedom for themselves and start benefiting from the fruits of their labor, that’s when people start writing it off like, “I don’t want to go to them. I’m going to shop local.”

That’s a local business owner that became more successful. What’s wrong with that? Also, the follow-through effects are on the employees. As a multiunit owner grows and they have more locations, possibly I’ve seen multiunit owners with multiple brands where employees switch from brand to brand. It gives them more growth opportunities and options but it’s better for the employees. My ultimate point is a bigger multiunit owner should be providing more benefits and afford higher rates. There are more growth opportunities if there are multiple brands or you’re even rising through the system and going from employee to manager to maybe district manager.

I’ve even seen multiunit owners help those managers become franchisees of other brands. One will provide the capital. The manager provides the sweat equity and gets to earn into ownerships. It’s not as talked about. It’s the follow-through effects on multiunit ownership. Once done right, it is beneficial for everyone overall.

People want to be a part of something. It’s not just about a paycheck. It’s about being a part of something that’s going somewhere too. Somebody’s cast the vision. The employees can latch onto it, believe it and see it happening. It’s going to take time but people want to be a part of something. With the right leader that has the charisma and the ability to communicate, have a vision and communicate a vision, it can be pretty powerful.

Why do you think that owners that work in the business or are the face of the business, customers get to know them and they end up growing their business to a point where they take a little bit of backseat and get to enjoy some of their benefits? Why do you think it is that customers tend to look at that but some customers look at that in a potentially negative way?

It probably varies. This is probably true sometimes may be as the organization scales. If it’s the owner in the store, they have way more skin in the game. They’re more passionate about it. They care and work harder probably than your average employee because it’s their investment on the line. Perhaps maybe the cost for service dips sometimes. That’s when people realize. If you’re not getting good service as a customer, it’s easy to complain. That’s probably part of it but I’m not sure, honestly. Even with the treatment of franchise owners, some people don’t count them as local small business owners because their business is attached to this larger corporation potentially.

I’m biased with the franchise content but the reality is a franchise owner is a small business owner who took a different path. If you’re going to start a coffee shop, you can buy Dunkin’ Donuts or start the Wolf Coffee brand. I don’t think they should be treated differently because one’s paying royalties versus the other. If you’re a McDonald’s owner or a national brand, people are never going to look at you the same as the local burger joint. It’s too big of a brand at this point to be treated the same.

A lot of times with emerging brands, I don’t think they should be treated differently. I don’t know why. Sometimes you see shop local on Twitter or LinkedIn. I don’t get involved in these things but you see the debates happen in the comments. I’m like, “People maybe should treat them all equally,” but it is what it is.

If you have your federal tax ID number and you are a small business owner, I don’t care what type of business you have. You are paying the taxes, getting the benefits and all that kind of stuff. I agree with you 100%. That’s where a brand can be powerful and provide that advantage over the local operators that don’t have that piece in their business.

 

FM 10 | Multi-Unit Franchising

Multi-Unit Franchising: If you’re at the top and could still make more money than you need in one lifetime without ripping people off, why not just do it that way?

 

You nailed it. A lot of people from an ego standpoint like to say, “The owner served me. I got this bread directly from the owner and they had their touch on it.” At the end of the day, it comes down to customer service. As the owner, if you can empower and bring in people that can give better customer service than maybe you were, customers wouldn’t miss a beat. Maybe there’s not as much room for error as there was before. 

I’m early in formulating this content piece that’s going to be in a newsletter. There are a lot of people who say America is built on the back of small business owners, which is true. The number of small business owners and what they contribute to GDP is astronomical. I’m not saying this across the board. I’m sure some small business owners have their 1 store, 1 shop, 1 restaurant, whatever the industry is. They love working in it and don’t want to do anything else. I’m sure those people exist but I would also argue that there’s a large number of small business owners who are stuck in working in the business.

They become stuck in it where they have to work 5, 6 and 7 days a week. They don’t take many vacations. I’ve met some of these people in different industries. Should we glorify that mom-and-pop owner versus promote more of an aspirational goal that you should try to get to multiunit ownership because you, as the owner, want to free up your time and enjoy your life more? That’s my general high-level point. That shouldn’t be villainized and celebrated. 

The word lifestyle is something you don’t hear anybody talk about. There are the personal development people like Tony Robbins and Gerber doing the work on your business, study your business and traction and all that stuff. Van Horn is probably one of the biggest voices on the lifestyle that I’ve ever experienced in my life. He’s influenced me a lot of times to think about it because nobody ever talks about it. The money is the money but what do you want your lifestyle to look like? It’s an interesting thing to think about.

I had Eric on my podcast. I was shocked. I got to it at the end of the conversation because he was bringing it up. I was like, “Can you walk me through your schedule? Keep talking about it.” He works 3 days a week, 15 hours total a week. The rest, he’s like, “I go mountain biking and hang out with my wife. We do a lunch date every Monday.” Mondays is an off day for him. He doesn’t work Mondays at all. What most people’s Sundays are, are his Monday. I was like, “You have a great life.” He lives out in South Dakota or something. He’s got a big ranch. It’s like, “What am I doing in Manhattan?”

He’s got a good team. He’s got this niche because he used to be a colleague of mine at FranChoice. I got to know him pretty well through that. He was successful in doing this. He said he only worked a couple of hours a week doing this, which is a hard time. He’s done a good job with his masterminds to figure out what it takes to operate those things, bringing a small team of people or even subcontractors and get it to the point where he can focus on the things that make that thing go and not get stuck in the weeds of posting his pictures of his ducks on social media or whatever he does.

Even franchise companies don’t give you that playbook. There’s been a few that do have the playbook for multiunit scaling but there are not many that do. Xponential Fitness has specifically geared their system to be like, “We want to partner with people that are comfortable running these semi-absentee and want to expand multiple locations,” but there are not a lot of them.

That’s a little bit of my beef too that I haven’t shown through the content yet through the wall. There’s this BS narrative that comes from a lot of franchisors, honestly, that is we only want passionate owners who only want to own one location. I’ve worked in the business. I’m like, “That works well for you as the franchisor is going to be collecting all the royalties and you’re going to get rich but I don’t think it’s fair or reasonable necessarily to expect that people should want to stop at one.” Let’s be honest, with 99% of franchises, you’re not going to get rich from only 1 location. It’s a fact. Even McDonald’s, if you own one, you’re probably making $250,000 to $350,000 in EBITDA a year.

Don’t get me wrong. That’s great income. It’s well above the average in America but you’re still not rich per se. That’s McDonald’s we’re talking about. You can’t write a project and say, “If you join our franchise, you’re going to get rich or become wealthy,” or anything like that. You should be a little bit more reasonable, where it’s like, “You can own multiple locations. We want you to financially succeed and be comfortable.” The whole single-unit ownership for 99% of brands is like handcuffs right there if you ask me.

The other thing to watch out for when you’re buying a franchise is some emerging franchise brands bring in FSOs, which are Franchise Sales Organizations. The FSO gets paid when they sell multiple locations but the question is, are the FSO and all of that franchise company 100% aligned in terms of bringing on the right people to truly open and grow into the number of licenses that they’re buying upfront because they get a little bit of a discount? It’s interesting.

There are a lot of different models of FSOs. I used to work at one. We took a percentage of the royalties. I’ve gone back and forth on this. I’m pretty solid in my thinking on it. I’m curious. I want you to be honest with me. If you’re an FSO, taking the royalties is a good thing. There’s a little limit to it but my thoughts behind that are this. If you’re an FSO and you partner with an emerging brand that doesn’t know anything about franchising and you sell hundreds of units for them, let’s call it 200 or 300, that’s an insane amount of economic value that you created for a company. I would think it’s unfair if the FSO doesn’t get a share in the upside in some way.

Whether it’s equity or royalties, that’s the only levers you have to pull. That’s fine. That aligns incentives if you have something like equity or royalties as part of the compensation. If it’s purely taking a cut of the franchise fees, you might start to stop caring about the quality of disease that you’re bringing in for a brand. If you have a royalty stake at hand, then we want their brand to succeed because that financially helps us as well.

There are a lot of different ways to look at it. I don’t know if it’s a one size fits all answer for every franchise company because it depends on how they’re capitalized and they need to be properly capitalized. It’s the long game they’re playing. Young franchise companies can’t afford to bring on the talent on the FD side because it’s difficult. You’ve seen it.

 

There's a large number of small business owners who are stuck working in the business. Click To Tweet

 

You can have the most amazing franchise concept in the world like some absentee ownership but if they hire a bad salesperson, that brand never goes anywhere. You’re talking to two FD guys here. I do believe this. Who you bring on to represent you, whether it’s an employee or an FSO is such an important piece of the engine that can make a brand go. Something to look at whenever you’re looking at buying a franchise is who’s selling them.

If there are emerging franchisors out there or businesses reading this that are thinking of getting into franchising, it’s like starting a second business. I don’t think people realize that. The skillset and the set of resources franchise development takes is wildly different than whatever it takes to run the actual business itself. If you’re a five-location taco shop, the owner and founder of that, it’s way different.

They’re probably good at running a restaurant. They have a good recipe. They’ve called in their skills. Maybe they know how to hire shift workers and all that but finding franchisees, know where to market to find them, how to allocate your marketing budget, what tech stack to use for your sales process and guide candidates through a 3 to a 6-month cycle of trying to convince them to spend six figures on your franchise are different worlds. I agree that the salesperson or the sales organization that you work with makes a world of difference.

It’s a different operation. It’s almost like a third business because even when you start to franchise your business, that’s a different ball game than what you’ve been used to operate your brand. Learning and helping people replicate your success. 

There’s the whole support side that I didn’t even touch on. They’re selling it and then supporting it.

“Here’s a 1,000-page operations manual. Good luck.” It’s truly helping people. Every franchisee is going to need a differing amount of help. It’s not a one size fits all piece of it. Honestly, it’s easier to get the franchise sales piece right than it is to get the franchise ops piece right. There’s less talent on the ops side. A lot of the talent gravitates its way to the dev side because the money’s better, to be honest with you.

We did this at AdvantaClean way back when. We franchise with the people we have that had been with the company for decades. Jeff Dudan is the Founder. It’s probably not the textbook way of doing it but it took a little bit longer. We all knew how to operate different parts of the business. It made the support a lot easier for us. It also helped us cut right to it versus hiring some “ops person” that didn’t know the business and was trying to learn it and then also help other people learn it. I’ve seen a lot of franchise companies try that and it doesn’t go well. 

In all the brands I’ve worked with, for the most part, some people grew internally from getting hired well before maybe there was even a franchise plan in the roadmap. That’s probably the golden scenario. If you bring someone in, no matter what their experience is, at brand XYZ, it could be different and not as valuable. The lesson there is believing in your people. I have seen people step into the franchise world, thinking and looking at titles and people’s experiences. They’re gravitating towards the stars of the industry, whereas the best people might be right there already at your company. Don’t doubt your people potentially.

Keep it simple. You can focus on your franchisees’ happiness and their success. Focus on those two things, whatever it takes. Eventually, you get to a critical mass where the franchisees start supporting other franchisees and you have this culture. The more and more people that are successful, the easier it gets. I’m dying to ask you this question. I’m going to put you on the spot.

With everything that you’ve learned and in your years in franchising, you’ve become a student in a way of franchising in 2021 doing everything that you’re doing. I’m curious if there are certain elements, indicators or things that have started to stand out to you if you were to buy a franchise. Are there certain things that you know that you would look for to determine if it’s a good brand, number one and number two if it’s the right fit for you?

For one, unit economics. That sounds obvious but some people get a taste of a product at a brand like, “I’ve got to bring this back to my hometown.” That’s not a good way to look at what franchise to pick. Make sure you’re passionate and you love the product that you’re selling but it’s not a good business. As an entrepreneur, do you want to try to replicate an unprofitable business? Not unprofitable but maybe a mediocre investment where you’re shelling out $300,000 to $600,000 and the top performers are making $75,000 at EBITDA. That’s going to take a while to make your money back or pay off whatever financing you’re possibly able to get? I’d say unit economics at the store level. Also, the industry matters a ton. 

Orangetheory has been incredible, same as F45. They were both founded around 2010. Here we are in 2022, F45 is a public company on the New York stock exchange. Orangetheory is still private but with 1,200 plus locations, massive private equity buyouts and recapitalizations. They’ve been incredible. I’ve spoken to franchisees at both brands. I have yet to find one who isn’t incredibly happy and isn’t doing well for themselves.

Xponential Fitness has 12 different concepts, all specifically targeting 1 area of working out. New boutique fitness concepts are coming out all the time. I’m not saying I would be worried if I were an Orangetheory franchisee or F45 franchisee but the reality is I don’t know where they’re going to be in the next years. Whereas in other industries, they have longevity. The pet industry is probably a good example of that, where COVID has produced a great tailwind with pandemic puppies and all that stuff.

 

FM 10 | Multi-Unit Franchising

Multi-Unit Franchising: If you want to build a multi-tiered organization, you have to defer some of your own gains for a while for the betterment and for the health of your system.

 

You know the demand for the service that pets need. They’re going to stick around for a lifetime those pets are around. People like fitness habits. I feel like that’s a little bit subject to trendiness and things like that. I would focus a lot on the industry as well but if you have a good concept in an industry that you can trust as reliable or like the pet industry on the right side of a boom, where it’s early innings and it’s probably only going to keep getting bigger, to me, those are the most important things.

From there, you can get pretty granular on a brand level. What technology are they using? What marketing support do they have? Crumbl Cookies, if someone reading this and they follow me, they know I’m obsessed with them. I tweeted about them a lot but they’d been incredible. They have 5 million or 6 million social media followers across their platforms. They have their proprietary tech stack built out from the point-of-sale system at their stores and for franchisees to communicate. They’re a modern franchise. Those are the things I’m looking at when you start to get granular with the systems they have in place.

They’re a unicorn brand. Orangetheory is a unicorn brand. There are these brands every few years that come about. I call them unicorns but it doesn’t happen every year. It’s fun to see. Restore Hyper Wellness is the next one. That’s the one that nobody’s talking about, except they were on the cover of Franchise Times. They grew to 900 units in development over the past few years and nobody’s talking about it. It’s insane.

Level 5 Capital has an investment.

They took a minority position early on. They knew they had something. I know the guys at Level 5. They help make it go. They knew they were onto something and then they wisely partnered with Level 5 who helped them streamline a lot of the stuff and then it went into exponential growth, hockey stick growth or crazy growth. People think that’s hocus-pocus but these guys figured something out.

There are a few brands. The Orangetheory and Crumbl are the exceptions to the rule. There are 4,000 plus franchises. The large 98% of them don’t do what Orangetheory, Crumbl, or Restore has done. It’s usually a slog. It’s hard to grow and find franchisees. Even growing ten plus units a year as a franchisor, that’s a great thing. You look at the biggest franchise outside of those unicorns that we talked about. Most of them have been around since the 60s, 70s or 80s, which isn’t talked about a lot. McDonald’s has been around since 1956 or something like that.

It takes time is the reality. That’s also a message for franchisors. I’ve spoken to franchisors or businesses looking to become a franchise. They think they’re ready at least. I’ll ask about their economics and the systems they have in place. Sometimes the feedback is out. We don’t have it dialed in yet. We still got to work on XYZ. In my head, it’s like, “Why are you trying to franchise them? You’re not ready yet.” Sometimes you get the answer, “We could sell this or anything.” It’s a lot harder than you think. It’s not a get-rich-quick scheme. Don’t expect to be a Crumbl Cookies.

Don’t try to be crumbled. The stars aligned right place at right time. It sounds like they made the right investments and moves as they started to grow. Have you released that thread yet on Twitter? Is that an upcoming one on Crumbl?

I did a thread on Crumbl. It’s funny. They’ve grown from West to East. They’re based in Utah but 90% of the country’s sold out at this point. Some people hadn’t even heard of them, whereas others were like, “I love those cookies. I’ve seen them on TikTok.” Crumbl is incredible on TikTok. I did drop that thread on their rise.

To me, the most eye-popping thing is they’ve been able to grow this quickly and their franchisees are still crushing it. For their FDD, they based this off of 120 plus franchisees. The average net income was $357,000 or a little over. Per unit, that’s a ridiculous return considering the high end of the investment is $690,000. To be able to grow at that pace and still maintain EBITDA that high for franchisees is amazing.

Selling cookies.

Do you think it’s a fad? I got a lot of feedback like, “It’s a fad. They’re going to be the next frozen yogurt franchise.” I pushed back. Froyo was a fad. No one cares that much about frozen yogurt but Mrs. Fields and Nestlé are cookie brands.

Cookies aren’t going anywhere. I remember they opened Tiff’s Treats around the corner from where I am, which is a non-franchise competitor from what I’ve been able to tell. I remember when they opened up, they were giving away free cookies, one cookie per person. It’s small, 800 square feet, inline, not a great location. They had people camped out there for 24 hours waiting to get 1 free cookie. In America, we love our cookies. They are good.

 

The salesperson or sales organization that you work with makes a world of difference. Click To Tweet

 

They have ice cream at their stores. If they are using cookies, it’s like a double-edged sword. Could that lose focus from their core product that’s killing it or they’re going to bring in an additional revenue stream that’s a net positive as a whole? You can do an ice cream sandwich with all your cookies. I could see it crushing it. That’s a legitimate national dessert brand with the modern-day Cold Stone or Dairy Queen.

Where can people follow your wisdom and all the fun stuff you put out?

I’m most active on Twitter, @FranchiseWolf. I’m going to start to post on LinkedIn, trying to talk to and meet some cool people there. I have a website, WolfOfFranchises.com. That’s the best place to find everything from the podcast, franchise empires, the newsletter and social accounts.

Get on his newsletter. It’s good. I’m on it. It’s informative. The Wolf, I appreciate it. Thank you. 

This was fun, Dru. Thanks for having me on.

 

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