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Franchises happen for one of two reasons. An impatient entrepreneur or the business never worked. And if it does work and you choose your franchise, why would you? Because you could own them all. Because we make franchise the goal. Because we hear that as gym owners, I used to think that too. If the model works, then own 100, own them all. The guy who owns Panda Express owns 2,600 locations. He owns the dirt, he owns property, he owns it all. Because they actually make money.
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Alex Hormozi has it all wrong about franchising. Here's the truth from a franchisee that will do over 50 million this year. So he's specifically talking about Franchisor, which is the parent company of the business model. So first he says that they're impatient entrepreneurs. Well, I mean, he's right. Like, I don't want to wait multiple decades to be some old Panda Express dude. I want to start making money now, today. The earlier you can start compounding money, knowledge and experience, the better. Now, a franchise business can grow very quickly by leveraging other people's time, money, expertise and ideas. Franchising has the ability to turn decades into days. As a franchise or the person with the concept, they're able to go across the country opening up new locations with local owners who put up capital, who take the risk. And you, as the franchisor, can handle a lot of things from hq. Now, the franchisee, which is like me in this case, I don't need to come and reinvent the wheel. I can buy into an existing idea that already works, that has a community, that has like a partner who handles a bunch of things, which saves me a lot of time in building a business. And by the way, if you're new to this channel, my name is Brian Beers. And if you want to learn more insider secrets to building an eight figure franchise business, you could hit that subscribe button number two. He says just own them all. Now, this is kind of ridiculous because most of us don't have access to millions and millions of dollars or are good with giving away a huge chunk of equity or want the crushing weight of debt. Now, many franchisors do operate corporate locations in addition to selling franchises. Now, these corporate stores allow them to own as many units as they want. It gives them opportunity to pilot new ideas, new products, new services. And for many of them, it provides very strong cash flow. Take Papa John's Pizza, for example. In 2023, they operated over 500 corporate locations that outperformed franchisees by almost 20% in revenue per store. Now, this gives Papa John's Corporate the flexibility to open new stores with when they need to. It gives them the ability to acquire failing franchisees, turn them into corporate stores, potentially sell off corporate stores to franchisees if they want to, you know, get some cash and improve their balance sheet. Like, they have a lot of options because they do have the power of both operating corporate stores and having franchisees. The third thing he says is, you know, they actually make money, implying that a lot of franchisors don't make money, which is the reason they franchise. But it's really the reverse. That's true because the best franchises are wildly profitable and that if you have a wildly profit idea, a lot of people are going to want to buy into them. And then once people buy in, if you have a business that makes money, you're going to reinvest as much money as possible into buying more locations, growing the business. I mean, in my business, you know, I got an 800% return on a single deal where we put $50,000 down to buy an existing franchise that that made us $400,000 the next year. Like, I can't get those returns anywhere else. So if I have a wildly profitable business as a franchisee, I am going to reinvest as much money as possible in order to continue to compound it. That's how I grew from just a handful of locations to over 30 in just eight years. So if you're the franchisor, though, their business gets valued at a much higher multiple than an operating company because a franchisor whose profit is heavily based on recurring royalties, which is essentially like contractual recurring revenue, is valued at much higher rate. Now, a decent franchise or will trade at, you know, 10 times profit, up to 15 times profit, compared to, you know, an operating business of mine that maybe will go for six to seven times profit at my size. If you have a very profitable idea, you can make way more money as a franchise or, or than you can as an operating company in a much quicker time period. Now, here's the rub. The potential for that big payday attracts a lot of sleaze balls. This is where franchising gets a bad rap. And I think where Alex is really speaking of is that it attracts a lot of people who have terrible business models and are trying to just sell franchises because they're trying to get rich quick. And they may talk of a game, their website may look pretty, they may even sell a lot of units. But franchisees aren't happy. They're not profitable. The unit economics are not good. This is why Due diligence is critical. There's over 3,000 franchises. Like how do you figure out what are the diamonds and what's all the crap? Because many of them aren't worth it. And you can't go by just the surface level. You need to go deeper. You need to ask a lot of questions of the franchisor. You need to understand what their growth path is. You need to talk to existing franchisees, both ones who just started out, who are just like you. You want to talk to legacy people like me who've been in the game for a while and anywhere in between. You want to make sure that when you get into a franchise that you align with the long term vision that they have. Because it's a big deal. Like your entire life will evolve around building this new business of yours. And it's not something to take lightly. It is something that I help people with all the time, which is how do we evaluate great brands, how do we tell the bad ones from the good ones, how do we negotiate better deals, how do we find that leverage and, and all that. Now finally, what Alex is missing. When done right, franchising is a great partnership. The franchisor handles the marketing, the branding, the website, software, R and D, supply chain, real estate, national partnerships and more. They take a huge load off of franchisees. Focus, which allows franchisees to just focus on local execution, which means hiring great people and getting them to follow the playbook. You know, there's this famous saying about Michelangelo carving the David and, and he says, you know, he took away everything that wasn't David to make David. It's the same thing from a franchisee is I want the franchisor to carve away everything that I don't need to worry about and I can just focus on making something beautiful, which is a strong cash flowing business that allows me to live the life that I want to live. And as a franchisee, you can grow like wildfire because you have the ability to open up new locations, you can acquire existing franchisees and, and roll them into your system. You can diversify into other franchise brands that could cross sell, that have synergies, that you could have partnerships with other people. Like you have a lot of options as a franchisee when you want to grow and franchisees want to sell to other franchisees. So creates this like strong community where people know each other, they trust each other. When they want to get out and they want to grow, they got people they can go to. So no more scrubbing biz by sell, like putting together tons of Lois that get rejected and and lots of crappy information. You just pick up the phone and you talk to your friends and you say hey, are you interested in selling or is anybody in your market interested in selling? Because I'm looking to buy. This is how I grew from 2 to 33 in eight years. And it is the path I will continue to use to grow my business. Over 100 million over the next five years. And I'm on the small side. Like there are franchisees out there with hundreds of locations absolutely crushing it. And finally a local franchise owner is going to care way more about the reputation in the community, any corporate employee, because it's that person's money on the line. It is their reputation with their friends and family when they visit that location, when they read those Google reviews. Plus like they have connections in the community that they can leverage from day one. So you get better reputation, stronger execution overall, better performance of a business when it's locally owned. But franchising isn't a magic bullet. There is no guaranteed success, there are no perfect brands and it's just about a vehicle to get you from A to B. Now franchising has changed my life. It has changed many of my friends life and maybe you could change yours too. If you want to learn more about franchising, subscribe to this channel and I'll see you in the next video. Cheers.