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The Duct Tape Marketing Podcast
The Franchise Playbook: Insider Tips for First-Time Buyers
00:24:04
Insider tips on franchise success, brand strategy, and customer insights for first-time buyers in this expert interview.
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- [00:01]
Marketing Expert
Let me ask you a few things. Do you feel like you know what differentiates your business from every other business out there? Can you confidently charge a premium for what you offer? Are you working from a plan, a marketing roadmap that allows you to know precisely what to do next? Look, don't worry if you can't answer yes to any or all of these questions. You're not alone. See, marketers today get so focused on the tactic of the week staring them right in the face that they forget to look at the big picture. The overarching strategy needed to consistently grow their business. Over the years, I've worked with thousands of businesses helping them do just that. Create the perfect marketing strategy and plan that gives total clarity about what to do next, confidence to charge ahead and charge more, and complete control of the marketing tactics they choose. I would love to help you and your team do the same. Look to find out if our Strategy first program is right for you. Visit DTM World Grow and request a free consultation. That's DTM World Grow.
- [01:20]
Jon Jantz
Hello and welcome to another episode of the Duct Tape Marketing Podcast. This is Jon Jantz and my guest today is Alex Smiak. Nailed that, didn't I? He's a serial entrepreneur and the co founder and CEO of Franzi, a platform revolutionizing franchise discovery and acquisition. They empower aspiring entrepreneurs with transparency, support and the tools to find the right franchise opportunity. He's also the co founder and former CEO of 2u laundry and laundro Lab where he helped build and scale a successful venture backed laundry delivery service and it's franchise arm as well. So he continues to serve on both boards of those companies. So Alex, welcome to the Duct Tape Marketing podcast.
- [02:04]
Alex Smiak
Thanks John. I'm excited to be on with you today and look forward to talking all things franchising and how people can get into the wonderful wacky world of it.
- [02:14]
Jon Jantz
Yeah, you know, it's interesting franchises. I think a lot of people think McDonald's, White Castles, you know, some of the really early like food franchises. But in looking at the model, you know, it's probably been around since the middle Ages, you know, when, when some king would say okay, you over there, you get to collect taxes in this region and you submit some of it back to me and you, you know, you get an exclusive on that region. You know again I half kidding, half not kidding. But I mean it's really a model that's been around forever for the ages hasn't.
- [02:46]
Alex Smiak
Has been around forever and it's more pervasive and I think our everyday lives than most people realize. To your point, they think McDonald's, Subway, you don't think about the moving company that helped you move is probably a franchise or the painting company. It is. 8% of our country's GDP is produced from the franchise industry. And it spans food, hotels, home services, fitness, coffee, I mean you, you, entertainment, you name it. There's probably a franchise.
- [03:17]
Jon Jantz
Yeah, I was gonna say the, the model's become so successful that there's probably not a service where somebody hasn't at least tried, you know, to, to get it going. Right. I mean, because I think a lot of people, you know, see the successful model and so, so let's go there for a minute. You know, is there an inherent advantage theoretically to a franchise as opposed to somebody just kind of figuring out on their own?
- [03:39]
Alex Smiak
Yeah. So actually, you know, I've done a lot of research on franchising as a whole and two, two metrics that have jumped out to me before is that, you know, the two year success rate of a franchise business is about 92% for success rate for franchising, 85 for the five year success rate. That is opposed to 76% for the two year success rate for just an independent business and a whopping 50% success rate after five years. So if you look at the two numbers I just shared, 85% success for franchise businesses after five years, 50 for independent businesses after five years. That's the answer right there. A lot of people get into franchising because it's de risk. It gives people, I don't want to say a safety net, but you're working with a community of other people around you that are also building their businesses with you. And then a corporate parent that has proven the model has marketing resources, has training resources, has tech resources, et cetera, to isolate you to an extent and be valuable.
- [04:39]
Jon Jantz
So when the concept or the model itself was really blowing up, probably in the 70s or 80s or so, there were a lot of issues that had the FTC step in. A lot of people were setting up Ponzi schemes. You know, they were taking a hundred thousand dollars from somebody and then, you know, the people, no support or not, nothing. What was promised. How would you say the state of sort of regulating that industry as has evolved and is it safer certainly than it was 50 years ago?
- [05:08]
Alex Smiak
There's two, two sides to that coin on the regulation around the brand themselves to prevent snake oil salesmen from saying, hey, this is the get rich quick in this whatever concept. The regulation's done a good job there. So every Brand has to have what's called an fdd. It's called a franchise disclosure document. And it is a 100 to 200 page onerous legal document that covers bankruptcy, litigation, team experience, investment costs, audited financials. I mean, it has everything in it. And every brand is required to have that. So I, when we got into franchising, was happy to find that the other side of that coin, where there still needs to be more regulation, is how franchises are sold and bought today. And so a lot of people can go to a McDonald's and fill out the contact form. They can find something from a neighbor who might be a franchisee in a concept, word of mouth. A lot of people work through business brokers, franchise brokers, and this part is still very much the Wild West. Meaning if you think about buying a house, your real estate agent had to get licensure. They had to go through training and courses, and they also disclosed to you what their commission is going to be. There is zero of that for business brokers, not just in franchising. Any business broker doesn't need to be licensed. You and I could go be business brokers today. And we also don't have to disclose what percent fee we're taking and how we're making money. So there's also this kind of misalignment to a degree that's happening there, but that's changing. Regulation is coming there as well that I think will protect your average consumer and business buyer here in the near future.
- [06:42]
Jon Jantz
What would you say you started a couple other businesses you franchised or at least participated in franchising those other. Did you learn a lot along the way that you've now brought to Franzi?
- [06:54]
Alex Smiak
Yeah, honestly, if I hadn't had the experience previously building a franchise or essentially being my own franchisee running multiple laundromats, I wouldn't have even had the idea for Franzi. It was getting into the franchise world that made me realize, hey, there's a big gap here and there's not a lot of alignment between the brand, brokers, prospects, et cetera. There's not a good database or set of tools for people to find the right concept for themselves. And so part of the reason I transitioned out of my last business was to be able to go start this one. It was just a huge gap. It's kind of like what Zillow did for the real estate market before you had to go through a real estate agent. There wasn't a way to shop online or look at your dream home or your vacation home. And with friends, you're trying to do exactly that. Be the Zillow for franchising where you can go on your computer at work or go on your computer late at night and say, I'm in Atlanta, I've got 100k to invest. What can I afford? Here's my operational experience, here are my goals for my family and myself. What are the top five or 10 brands recommended for me based on this information? And that's exactly what we, you know, what we've built with Franzi is you go in, you enter that information and we recommend brands for you. You can deny them or approve them and go further down the conversation with them. And then we facilitate that introduction along with a number of other tools that first time or any business buyer needs. Entity formation, lending, finding the right CPA, etc. We help with all those pieces as well.
- [08:25]
Jon Jantz
Would you say that there is, and maybe you don't have enough experience to answer this question, but would you say there's a distinction, different profile of a buyer of a franchise as opposed to somebody who's just going to go out there and start a business?
- [08:37]
Alex Smiak
The answer, and I, it's a, it's kind of a cop out answer, but it depends. Like, I just talked to a number of entrepreneurship through acquisition folks. It's a big, you know, trend right now where people are either getting a sponsor to back them to go buy an established, you know, business where it's someone retiring that wants to sell. But some of those ETA folks are looking at buying up, you know, the family that owns five Jimmy John's and wants to sell. So, you know, it's, it's sure, you know, so you had an ETA person and they're looking at both independent businesses and franchises as a potential solution. You also have within franchising the large private equity groups that own 50 Jimmy John's and 20 McDonald's and they're massive. But you also have the vice president of a bank who's in his 40s and hates his job and wants to leave and go be his own boss and he also becomes a McDonald's franchisee. And so your ideal customer profiles, your ICPs vary, you know, pretty widely, but they fall pretty solidly into three buckets. It's your private equity groups, yeah, it's your, your 9 to 5 veteran that wants to get out, or it's your, you know, family that's built up a nice business and they're adding their sixth, seventh, eighth location.
- [09:46]
Jon Jantz
I, I guess the part of that question was, you know, somebody learns how to be a plumber and they start a plumbing business. A lot of franchisees, owners, I mean, they don't know a thing about the actual business. Like, they've never run a restaurant. Right. You know, they've never run a gym. But they like the idea of not really needing to know that because the system's figured out. I mean, is that a fair statement?
- [10:08]
Alex Smiak
Yeah, I think franchising is a lot more accessible. It goes back to the success rates I mentioned earlier. There's a reason it's almost double. You know, the success rate is almost double for those getting into franchises versus going at it alone. You have training wheels essentially in franchising, but eventually when you start going from 1 unit to 2 to 2 to 5, 5 to 10, training wheels are off and you're, you're booking it downhill. You got some momentum behind you and you know what you're doing at that point. But you had to cut your teeth at some point. Just like anything. You got to learn those first year or two and get yourself in the business.
- [10:40]
Jon Jantz
Talk a little bit about. And may. And again, maybe you haven't owned enough franchises to have this opinion, but talk a little bit about the profitability or the ability to, you know, to really make money in a franchise. One of the knocks you sometimes hear, whether it's true or not, is that there are people owning a couple subways and not making as much as they would at a regular job, for, for example. Is that a true statement? You really need to actually be able to scale this thing to a certain point, or is that, you know, more the nature of picking the right franchise?
- [11:13]
Alex Smiak
Yeah. So I think again, it depends on a number of things. Your individual goal, if it's a retail business, the location you, you decide on in the market around it, how competitive is it? How much of a need is this? A lot of it depends on the operator. You could have the best business in the world, but if you're not there at all, you only show up once a month and you're not checking in on things, it's going to be run poorly. So like any other business, the franchise still requires thoughtfulness around the location. You know, being a good operator, et cetera. To be more pointed, there is a franchise for just about every, for every kind of goal and need. There's one that basically buy yourself a job, get a bucket and a mop. A lot of people don't realize UPS is a franchise where you own. You know, you franchise the route, but you are the delivery driver. Some people like that because they're buying themselves a job, but they also have the freedom and the flexibility of being an owner. Even though they might only be profited, profiting 40 to 100k a year, that's fine. They just like that. They, they report to themselves essentially.
- [12:12]
Jon Jantz
Plus they don't have to depend on dozens of teenagers actually running the store. Right.
- [12:18]
Alex Smiak
So you've got, you've got things from the delivery driver to a commercial cleaning business all the way up to, you're building a $4 million Sky Zone indoor trampoline park and the EBITDA and the profit is substantially higher. Half a million plus. That's what's so great about franchising is it's so accessible and there's something at each end of the spectrum in each range, each risk tolerance, each goal.
- [12:44]
Jon Jantz
Are there, are there some hot kind of categories right now?
- [12:49]
Alex Smiak
Yeah. So home services is really big right now because it's, it's really accessible. You don't need to build this multimillion dollar location. You also don't have to be as right about the location because you have this huge territory. And so if you're doing gutter cleaning or window cleaning or there's an interesting one I saw the other day, you know, it's, it's Christmas decorations are the franchise for. And so it's, you have some of these things that are more accessible, less upfront cost and investment, but still can generate, you know, pretty substantial revenues and profit to the point where it could replace a lot of people's annual salaries. And now again, it's your thing, it's your business. You have more flexibility and freedom and more fulfilling.
- [13:30]
Jon Jantz
Yeah, it's interesting too, in home services, you know, used to be you'd call a remodeler or handyman and they'd come out and look at what you needed. But now it's like, oh, my garage door, I need that fixed. You know, here's somebody that, that puts in 75 garage doors, you know, every week, you know, I'm going to call them. And so it's, you see especially the home services getting really, really niche, don't you?
- [13:51]
Alex Smiak
Yeah, that's one of my favorite ones you actually just mentioned is there's a concept called garage kings. Damon, Damon John, the guy from Shark Tank, actually used them unintentionally and did his own, you know, Instagram reel of it because he just was so blown away by the quality of the service. But to your point, it's because GarageKings only does garage. They epoxy the floors, they put up Shelving and storage and it's a phenomenal business. You don't need a ton of equipment and the average territory does over a million dollars a year in revenue. And it's a franchise.
- [14:20]
Franzi Advertisement
Hey, if you're a dreamer, a go getter or someone looking to own a business, listen up. Franzi is the ultimate platform to make franchise ownership accessible and achievable for everyone from corporate escapees to side hustle seekers and investors. Franzi does more than just list franchises. It's equipped with the franzi Fit Score, an AI powered matching tool that finds the best brands for you based on your financials, experience, risk tolerance and goals. You can also get pre qualified to see exactly what you can afford. Check brand availability in your area and discover the hottest new concepts hitting the market. And if you need guidance, Franzi's team of expert coaches is there to help you navigate the world of franchising and find the right opportunities for you. So whether you're just starting or looking to expand, Franzi's got everything you need. Head over to Franzi.com that's F R-A N Z Y.com today and start your journey to business ownership.
- [15:22]
Jon Jantz
Talk a little bit about kind of your approach and what, you know, if somebody's out there looking, thinking I want to do this, you know, what role do you fill for that person? That's kind of, because just as we've talked about, I mean it's, you know, the, if you just went out there and typed in franchise, you know, it's gonna be like, okay, let's start with 6 billion, you know, ideas. So, so kind of where do you, where do you fit in the search?
- [15:47]
Alex Smiak
Yeah, the way that we describe ourselves is we're education. So if you're a first timer, franchising 101, what is an FDD? What is a franchise disclosure document? What are the terms I should be familiar with? And then what should I be thinking about as far as affordability, time commitment, what's available, you know, those key buckets. We also are a resource for people that are buying their 10th business or that private equity group that I mentioned that might be looking for the right concept to go buy 20 of. So we, we do, we have tools for kind of each one of those buckets. But let's follow that person through the journey of I don't know what I'm doing, you know, what the hell I'm doing. So we help with the education and getting people comfortable. Once you come to Franzi, we also start to help you get pre Qualified with lenders that we've partnered with. So right away, you know, just like buying a house or buying a. Here's what I can afford. Yeah, a lot of these sites tell you that now and so it helps refine your search immediately. There's 4,000 brands in the United States. Well, once you fill out your pre qual, well, now here's a thousand that you can financially afford. All right, what areas are you looking in? All right, here's 300 that are available. You see where this is going. It goes from 4,000 to 1,000 to 300. And then we start to ask a lot of questions about what are your family's goals, what's your risk tolerance, what's your operational experience and then what are your hobbies and interests so that we actually find a business that resonates with you and that you like. By the time we do all of that and we're using AI to do this, there's also coaching with franchise experts on our team that you can speak with. By the time you have those conversations and you fill out these surveys, we've got it down to a pretty high degree of confidence that here's this five brand recommendation for you. One of these five brands is going to be a perfect fit. And if it's not, we've got another couple hundred that we've narrowed it down to that we can continue to feed and teach our model to make sure this is the absolute best business for John from those four factors I mentioned, satisfies his risk tolerance. We know he can afford it, we know it's available in his area and it fits his goals and his interests.
- [17:44]
Jon Jantz
I'm curious, what, what's the, and it probably varies a little bit, but what's the process from. Okay, you've given me those five brands to like somebody actually starting a business once they decide. I mean, is that a year long process?
- [17:57]
Alex Smiak
It depends on the type of business. So with Franzi as an example, let's say we get to the five and you're excited about three of them. So we'll introduce you to those three. We have relationships with all these brands. You start to go through their process and build a rapport with them. They're interviewing you to make sure you'd be a good franchisee as part of their system and vice versa. You're interviewing them to make sure that this is a 10 year commitment. You want to make an investment of time and money that you want to make. And so let's say you've narrowed down to one you love it, you're married to this idea. You want to, you want to become a franchisee and they, they feel the same way. You sign a franchise agreement also. Sorry, let me back up a second. As soon as you start matching with a brand and you have that first conversation, the average sales cycle is 90 to 120 days. There's a lot of calls back and forth. You eventually fly to the headquarters to see a day in the life and meet the team. That's 60 to 90 days from there. If it's a retail business, you can definitely expect, you know, 12ish months because you have to find a site, do build out. You, it's, there's a lot more to a retail business if it's a home services business, which is why they're so hot right now.
- [19:00]
Jon Jantz
Yeah, yeah, you can get a truck, get it wrapped.
- [19:03]
Alex Smiak
Get a, get a truck and do some training and you're locked and loaded in two months, baby.
- [19:07]
Jon Jantz
Let's go. Yeah, yeah, yeah. As. And I'm sure you've seen all these and so you advise some people, but I'm guessing you probably only work with reputable folks. But are there some red flags that somebody should, that you would tell people, hey, if they're telling you this, yeah.
- [19:21]
Alex Smiak
Anyone that's promising you're going to get rich, be very wary of that because again, at the end of the day you're running a business, it's still your business and no one can guarantee that you're going to be successful even yourself. I mean, you have to get the right side. You got to be a good operator. All the things we mentioned. So look for people promising things. You got to be careful of that. Look for stores closing. And so we have tons of data over the last five, five years on franzi. So if you see a trend of, well, hey, they opened 300 stores and then 50 shut down and they only opened a net new 10 over that. What, what's going on here? You know, that's the question you should be asking any litigation. The obvious one is litigation or bankruptcy. And then checking the item 19 is critical. That's where the audited financials are in the ftd. If you see, you know, if a business is doing well, they're going to want to brag about it, right? They're going to want to show the financials and look at our stores, make a ton of money and so could you. If they're hiding it or they're doing weird adjustments and oh, adjusted EBITDA and adjusted revenue and goofy things like that, that's a flag to at least press on and double click on.
- [20:26]
Jon Jantz
So how does the process with you? I mean is it fairly an online tool? I know you have a couple like the Fit Score and the connect tool. Or is that all something just go to your website, create an account and you know, kind of start doing on their own.
- [20:42]
Alex Smiak
Yeah. So the whole goal of franzi is again to make this really accessible to anyone. And so you create an account, it's free to do, it's free for the anyone using our site all the way through. We make money. If a individual buys a franchise, then the franchisor pays us. Kind of like a real estate agent. Yeah, but we'll help you through, you know, finding the right fit, which is part of AI powered, part of the product we've built. We help you with pre qualification, we help you with all the data and the research that you need to make a confident decision. And then we also do have expert coaches on our team, people that have owned franchise businesses or that were franchise or that'll talk you through any hesitations, questions, concerns that you have to get you familiar with everything you need to be to everything you need to be successful. The really cool part about what we do is once we introduce you to brands that we've vetted, we become a virtual coach in your corner. So part of the sales process is you have this overview call, a unit economics call, stuff that's kind of intimidating if it's your first time and even if it's not, it's a lot of work and you want a sounding board. So we've built all these resources to say hey John, you have an overview call coming up. Here's what to expect and some pre read materials to prepare yourself. And also here's some curated questions we recommend you ask on that call so that you're making sure you're addressing your risk, hesitations and other things that you express to us during this whole onboarding process and then you can talk to us as a person as well that whole time whenever you want a long answer. But soup to nuts, research, coaching, valid your qualification and matching you with the right fit brand.
- [22:19]
Jon Jantz
Yeah, well, and I think one of the real advantages, while obviously you want somebody to move forward because that's how you get paid, you don't really care which one they move forward with. So you're not really pushing one horse or another, are you?
- [22:31]
Alex Smiak
I'm glad you brought that up because it's one of the reasons we started this is a lot of folks that have gone through you know brokers, other channels don't realize they're being presented only brands that have agreed to pay to play in the background. We have this inventory of thousands. We're to your point, we're indifferent. Our success fee is a flat dollar amount versus a percent of the commission. As you can imagine, if one brand has a an $80,000 franchise fee and one has 40,000 and I'm paid a percentage of that.
- [22:58]
Jon Jantz
Right.
- [22:59]
Alex Smiak
People are inherently going to try to push you to the 80 even though it might not be in your best interest. So we cut that out of the model entirely and said we don't care if it's 80 or 40, we get paid X. So we really want to find the right fit for John because ultimately that's going to cause him to buy the second one, the third one, increase his chance of success. Tell his friends to check out Franzi, etc. It's in everyone's best interest if we all get aligned.
- [23:20]
Jon Jantz
Awesome. Is there somewhere, I appreciate you taking a moment to stop by the Duck Tape marketing podcast. Is there somewhere you send people to connect with you and learn more? I know we Talked about Franzi frnzy.com anywhere else you want to send people?
- [23:34]
Alex Smiak
No, I think Franzi is the best place to get started. And then if you can, if my complicated last name shows up, connect with me on LinkedIn. I'm happy to answer anyone's franchise related questions or, you know, help them in any way that I can as they think about becoming an entrepreneur, buying a business, or just curious about franchise things in general.
- [23:51]
Jon Jantz
And did I get, did I get close on your last name?
- [23:54]
Alex Smiak
So you were close on like the actual authentic pronunciation, the Americanized as smirnak. The Polish version is smear, which is closer to what you.
- [24:05]
Jon Jantz
I was trying to get that neck in there, you know, part. But you know, I have an Austrian name that has a lot of consonants at the end of it, so. So I'm very sensitive to trying to get people's names right.
- [24:17]
Alex Smiak
Well, I appreciate it. You were close.
- [24:19]
Jon Jantz
Awesome. Awesome. Well, I appreciate you stopping by the Duct Tape marketing podcast. Hopefully we'll run into you one of these days out there on the road.
- [24:25]
Alex Smiak
Yep. Thanks again. John.
- [24:31]
Marketing Expert
Let me ask you a few things. You feel like you know, what differentiates your business from every other business out there? Can you confidently charge a premium for what you offer? Are you working from a plan, a marketing roadmap that allows you to know precisely what to do next? Look, don't worry if you can't answer yes to any or all of these questions, you're not alone. See, marketers today get so focused on the tactic of the week staring them right in the face that they forget to look at the big picture. The overarching strategy needed to consistently grow their business. Over the years, I've worked with thousands of businesses helping them do just that. Create the perfect marketing strategy and plan that gives total clarity about what to do next, confidence to charge ahead and charge more, and complete control of the marketing tactics they choose. I would love to help you and your team do the same. Look to find out if our Strategy first program is right for you, visit DTM World Grow and request a free consultation. That's DTM World Growing.