← Unemployable with Jeff Dudan
Unemployable with Jeff Dudan
How to Know If Your Business Is Ready to Franchise iFranchise Group Mark Siebert Explains #218
01:05:05
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- [00:00]
A
Hey, everybody. Welcome back to Unemployable. I'm Jeff Duden. If you have had a front seat to the evolution of the franchise industry since the 70s, have launched and advised many of the world's greatest brands, including McDonald's, Subway and Ace Hardware and over 500 startup brands. If you have been published in over 400 times in all the places that matter and worked in over 50 global markets, your name can only be Mark Stebert. Welcome, Mark.
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B
Thank you, Jeff. A little bit, A little bit more than I've actually done. I didn't launch the McDonald's program.
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A
Oh, well, I said launched and advised.
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B
Well, that. Oh, then I. Then I guess I can go with that.
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A
Yeah. Well, look, this is franchising. There's always a little bit of franchise fiction puffed in here. Try to keep it to a minimum. Well, that's great. Well, you certainly have been an expert in the industry and certainly well respected. I actually visited your office one time when I was. Was it probably around 2000 or so in Chicago? I'm a Chicago guy originally, and, and I was looking to launch a franchise that I built called Advanta Clean. And I think I was, I was talking, I was just out there like everybody does, just trying to figure out who's who and, and who can help us and things like that. So I was home visiting my family and I saw that your office was in Chicago. So I came in there for a couple hours and I met with a couple of your staff members right around the holidays there. So been to your, been to your location. So. But Mark, I'm excited that you're on here today. Thank you so much.
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B
Well, thank you. Thanks for having me.
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A
Yeah. Opening question. Is franchising the greatest wealth creation business model ever invented?
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B
You know, I, I think for small businesses it sure is. You know, if, if you happen to be some kind of a, you know, technical genius, you can maybe make more money by creating Google or something. But sure, you know, I think for, for the vast majority of small businesses that are out there in the world today, franchising is the greatest way of expanding. You can grow a business with using other people's money, other people's dedicated time and dedicated efforts, and you can grow a lot faster because you farm out a lot of work to the franchisees to do the expansion part. So it's a great way to leverage yourself.
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A
Talking about these startups. Is there a ready checklist that you have in your mind when you meet with a new brand and you've. You, you know, at the Top of the house surface level.
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B
You.
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A
Is there, is there half a dozen things or so that, that they must have in place before you would advise them to franchise?
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B
Yes, and I would say it's the most. Most. My clients will hit them in varying different degrees. But there's three major categories that, that we look for when we're thinking about a company being capable of franchising is whether or not they can sell franchises. And sort of within that sort of broad area, we look at things like what is the credibility of the management team, what is the credibility of the concept? What is the history of the concept? What is, you know, is it getting a lot of social media attention? Is it something where it is providing a, you know, an advantage or a value proposition to their franchisees? And we look at whether or not it is got a nicely defined target market in terms of who the franchisee would be. The second thing we look at is we look at the duplicate ability or the clonability of a concept. So we're looking at that, we're looking at do they have systems in place, they have operations manuals in place. Is this something that will work in a variety of different markets or is it, you know, a bikini shop that's in Florida where it might not do so well in Chicago? We look at, you know, is it readily teachable? And then the last, and I think what we would consider to be the acid test of franchising is really whether or not it is able to provide a good return to the franchisee while simultaneously providing a return to the franchisor. So we look at things like what is the initial investment. We try and make an adjustment to the, the P and L statement to reflect any increases in price or any, any decreases in expenses that may be required based on, you know, a variety of different factors. And then look at does it provide a return on investment and a return on the franchisees time? If they're an owner operator, that would be commensurate with the amount of risk that they're taking to get into franchising. So those are, those are the basic criteria. Yeah.
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A
Did you choose franchising or did franchising choose you?
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B
I think franchising choose chose me. It was sort of got into my blood early in my career. I started in 1984 and I just loved it. And you know, I started drinking the Kool Aid pretty early and I've just loved it ever since. It's sort of, sort of like your story, I think, in a lot of respects. You know, I know you're still doing things with franchising even after Van Plan.
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A
So did you grow up in Chicago?
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B
I did, I did.
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A
Where'd you go, where'd you go to high school?
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B
Evanston Township.
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A
Okay. I was Schaumburg High, 86.
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B
Oh, okay. Well, you're, you're a little bit further west from me, but you're the, the more or less in the north suburbs. So we're, we got that in common.
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A
Yep, absolutely. And what was the journey from getting in it, into it in 1984 to starting your business? Well, or did you start with the business?
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B
I didn't. I started working for a different company that was doing franchise consulting at the time. I don't think they're in existence anymore, but they were a, they were a leader in the marketplace for a number of years, but they did things a little bit differently than I chose to do. I ended up being the president of that company. And then at a certain point in time I came to the realization that the business model I wanted to create was different than the one that they created. I really wanted to focus in on having really long term relationships with my clients. And in order to do that, I knew if I had to hire a different caliber of consultant, I had a hundred people that were former CEOs or EVPs or sea level suite folks that had worked in franchise organizations and that were people solving a lot of ongoing kind of issues that franchises can run into as well as just helping somebody get into business for the first time. So about 20, 30% of our business is working with clients on an ongoing basis. And then we have a couple of entities that a couple other companies. Top Bar Media, which does franchise marketing for franchisors, and Brand Devco, which actually helps sell franchisors. I know you're familiar with Song over there and we do a lot of things for franchisors on a long term basis. But in order to do that, the initial impetus was I wanted to hire the best in the industry. And so we started iFranchise Group back in 1998 and had been around for 25 odd years at this point.
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A
And at that point in time, ifranchise Group, from my research, which may have been limited, was relatively unique. I know that I ended up using Steve and Judy Rains out of Atlanta. I forget the name of their business. You may. They did franchise start, but they were attorneys and then they would refer somebody out maybe to do the operations manual and things like that. So I think my first franchise advisory was a firm out of Jacksonville. When I first started getting educated about it, but it was franchise attorneys as well. When you started I franchise group, were there other similar groups to you at that time? Because in my research at the time it seemed like you were kind of in a class by yourself and was certainly one of the more respected firms that were doing basically franchise creation and early stage support.
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B
Yeah, I don't think there really was anybody else out there that was, was directly comparable to us back then. A lot of I thought yeah, would, would do the legal documents themselves. We always believe that you should have a separate relationship with your attorney. I feel that there's a conflict of interest if I'm going to be representing somebody as their lawyer and making business recommendations at the same time. That doesn't really work out from an ethics standpoint. So we have always referred out the legal documents and have just focused in on the business side of the transaction.
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A
You mentioned three areas that you look to when you're helping somebody decide whether they're ready to franchise their brand. What can you share about what makes a great brand? The ones that go big, the five guys, the, the Orange Theory, Fitnesses, the people that seem to do it exceptionally well. What can you share about some of the excellence that helps those companies achieve the heights that they achieve?
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B
I think that you, you answered your own question there because it's, you said the people that, that do this and that's really what it's about. It's the thing that they characterizes. The great franchise owners is typically really great management. It's not necessarily that they've got the best concept, although the best concept certainly helps. But it's a really, it's about management. The things that slow companies down, they don't have enough capital, they don't adapt to market changes and they've got bad management. But good management will avoid the first two problems, right? The good management will find the capital, good management will adapt the concept. But there's no cure for bad management. So the companies that really do the best are the ones that have somebody that is really devoted to franchising and that hopefully is a good leader and a good manager and is really focusing on franchisee success. And if there was a non people issue, I would say it's the success of the concept and being able to make your franchisees successful. But that to me is part of management.
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A
The four wall economics of the unit seems in my experience to make it hard or easy. If the franchisees aren't able to find a path to profitability that is commensurate with what they have to invest and, and not only upfront but also in ongoing time and energy and money. You know there needs to be a commensurate commerc. There needs to, you know, we, we're a comp at home front brands. We talk about outcomes and what would be the outcomes that we would strive for to help our franchisees achieve well at the end of the day whenever they sell their business and it could be in five or six years or seven years in a, in a home service concept or could be generations down there could be decades down the road. It all depends on where the business sits inside their personal wealth portfolio. But we would want them to believe that it was a good commercial exchange of their time, energy, money and also of their opportunity cost in, in favor of doing something else. We would want them to believe that we continuously invested and improved and adapted to the market like you say. And then we would want them to say something about like these were good people and I would do something with them Again meaning all of our advice, they always knew that all of our advices and everything we did was clearly in their best interest. It wasn't trying to take money out of their pocket and put it into our pocket. It was clearly a partnership from mentality and you know, so those are, you know we talk about those things at home front brands and, and how do we make sure that we keep our franchise owners outcomes in the forefront of what we do and, and if we do that then you know, we'll have success with. And then there's always challenges like there's always going to be challenges in franchising especially when you're growing fast. Which kind of leads to my next question. What about the discipline? And here's what I mean by that and I forget it was either Jimmy John's or it was Jersey Mike's. It was one of the two concepts. But they would only give their franchise owners one location and they had to perform in a to a certain level before they would ever get a second location. And today there's a lot of multi unit franchising and people buying fives and tens and of this, that and the other thing, where does discipline with unit economics franchisee performance fall in into helping brands be successful even though it might take a brand longer under a more disciplined strategy to achieve national footprint. What's been your. Is there any stories you can share or any particularly anecdotes that you can share about like how should a franchisor think about discipline especially an emerging one because they're going to get out there and they're going to find lots of people are going to say, hey, we can do lots of development. We can put lots of deals on you or you know, join this group or join that group. And, and at the end of the day, look, there's always adaptations that need to be made. So you know, and I know Orange Theory. At one point I think they pulled their program for six months because they didn't feel like they had everything exactly right. And then when they bet, when they back to market, they had it. What they felt was as good as, you know, perfect's the enemy of good, but as perfect as they could get it. And then they went on to have great success.
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B
Well, you know, I, the, the I, the. There's a number of companies out there that actually will only let somebody take one location to begin with. McDonald's actually has had that philosophy for the last number of years. Culver's has had a philosophy like that Chick Fil A won't let people do more than two units. That's their, their cap. And they'll only let them start with one. And you know the nice thing about that approach, and you know, other people have taken different approaches and been successful, but the nice thing about that approach is that the, you, the franchisee is sort of required to meet certain performance goals before you let them do that next one, you can make sure that that person actually knows what they're doing and you can feel comfortable in having them open the second location. What McDonald's would do is they'll say that you have to meet three criteria to be eligible for growth and rewrite. And that is, number one, you have to have certain key performance indicators that measure up. Second, you have to have certain quality scores. And third, you have to have a manager in place that's gone through Hammer University, that is somebody who could take on your existing location while you open the next one. And so they're focused in on the things that are important. You know, the, the quality scores, the performance and the, and of course the management, the people side of the business. I would tell you that discipline is really, you know, it comes in a lot of forms. You mentioned speed of growth and, and what Orange Theory did. Dave Good was my partner in I franchise Group, used to be the president over at Anti Ann's Pretzels. And he turned down, he turned down one, a list Hollywood actress who wanted to buy a franchise because she was not the right profile for Anti ends pretzels. And this person ended up wanting to speak with the owner of the company and she said, do you know who I am? And the owner of the company said, no, who are you? So it was sort of an interesting conversation. But when you, you know, the other thing Dave did is for many years he would not go west of the Mississippi, you know, just because it was too far for them to, to travel. I think that as a franchisor, a lot of times you see franchisors where you look at their website and when you, when you do, you'll see that they've got locations scattered all across the US and that's really hard to service. And it usually is a sign of a sort of a, you know, I'll sell to anybody who wants to buy one kind of mentality which sort of reflects that lack of discipline or lack of planning that can be, that can be instrumental in being successful. We normally recommend that you start in your first year within a three hour drive time of where your location is. You can get up in the morning, you can drive to the location, service your franchisee that day, be back at home in your own bed that same night. And until you're at a point where you've got people in the different markets, it's hard to do that. As you pointed out earlier, it's all about the success of your franchisees. If you have successful franchisees, they'll buy a second location, they'll buy a third location. They will, they will spread the gospel about how great your franchise is and how great you're doing. But if you have unsuccessful franchisees, you will fail as a franchise or eventually you're going to fail. So you have to get your franchisees to be successful.
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A
I don't think it's our job to put a number to this. However, in my experience, one of the reason franchisors struggle is that they were not given a realistic expectation about how much this actually costs. When I launched Advantaclean, like many other brands that I've been involved with, I had a large business. So because, because we had a large business, national, even international restoration, responding to disasters. We had governmental clients all over the country, Canada, Hawaii, California. So we had flow and we had people and we were able to kind of apportion off some of our people and move them into the franchise program. The problem was, is we didn't hit it fast enough and it took forever because lack of focus will always lead to a lack of greatness. So ultimately what got my franchise program off the ground is I sold all my company stores and I refranchised Them And I raised maybe $4 million or $5 million in doing that. And I used that to fund my franchise program, pay for my franchise habit. And we kept our commercial services, our governmental business, our national account business so that we could, we could also seed the franchise owners with work as we were doing that. So for us that was the transition strategy. But until I decided to basically burn the boats and kind of head into the jungle and say, we're a franchisor now, we're not even operating now. We had franchisees for three years in Orlando, Greenville, Spartanburg, South Carolina, Columbia and Charlotte. So now we got to cut our teeth as a franchisor. Like you said, go work with these people, figure out what the true challenges were going to be with true third party franchise operators. And then in 2009, we were able to go to the market and have some level of success. That being said, many people, especially with the Internet now with chat, I mean, you people, I see things on chat. I mean, my son, my, my nephew's a college baseball pitcher and I just wanted, I just wanted to see how he did one night and I went into like Grok and I typed in and it gave me a complete account of last night's game, what his stats were, his pitching, the. That was actually a combination of the previous three games. It was so wrong, like it wasn't even close. And, and I think, you know, sometimes we'll get letters from franchisees now clearly that they wrote on chat or on Grok or things like that that don't have the facts exactly right. So. And if I'm a franchisor and I'm trying to really discern what it's going to take me to get it done, I might get some misinformation. But I will tell you that it, it takes more than 50 or $125,000 paid to a consultant or a startup business to launch a franchise system. You've got to hire people ahead of revenue, you got to have training, you got to have materials, you got to be able to afford the development process. And the faster you, you award franchises, the actual, the more it's actually going to cost you because you've got to have more resources for these people. So there's this bolus of what I have, my experience is in the times that we've really done accelerated development, it cost me more than I thought it would cost. And in doing it, and I think some people get into franchising and they think, well, we're just going to get it clip a couple of points off these and it's going to be profitable from day one. And, and as a franchisor, that's just, that's not been my experience. So how would you, you know, advise people to think about, look, if you're going to go down this franchise path with your business, number one, you've got to have great advisory because you're going to have to do just the right things in the right order at the right time so you don't waste time, energy and money. Number two, you're going to have to have discipline not to award people that are going to be problems because they're just going to cost you more money down the road. So you're going to have to have some discipline. And like you said, who the franchisees are going to be in that particular model, they're going to be good and then you're just going to, it's just going to cost some money. And I think when I see this bolus of new startup franchise brands out there, you know, how are you counseling them to make sure that they're deep enough and they're committed enough to see this thing through the first 24 or 36 months?
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B
Well, you're absolutely right. Now franchising is a low cost means of expansion, but it's not a no cost means of expansion. And people need to be prepared for the franchise growth and that they're planning the from our perspective. The other thing, I think that was a very salient point that you brought up was the faster you grow, the more money you need to launch. If you're gonna, if you're going to try to grow aggressively, you have to have more capital for franchise marketing. You do have to hire in advance of the need. You do have to develop, you know, a broader range of legal options in terms of you might open up more territories initially you are going to be focused in on the, you know, having additional tools that will allow you to process more franchisees more quickly. But I, I think that the, where the advice sometimes is short, it is a little bit short in terms of what is given to people in the marketplace is that if you want to grow slowly, you can grow for less money. But, but the speed is really what the, really the, the thing that's going to create the capital requirements and people need to understand if you want to grow fast, it's going to, it could cost you 3, 4, $500,000 to launch this because you got five buckets, you've got the consulting work that you're going to do. You get the legal work, you've got the miscellaneous travel and everything else. But you also have the cost of marketing, which these days is going to cost you. If you don't use broker networks, it's going to cost you $13,000 per franchise, just on the marketing side. And then you got the people and you have to budget for all those things, not just the consultant, but if you're looking to sell one or two to your brother in law and a friend who has worked for you over the course of the years, maybe you can do that less expensively. So the key is really going to be the sort of right size, the your expectations with your budget. So if you are looking to grow slowly, maybe you can get into the business of franchising less expensively and then ramp up in later years. But if you're looking to start out aggressive, you need somebody who's going to shoot straight with you and tell you exactly what it's going to cost you. From our standpoint, we go through that every time we meet with the client. So we try to make sure that they understand that. And we start by thinking about what are their goals, you know, where do they want to be five years from now and when they get back to us and they say this is how, you know, this is where I want to be or this is how much I want to sell the business for, are you sort of back into what do you have to do in year one and what is it going to cost you in terms of franchise marketing? In terms of do you need to hire people in that first year or can you leverage off your team and that's going to give them a budget and if they can't do it, then you got to readjust their goals or readjust their timeline.
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A
Specifically when you're spending that $13,000 in driving leads, you can spend it but you better have the proper CRM that's going to reach out and touch these people immediately. It's going to accept leads the right way. You can't have too much information on that form because if you interrogate people, they'll never click the button. So there's just this perfect balance in exactly the information you get to get the lead in and then from there, what is it? If you talk to somebody in the first five minutes, you're nine times more likely to close them. So you've got to have not only the capabilities to get back to people right away. Like I, I might, it might be 8 o' clock at night and I'm just sitting on my couch and that designer refranchise ad hits my Facebook and I click that button and I'm, I'm available and I'm in the moment and I'm thinking about it and you know, our people will call you back within a couple minutes and say, hey, what are you doing on my website at 8 o' clock on a Friday night, Bob? You know, and, and just, but like just kind of break the, we don't want to, we don't want to take your whole night, but like just a quick little 5 to 10 minute call to say got your lead and you know, and, and just kind of create that little bond. And then of course you've got to get those leads to a very skilled, knowledgeable advisor person that can help these people assess whether this is a good fit for them. And, and think about all the cost in all of that. So before you spend the $13,000, you've got to have the machine built or you're just throwing $13,000 into the wind. Because if you just let those drop and send them an email some weeks down the road, you just wasted your money.
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B
Yeah, well, you're absolutely right about that. And you know, it's interesting, some of the surveys that you see when some of the industry organizations out there do these surveys and it says, I saw one recently where it said that I think it was 60% of people got back to people within two days and that means 40% didn't. It's like, wow, you know, it's like you do have to, you have to be ready to get on that phone call. You know, if you're, if you're not talking to somebody within the first 30 minutes, you're behind the game these days. So that's absolutely true. You have to have that, you have to have that kind of mentality or have somebody's going to do that, especially if you're looking to grow more aggressively and you're spending more money. On the marketing side.
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A
I'm interested in your take on the current climate. I think with it, it feels like there is more franchisee advocacy out there and there's more, there seems to be more legal on the franchisee side, there certainly seems to be consolidation with private equity coming into many of the boxes, even in home service now, obviously in concepts like Plan Planet Fitness, where you get large boxes, you get good cash flow, you get people that have aggregated 30, 50 units together and those become very attractive operating models for private equity to come inside of it. I know that private equity made a big difference in serve Pro then when they acquired servpro four or five years ago and you know, have really accelerated, allowed and then private equity into the ranks there, which has really accelerated some growth inside of that system. So you've got, you've got a lot of trends and, and that are in a lot of forces that are at play in franchising now that maybe 20, 25 years ago, not so much it was a founder. It was a founder and it was a family. And that's another question I'm going to ask, I'm going to remind you, get back to that. But it was a founder, it was a family, it was franchisees you came in and met personally. You knew who they were, what their families were and all of that. And, and there was a relationship there and a commitment to each other to help help the franchisee, to help grow the brand and to do their part and then from the franchisor to make sure that they stayed paid close enough attention to who these people were and what they needed. And in all of that, what comments do you have about the climate today in franchising, especially the impact that maybe private equity has in accelerating the pressure to, to grow at the franchisee level?
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B
Well, you know, it's, private equity is absolutely one of the big factors of what's happened recently in franchising. It has had really a profound effect on sort of the broker networks in particular. So it used to be that the brokers would charge, you know, 30, 40% of the franchise fee and that was fairly consistent. I saw one the other day that came across where a particular franchise company was paying 108% of their franchise fee. They're paying $65,000 brokerage commissions on a $60,000 franchise fee. Right. So it's like, you know, and that, that doesn't include a sales commission if you, if you have to pay your sales guy, it doesn't include the time that you have to pay the sales guy to sell this. But the, the private equity companies that own these kind of businesses understand that if they invest the money now in the marketing and they invest more money and get more interest early and they're able to ramp up that growth, that when they sell the company five years from now that they're going to be able to sell it for a lot more money and it's going to come back to them many times over in terms of what they paid that broker. So it does make it more difficult though for smaller companies that are getting into franchising for the first time be successful because they can't compete as well in the broker networks if they're not willing to give up large portions of their capital. So that's, that's one of the things we've seen the, you know, there obviously there's been sort of the, the growth of platform based franchise companies, you know, like yours and like others, where they are able to consolidate some of the overhead and make the organization more effective from that perspective and more profitable. And again, that's, that's something that was originally done, I think by some of the folks that were sort of backed by private equity. And, and that's been a model that has been, that's still to this day being done by a lot of the private equity companies while they're, they're trying to consolidate multiple brands under a single, single roof. We're seeing a lot of other things though at play as well. So I mean this is such a dynamic market. You know, sort of the advent of the AI and what people are doing these days. You know, it used to be all about SEO search engine optimization, but now it's GEO as generative engine optimization. And if you can't compromise for chat, GPT, if you, you look at your search results, what comes up first? It's generally speaking it's going to be the chat results, then it's going to be the paid results, then it's the SEO results. So you're at the bottom of the page. If you're just doing SEO these days, you have to understand how to work with chat and with other kinds of AI related tools. And that's a big development. You look at what's going on, there are some favorable things that are out there. Congress is introducing legislation if they can ever get off their hands. I don't want to make this too time sensitive, so I won't talk about what's going on right now. But they are introducing legislation that's going to clarify joint employment and that seems to have bipartisan support, which will be a real boon for franchising because that, that has always been an issue that the franchise community has had some concerns about. You know, the joint employment issue that, you know, if you do things right, you can sort of avoid that. The financing these days is a concern, especially for the bigger box kind of players. The interest rates have remained above where one might normally think they should be in this environment and hopefully those are going to come down in the short term. But the franchise franchise has continued to grow despite these higher interest rates. So we'll see what happens when it goes. When interest Rates come down, which they should pretty soon. And if they do, I would thoroughly expect that's going to be another major driving force that's going to start accelerating franchise and even faster than it's growing right now. So it's a real interesting time to be a franchisor. But a lot of the things that are out there, the downside of the private equity part of the business is that private equity companies are driving up the cost of doing business in certain channels of from a marketing standpoint. But the upside is there are so many private equity buyers out there that are interested in buying franchise companies. You know, when I got started even with iFranchise Group 25 years ago, there were two or three companies out there in the private equity space that won't even take a look at a franchise company. And most just didn't understand the business model. But nowadays there are bidding wars on almost all the franchisors that are out there that are talking to these private equity guys. One of the companies that you mentioned earlier got sold to private equity. I won't mention their name, but I was told it was a 25 times multiple. 25 times, that's like public market kind of stuff. One of our companies got, one of our clients got 20x, another, you know, another one just got 14 and a half x. Getting 14, 15 times earnings is not at all unusual in today's private equity world. And if you're bigger and a faster growing brand, you can do better than that. So I mean it's the, the, the opportunities for exit today are, you know, are real and provide some real advantages to franchise companies.
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A
Does it take a human, a founder, a family to most effectively launch a franchise brand? Or can today, can a corporation maybe backed by private equity launch a brand? And I'll bracket that by saying generally the first 15 or 20 franchise owners, they're going to buy into the person and the story and the expertise. The founder has operated in this space for some amount of time. And it seemed to me, or at least I had a thesis some time ago that it really, if you looked around, it was really a founder that started the franchise brands. And then when they reach a certain scale or a certain size, when you get up to be driven brands, it doesn't matter who owns driven brands anymore. You've got multi billion dollar systems and, and it does. Who, who's ever at the helm of doesn't matter one way or another necessarily. The economics are established, the business model is established, the marketplace, the brand, all of that. But talk to me a little bit about who's coming to iFranchise Group today in terms of people that are looking to enter the franchise marketplace. And, and do you have any, any concerns about maybe a non individual bringing you a concept, maybe a group or a consortium saying we want to franchise this?
- [36:20]
B
Well, I, I think that you sort of laid out an interesting dichotomy because I think, I think that it is true that when franchisors first get started it's almost always start by a founder. Right? It's in the early going of most of these businesses you don't see, and frankly you don't see private equity interested in, you know, a one off operation and turning it into a franchise. Usually the private equity comes in when they've got 20, 30, 50, 100, 200 locations or more. The bigger they are, the more private equity guys are buying are, are bidding on them. So the private equity guys, if you're not, you know, as a franchise or if you're not doing putting a million dollars to the bottom line, they're not going to buy you, you know, and the million is really at the low end of the scale. Most of them are looking for at least a $2 million net before they even start thinking about working with you. They'll develop the relationship but they're not going to put in a noi on you. So the private equity guys tend to come in later. And so I don't, you know, most of what I see is founders and companies that are somebody who bought the business from a founder that is, you know, they've got one to 15 locations and they're looking to grow more aggressively on the startup side anyhow. We still see the established franchisors all the time as well. But on the startup side it's usually a founder. And I think that people do buy into that founder and that founder's vision more than they will an early stage company that's run by private equity. I, you know, that being said, depending on the, the size of the company, you know, I don't, I don't have any problem, any problem with it being something that's not founder led as an early stage startup. So we started working with potbelly sandwiches sandwiches when they had 250 locations. They were not franchising at that time but they had, you know, a pretty well established infrastructure and they were a very credible company. We're working with a company called Service Experts that is a very, you know, large scale operation and you know, they started out with many, many hundreds of, of operations that were not franchise and got into it at a later stage. So I don't have a problem with companies that are maybe not founder led if they've got the right management teams in place. But I think that you're right in that especially with the smaller concepts, it's almost always going to be founder led.
- [39:06]
A
I'm interested in your global practice and to understand your view of international franchising, meaning the flow of concepts now into the United States. I found find more and more people reaching out to me from Australia or places like that and saying I've got a concept, I think it would be good in the United States. We're obviously, I believe the world's largest franchise market by, by many times over. What's your view of international today and have you seen an increase or an uptick in international brands coming to the United States and also United States brands exporting themselves to other countries.
- [39:46]
B
Really in both directions. It's becoming much more of a global market these days. You know, we've had, you know, some very big companies that have been very successful that have been our clients. So Perry Baguette came from Korea and they've got a number of locations. BBQ came from Korea, Bonchon came from Korea. There are folks in, in Guatemala company called Pollocampero that came here from Guatemala that is done very well here. So we're seeing, we've seen a lot of different companies who've come to America recognizing that America is just a tremendous market to get into and from a franchise standpoint and you know that I'm just scratching the surface with the names that I've just mentioned there, you know, there is, there's just a tremendous market here if you can make the concept work here. That being said, it's also one of the most competitive markets in the world. And so you better, if you're coming into the US you really better have your act together before you do it because it's not going to be the easiest market to patri and it's not something where you can, you can just start selling a franchise and hope that it works. It's a, it's a substantial investment. It's anytime you go international it's more of an investment that people oftentimes give a credit for. On the out, outbound side, you know, we caution our clients to make sure that you're big enough to support international growth before you start looking international. I've seen companies who go international with very few and for the vast majority of them they, it does not work out the, there, there are occasional exceptions. They shack, for example, when they got started, they, they started out with a deal with a very large player in the Middle east and that essentially funded their domestic growth. So you will occasionally see it work, but I would much rather see my clients wait until they're well established, they've got a team in place and they've got the resources to support international growth before they even consider it.
- [42:10]
A
I've heard such horror stories from franchisor friends about their escapades around the world and how they would launch to some eastern block company and they'd have to go there and find out that they had awarded the master franchise to basically the mafia over there. They go to collect their money and the next thing you know, somebody shows up at their doorstep in Australia talking to their wife and it's like, you just need to stop collecting your money. I mean, and I've heard about people having a concept that was painting cars and they had it under an underpass in China somewhere. I, I mean it's the, the controls that you get and then also the different legal environments. Like, by the way, you can't just file, you can't just sue people if they don't pay you in certain countries. It's just not the way it works over there. So is it, do people struggle internationally because they just fail to truly understand the landscape? They pick the wrong countries. They, they underestimate the capital requirements or commitment it's going to take to put people on the ground over there? We do operate in Canada and there's stuff, there's stuff that we have to do just to operate in Canada. And it's literally right across the, you know, we're just the noisy downstairs neighbor to Canada at the end of the day. So you just go right up the stairs and they're up there. But it's, there's complexity to it. What is the, what do you think is the main reason that other than maybe, is it capital, is it picking the wrong places or, or you think people just underestimated what it's going to take?
- [43:43]
B
I think that it is largely done on an opportunistic basis as opposed to creating a plan.
- [43:50]
A
If somebody calls in and says, I'm in, I'm in Venezuela and I want to roll out your burrito thing or.
- [43:56]
B
Whatever, you know, it's some, some person who. And what it boils down to is, it boils down to partner selection. You know, when, when I talked about the one that was sort of the. I guess it's Snake Shack, but It's Shake Shack. But when Shake Shack got their program together, it was with a, a company called Alshaya, which is just a monster of a company that has done multiple different franchises over the years. They're, you know, they would be, you know, if you got a phone call from Al Shaya, you'd probably take that phone call. But if you get an opportunistic phone call from some person that you don't know, chances of you getting the wrong partner are 95%. You know, it's pretty unusual that you, that the, that, that you know that the right partner just happens to pop up in a foreign market. You should be being very selective in terms of who you're going to work with. So I would say, number one, it's don't grow opportunistically abroad. You should have a plan for growing abroad, a plan for supporting. You should have an understanding of which markets are going to be the right markets to go into. There was a US Burner chain that had not franchised domestically but decided to franchise internationally. And it's a pretty big chain. They went into a market and tried to sell franchise in that market. They found somebody to buy the franchise. I'm guessing it was opportunistic and they failed because the market they went into was 40% Hindu and 40% Buddhist. And it's like, well, you're not going to sell a lot of burgers to those guys. So you, you have to make, you know, you have to understand that's probably not the first place to make your, your international bones. Right? You know, start domestically figuring out how to support these folks. Then when you're ready and you have the team in place to do it, then it's time to go international. But don't, don't get dollar sign dollar signs in your eyes because somebody from Saudi Arabia sends you an email, it's going to not work out. More times than not, it's going to cost you a lot of time and effort and focus on what really should be your growth strategy in the U.S.
- [46:20]
A
Are there some international markets that would be the top five that are similar to the United States that you see people having a better chance of success in?
- [46:30]
B
Well, I think that, you know, Canada is one where, because of its proximity to the States, it would be one that you would, you want to make it to put at the top of your list. They, they are, they have some registration laws that are, that are similar or actually disclosure laws, not registration laws that are similar to some of the disclosure laws in the, at a provincial Level, there's no, no law across all of Canada on franchising, but they're, they're culturally pretty similar to us. Their, their dollar is, is unfortunately not performed really well in recent years. So that can be an issue. But the, from a cultural standpoint, they're in the same time zone. They're in the same, they're in they same, same general culture that we have in a lot of respects. So that would be the sort of logical place to jump off for most companies going international.
- [47:34]
A
I have business associates that are non franchised and then also some franchising affiliates that seem to be making trips over to Dubai. What is going on over there in the franchise space?
- [47:49]
B
Well, we've got an office over there and it's a, it, you know, sort of the whole Middle east is a, has been a very strong market. Although the tension in the Middle east, you know, going up and going down with various things that happen does make a very volatile market in terms of your ability to sell franchises. But it's also a very different market than what we've got in, you know, in the United States here, you know, culturally, you know, from, you know, from cultural standpoint, you know, the ability to serve alcohol, for example, in a lot of locations is not going to do well in certain markets. You're not going to be able to replicate that in Saudi Arabia for example, and even in some of the, the other markets, the, it's not like they have a, they have bars. Maybe it's, they allow you to drink this on the hotels or something. From a religious standpoint there there are, you know, different dietary restrictions, you know, on things like pork, et cetera, that will run alcohol as well. That will become issues. There are, there are issues relative to the laws there. You're operating under Sharia law as opposed to operating under, under US Laws. And as you pointed out, if you want to try and sue somebody in Saudi Arabia, you know, good luck with that. So again, it boils down finding that right partner and, and being a good partner on your end. But it's a, it's a very, it's a, it's a market that really does buy into franchising. I go out there once a year and so I'm pretty familiar with Dubai and you know, in the uae and we've got a franchise program right now where we're helping companies, we been engaged by a offshoot of the government of Bahrain to help them to franchise their businesses around the region. So there's a number of things that are very promising about the marketplace. But there's also issues that as a U.S. franchisor, you have to be very cognizant of and go in there with an understanding of what those issues are in advance.
- [50:06]
A
Seems like Australia and New Zealand are similar franchise markets. They do have franchise concepts there and obviously the language is similar. Not exactly the same, but close enough.
- [50:19]
B
Yeah, they're very good, they're very good markets, but they're small. So.
- [50:26]
A
Right.
- [50:27]
B
Australia's, you know, it's, I don't know, one twentieth the size of the US and it's, it's very, you know, while you see a continent that is, you know, bigger than the U.S. i believe almost all of its inhabitants live within 50 miles of the coast. So yes, it's, it's not like the United States from this, from a distribution standpoint either. Uh, so, but they're, they're very good franchise markets. Um, the, the labor market in Australia is a little bit difficult to, to navigate just because some of the labor laws they've got are, are a little more, a little more difficult, just a little bit more difficult for, for small businesses to navigate in terms of some of the costs and some of responsibilities. Got it.
- [51:23]
A
You wrote a book, you wrote a book. Franchise your Business. The Guide to employing the greatest growth strategy Ever. Who'd you write this for and what would people get out of it?
- [51:35]
B
I, I really wrote it for companies thinking about franchising for the first time. And it's, it's geared toward somebody who owns a business and is trying to make that decision. It starts by talking a little bit about, you know, what is a franchise, what's the definition of a franchise? And then goes into what are the alternatives to franchising? And how do you choose between franchising and the alternatives? How do you know if your business model is in fact franchiseable? And then how do you develop a growth plan backing into, you know, what your long term goals are from that and then the steps that are involved in actually becoming a franchisor. So how do you do this strategic planning? How do you do the, the quality control? How do you do the, the franchise marketing? How do you do franchise sales? It talks also about things like, you know, going Internet, going international, or working with private equity companies. So it's a pretty broad based book that talks about a lot of the aspects of franchising, but it's sort of an educational book for somebody who's thinking about franchising. No, franchising is not going to be right for everybody, but, but for those that it is right. I hope that what I've done is provided them with a good roadmap for making that decision. And if they do make the decision for a good roadmap for what they need to do in order to be successful and have successful franchisees.
- [52:59]
A
Am I correct that you've recently updated the book?
- [53:02]
B
Yeah, this is the second edition. I was pleased. I think only about 5% of the books out there ever get into a second edition, but this is second edition, so I was sort of pleased to.
- [53:13]
A
See that so much happening. I'm an active franchisor right now, and as we think about the future of our programs and we incorporate AI and all of the areas of the business that we can really provide meaningful help the franchise owners now and then, what's a restructure and the flow of information. But look fundamentally at the end of the day, and this is something I've come to recently, there is an established model in franchising, and if you look at the companies that have been successful over 30, 40, 50 or 60 years, they find this perfect balance between the fees and who does what. And there's really. With private equity coming into franchising, there was this gold rush. I had an economics professor in college, and I guarantee he doesn't remember me, but he would say, you know, anytime that there's profitability or that there'd be a green flag that would be waving and everybody will run to it. And it's been that way in franchising really since maybe 2010, 12, 14, with, you know, companies that have franchise their businesses being rewarded and there's just a lot of. Of. And which leads to sometimes some variations on a theme that seem like a good idea. And we talk to our franchise owners about following the plan and not having a genius attack. And when you look at the franchise model, I mean, it's really simple. I mean, you've got to make sure that there's economics in the store for people and families to make money. You can't give people a jet airplane because 99% of people will crash a jet airplane. You got to give them something that a reasonable person on an average day can make predictable revenues and predictable profits. And it can be operated by the large, you know, the large community of people out there will be able to successfully operate this business. The economics need to be right. And then inside of that, like what gets centralized, what gets done for them and what gets done collaboratively. And a lot of things around customer acquisition, like, do you want every single franchise owner to have to understand how to do Facebook business manager, or is that something that gets done for them? Learning how to place Google campaigns and all these types of things. So you look at every thing that has to be done. You have to decide, can you create value by doing it with a few people instead of having hundreds of franchise owners have to learn how to do this thing? And there's just so many opportunities inside of that. And then how does that get paid for and how does it, how does it get monetized? So, but as I, as I get right back down to it, it's, it's relatively simple and there have been some unique things where people have created good economics for both the franchisor and the franchisee. And if you can create economics for everybody, then that feels like a win. And there have been some, some really innovative things that have happened. But I think by and large it's, you know, it's there, there's, there's a, there's a model and if you try to shift too much of the economics into one bucket, you know, if the franchisor's bucket, then you're going to be squeezing the franchisees economics. And if you don't leave enough economics at the franchisor, then you're not going to be able to provide the services that a sophisticated franchisee is going to be demanding from you. So it's really this balance and good collaboration, good transparency and building something that kind of works for everybody. So it's, I don't know, I don't know where I was going with that, Mark, but I, I, I lost the question in my head. So I just, I just decided to do a solo comment.
- [56:55]
B
Yeah, I mean, honestly, this is something that we do for our clients on, on a pretty regular basis, getting the fees right. People a lot of times take this sort of me too approach to franchising where they'll, they'll say, you know, so know, XYZ company is at a 6% royalty and they're a competitor of mine. So that's what I'm going to be at. The problem is when you're, you know, your company has to, number one, has to differentiate itself from anybody out there who is a competitor of your, of yours. And that might mean that you're going to be doing more things for them or less things for them. It might be that your, your, your mix of services to your franchisee is different. It might mean that your position in the marketplace is different. It might mean your pricing is different. So you have to be able to adjust and you know what's your average unit volume versus theirs? What's the return on investment for them versus your competitors? And you sit there and take a look at all those questions. We go through a very extensive process for strategic planning just to get to that, that fee and that royalty kind of percentage. People don't think about it, but if you're off by 1% on your royalty and your average unit volume for your franchisees comes in at $500,000, that's a $5,000 mistake. And it's right off the bottom line. And people, you know, people think, well, it's $5,000, but it's not $5,000. It's $5,000 times every franchise that you sell it to. You sell 100 franchises. Well, it's a $500,000 mistake, but it's not a $500,000 mistake either because you didn't sign it for a one year term. You sign these guys for maybe five, 10 year contract term. If it's a 10 year contract term, that's now a $5 million mistake. And that $5 million mistake, if you decide to sell your business at the end of, of 10 years and you're not putting that 500,000 to the bottom line and you get a 15 times multiple on that 500,000 and there's another 10 million there.
- [58:57]
A
Right?
- [58:57]
B
So it's like, you know, the, I don't know if you're old enough to remember our old senator from Illinois, Everett Dirksen, who said a billion here, a billion there. Pretty soon you're talking real money. You know, it's in franchising, it's not quite the government. So it's a million here, a million there. Pretty soon you're talking about money, but it's, you know, you have to get those numbers right up front. And that's what companies like ours do. You know, we try and help companies make good decisions about franchising, maintain their quality control, develop means to sell their franchises and sell them at a rate of speed that's sustainable for them, but reaches those goals and help them to, to know how to implement that business sort of within the context of best practices and this. But getting the numbers right, it starts right there. Yeah, yeah.
- [59:46]
A
It's a perfect balance. And, and it's absolutely critical. And for somebody who is a first time franchisor, there is no way that you have the, can have the context to be able to make that decision by yourself. Which is why you, Dave Hood, I'm not sure if he still works with you or not, but everybody at I Franchise Group is. Is there an incredible group of professionals there? I remember in the various over the years when I've had occasion to bump up against you guys and in engage with you guys, I always would go to the website and was just like, wow, this is a, this is a deep bench of, you know, not decades, hundreds and hundreds of years of franchise experience within the organization.
- [60:24]
B
Yeah, it's. If there's one thing that I've managed to do right, it's really to attract really great people. And, you know, it's, you know, when I look at the, the team that has joined I Franchise Group, you know, I couldn't be. Be any more proud of the group that we've assembled and the accomplishments that these guys have had. They're really the brains behind the operation at iFranchise Group. Dave and the team that he's assembled in strategic planning and some of the other folks in operations and marketing. These guys are the folks that really make things happen. And I've just been fortunate to go along for the ride with these guys.
- [61:06]
A
Yep, it's a great team. When I sold Advantacle and I sent my resume into you guys, but you just wrote back unsubscribe, so I, I figured you weren't interested in me. But, you know, maybe, maybe, maybe, maybe next time around I'll, I'll get, I'll get through the door. Maybe you can put in a good word.
- [61:22]
B
Well, I think if you wanted a consultant, we certainly have a place for our bench. That's. There's about that. But I think you got bigger fish to fry right now with the home front.
- [61:33]
A
We're working on it. We're working on it. But there will be a day soon, sir. There will be a day soon. So I've got a curveball. It's time for us to like, tug on the reins a little bit and turn this, turn this horse towards, towards the barn. I have a curveball for you and then a fastball right down the middle for you. But before that, can you share with the people where to get in touch with you?
- [61:55]
B
If they can go to ifranchise group.com that probably the best place. It's a small I the word franchise word group dot com. It's easiest place.
- [62:04]
A
Probably lots of great services there. That would be the place I would start if I were starting my franchise today. All right, here's a curveball. Gun to your head, something you care deeply about at great risk. You are forced to start a new business right now in the next 30 days. And it can't be something that you are currently doing or you're currently involved with. Where do you see the opportunity in the marketplace? And if you had to start a business today, what would you do?
- [62:33]
B
Do I have to be as old as I am right now?
- [62:35]
A
You can, you can do any. This is fantasy land. You can be anything you want to be.
- [62:39]
B
I mean, if I were. I mean, we have been so involved in this AI stuff, this AI business lately, and it is so fascinating to me. I've got, you know, we've hired a number of people that, that really know their stuff, and this, I would love to see where this goes because it's just such a dynamic marketplace. And if I, if I had to, I'd love to do this because it's this, this whole information technology revolution is really changing the way that people franchise, but it's also changed the way they do a lot of things. So I'd love to be in some kind of AI business if I could not be in franchising, but I did drink that franchise Kool Aid a long, long time ago, and it still tastes good to me. So no plans on moving anytime soon.
- [63:30]
A
Sounds good. All right, Mark, last question. If you had one sentence to make an impact in somebody's life, what would that be?
- [63:40]
B
I think it would depend on the person I was talking to. If it was somebody who was young, I would say start a business when you're young. When you are older, it becomes a lot more difficult because you've got a lot more responsibilities and you don't have the same time to kind of run away, to recover if you make a mistake. But starting a business, I think, is the most rewarding thing that you can do. And, you know, maybe franchising the business, it might be in your future, or maybe it's not. But get into a business, whether you're a franchisee, whether you're a franchise, you know, a potential franchisor in the future or, or anything. I would say get into business for yourself if you're young. I would say get into business for yourself. And you're going to find not only is it, is it going to be more fulfilling, but it's not. A single day is going to seem like work to you, and it's going to seem you're always building something, you're always doing it for yourself. You're banking on yourself to me, get into business while you're young. That's what I would tell people.
- [64:43]
A
Perfectly said. Mark Siebert. Incredible career. You've helped thousands of people out there. Thank you so much for being on the unemployable podcast.
- [64:52]
B
Well, thank you, Jeff. Thanks for having me.
- [64:54]
A
Yep, this has been great. I'm Jeff Duden. We have been on the unemployable podcast with Mark Siebert. As always, thanks for listening.