← The Rich Somers Report
The Rich Somers Report
What Most People Get Wrong About Buying Businesses | Trish Scelfo E504
00:55:31
Loading summary
Transcript123 lines
- [00:00]
A
Hey, guys. We are buying two more boutique hotels along the California coast here with Summers Capital. 45 rooms off Market in Catalina island and a second deal up in Bodega Bay, which will make a total of eight boutique hotels owned and operated. Our investors get passive income tax benefits. And the best part is, unlike investing on Wall street and a lot of these other asset classes, like multifamily, our investors get to go and stay and experience these boutique hotels firsthand to see how their money's working for them. And so if you want to learn to see if we can help you before this opportunity fills up, you can go to summerscapital.com invest to book a call with my team. Again@summerscapital.com invest to book a free call with my team. Now let's jump into the show.
- [00:37]
B
A lot of people are chasing revenue, but if you're swimming against the current to get it, you're not going to be happy. In any business, a core principle to being successful is having a team that's rowing the boat in the same direction. Making the right match from the beginning really ensures that you're not swimming upstream. Get your processes and your systems right, get the right people in the right seats, and don't be working in your business. Work on your business. Do we think about our customer service? Do we think about our employees? Are they happy? Are they staying? Are they evangelists for our brand? All of that stuff creates legacy.
- [01:18]
A
All right, guys, today I got someone who's doing big things in the franchise space, helping business owners and new business owners. Everyday. People buy businesses, buy franchises. I got the founder, the CEO of Mint and Match.com, trish Scuffo in the building. What's up, Trish? How are you today?
- [01:35]
B
I'm doing great, Rich. Thanks for having me.
- [01:37]
A
Yeah, I appreciate you coming on and coming all the way out here from the East Coast. You're going to be on our yacht workshop tomorrow. I cannot wait.
- [01:44]
B
Very excited about that.
- [01:45]
A
Yep. And I'm very excited about this conversation today. I think is a big conversation that, you know, a lot of business owners or new business owners that want to get into business, they have to have. We're in the hotel game, right? And this is a decision in the hotel game. If you're going to be a hotel operator or hotel investor, it's like, okay, do you go boutique, you go independent and. And build your own brand, do your own marketing, or do you go franchise model and work with some of these soft brands out there that a lot of people have never heard of or go with some of these major brands like Marriott, Hampton Inn, Ramada, the Hyatt, you know, and, and these brands will come in and they give you the blueprint to be successful. Right? And so it's a decision that you got to make as a hotel investor. It's a decision that you got to make getting into business regardless of what line of business. And so I'm excited for this conversation today, but I'm curious for you, you know, how does one decide, like, hey, like, should I go brand or should I go and buy an existing business that's not branded, it's not a franchise? What are your thoughts there?
- [02:43]
B
You know, it's a, it's a huge decision and I think people struggle with it. I think working with a broker can be really helpful, largely because they're going to ask you questions that you wouldn't think to ask on your own. And making the right match from the beginning, you know, going down the right road really ensures that you're not swimming upstream. I think a lot of people are chasing revenue and of course we all want that. I mean, that's the ultimate goal. But if you're swimming against the current to get it, you're not going to be happy. And money always comes easier when you're in alignment with what works for you, what your personality is, the type of thing you want to be doing every day and then the money flows. So I think really understanding who you are and what you're best suited for is where to start.
- [03:36]
A
Yeah, that's really good. And, and by the way, for anyone listening to this, Trish is a business broker. She's got a free franchise fit assessment test that you can go take@mintedmatch.com if you're interested in buying a franchise and seeing what industry, what sector would be best suited for you. But you know, I'm curious, like, how does one, you know, take their personality, their skill set, for example? For me, I'm very extrovert. I'm very like, good being in front of people, talking to people. I have a little bit of a sales background and I like marketing, I like sales, I like being on social media and stuff like that. And so for someone like me, myself or maybe someone that's not like that, how do they play to their, their strengths and their strong suits in order to pick the right type of business, the right type of franchise to get involved with?
- [04:24]
B
Well, I think the place to start is to ask yourself questions about who you are. I think a lot of people don't do that self reflection first they're just like, I don't like my job so I want to get out of this. Or maybe they see the handwriting on the wall, they're in their mid-40s and they see other people in their industry getting laid off at that age and they're thinking, oh, you know, I got to get something before this happens. But they don't start with who am I? What are my strengths? What do I want to be doing every day? What is the stuff I like about what I'm doing now that I'd like to leverage and do more of? Those are the things that I think people really need to sit with and understand. There are personality tests out there you can do. There are all kinds of ways that you can really kind of hone in on what your specific strengths and skill sets are. And then from there, you know, you bring that to the table and go, okay, what industries or if it's franchising, what brands, what types of businesses are going to allow me to be working with my strengths every day? And that's again something that a broker can help you with. But you've got to come in with the information you need to understand yourself and your strengths and what you want to be doing every day before you can even start the process of really finding the right fit.
- [05:44]
A
Yeah, and I imagine, I mean you coming in as a franchisee owner, you know, there's still going to be a lot of, some of these businesses might have a little bit more overhead, a little bit more management.
- [05:54]
B
Absolutely.
- [05:55]
A
People, other personalities for sure, hiring and firing and so on the flip side, some of them probably have a little bit less like personnel heavy and might be able to be ran with just one or two people, Correct?
- [06:07]
B
Absolutely. I mean in, in the franchise space there is everything. I mean there are more than 4,000 franchise brands in the United States. Most people think franchising and they think food. But in truth, they're only 35% of the franchise brands that exist have anything to do with food. So that's two thirds that are not in the food space. So pick an industry. Senior care, child care could be health and wellness, it could be fitness, it could be construction, it could be home services. And within every one of those industries there are all different types of ownership models. So you can be an owner operator where you're physically in your business, forward facing with customers every day. There are ownership styles where as a more of an executive model and you've got a manager that's running the day to day and you're just kind of Managing the money and managing your manager and doing more of the high level function of an owner. You could be kind of in between those two things where you're doing wearing some of the hats and then other people are managing the others. But then it's also figuring out, you know, is this a home based business? Is this brick and mortar? Is this something where I'm going to have three employees or am I going to have 35? You know, am I going to have a fleet of trucks or am I going to have no vehicles? All of those things need to come into consideration when you're choosing the right fit.
- [07:32]
A
Yeah, absolutely. And so I'm curious, how does one determine, like, is there a threshold for new franchises or franchisors to, you know, open up and start selling different franchise locations? Is there a threshold to where they have to have some level of success in order for them to do so?
- [07:50]
B
Theoretically, yes. But I'm seeing more and more people starting businesses from the beginning as a franchise. And depending on who those owners are, who those founders are, you know, there are certain brands where that doesn't concern me at all. And then there are other brands that I would be really leery of because they have no track record of success. They're just starting a business and want to franchise it. So I really love brands where the franchisor had a super successful business before they ever started franchising. I like it when they've got corporate locations that are doing well and that they've had for a long time. I mean, we've got track record there, we've got a proven history of success. We've got dialed in marketing and branding. When you start a business with the idea that it's going to be a franchise from the beginning. My personal take is where as a franchisee, if I'm coming in as a franchisee, what have you demonstrated in terms of success that I can feel confident is going to translate into my business, my market, where I'm located? They haven't demonstrated it yet. So every one of those opportunities has to be carefully evaluated. And again, I'll come back to, that's why working with a broker can be so beneficial because they often know who the players are and what their history is. They can see behind the curtain, if you will. They have access to information that as a prospective franchisee you wouldn't necessarily see a lot of. That's industry knowledge. So that can be really helpful and they can steer you away from opportunities that probably are not a good idea.
- [09:41]
A
You mentioned that there's Some of these. These founders are basically starting up right out the gate, day one with the franchise model. And you said most of them you're. You're not okay with, but some of them you're okay with. What. What are those exceptions that you're okay with?
- [09:55]
B
Well, a perfect example is a brand that just launched in December called the Ultimate Longevity Center. Ultimate Longevity center is founded by Anthony Geisler, who is a very successful franchisor in other brands. He was the founder of Exponential Fitness, which is one of the most successful fitness franchises ever. And now he is the founder of Sequel Brands. Under that umbrella, they've got five different franchises, all in the health and wellness space. And they. So he's got a proven track record of creating successful franchise brands over and over and over again. So, yes, he started this concept with the idea from the beginning that it was going to be a franchise. But I know a guy like that who has done this so many times in thousands of markets with thousands of franchisees. He knows what he's doing. I trust him. I trust his experience. I trust what he brings to the table. I know he's going to do a good job of supporting the franchise candidates that I bring to him. I mean, if someone chooses to, you know, invest in this, I feel confident that they're going to get what they need to be successful in a brand where there's none of that. I would worry they might do a fabulous job. I'm not saying they wouldn't, but there are different questions I would ask and different things I'd want to know before I would feel comfortable with that investment.
- [11:27]
A
Yeah. I'm curious. With AI disrupting a lot of different industries right now, and the way I would. You could argue that it's a, you know, it's impacting a lot of different industries, the technology. And then you get the cost of labor going up in a lot of markets. I mean, shooting minimum wage here in California is, you know, 20 bucks an hour. Right. And I don't mind paying, you know, a higher labor cost, especially if, you know, there's a shortage of good labor in whatever market. I do believe in free market. I do believe that that is the ultimate way to build a good, strong economy and not have a ton of bureaucracy and red tape. But, you know, to the point of what I was saying is, you know, I think when you look at AI, it is disrupting a lot of different industries right now. And so you mentioned at the top of the show, it's like getting into a franchise or an industry that's not going to be an uphill battle. It's not going to be a, you know, an uphill climb to get this business to perform because you got fundamentals and technology kind of at your back, if you would. And so what are some good industries that you like in today's climate with the rise of AI and all this stuff happening?
- [12:33]
B
Well, one of my favorite industries, and I would say kind of my specialty is service businesses and always has been. I mean, since I searched first started doing this work 10 years ago, I've always gravitated toward that space. You know, you're not competing on price. This is, these are need based businesses. So reputation is really important, customer service is really important. But it's not a race to the bottom line usually. The other thing that I really like about service businesses is that typically you can have a smaller footprint in terms of the number of employees that you have. You usually don't need a brick and mortar space. So that keeps your overhead lower. And all of those things mean higher margins. You know, my, if I'm not carrying as big an overhead, I can increase my margins and thus my cash flow. So typically those businesses scale very quickly and the cash flow is there for me much faster than say if I, you know, did some brick and mortar build out and have, you know, a million dollars in debt before I even start. So I love that service space. Other things that I've seen be really successful, you know, certainly anything. Health and wellness. I mean, we're, we're so much more savvy about being healthy as a culture than we were even 10 years ago. And I think people are willing to spend their money to be healthy. And as that becomes more and more of a priority for people, I'm seeing the demand for these services go up and up and up. And we already know people are willing to spend money on vanity all day long in any market. So, you know, some of the people look at that as a luxury item. But if you look at the statistics, people don't stop spending in certain categories no matter what the economy is. We see people investing in their health. I shouldn't say health. People invest in their vanity more than they do health.
- [14:34]
A
I stay frozen with the Botox game, Trish. Every three months I'm getting diced up. I got Dr. Christy Shaw coming over to my place. If you look good, you feel good, you're going to have more confidence, you're going to make more money.
- [14:44]
B
It's true. So vanity, pets, children, those are sectors that we don't see typically Decline even in tough economic times. So those are all industries that I really like. And then there are things that are just harder. You know, senior care can be super lucrative and if you're suited to it and you are passionate about that space, it's a great industry to be in. Definitely a feel good business.
- [15:13]
A
Is that a big franchise model for senior care?
- [15:16]
B
It is. There's so many different models in the senior care space. Everything from, you know, medical care to just helping place people in. So where you're more of a consultant or a matchmaker. We are helping place people who need certain types of care in different environments, different facilities. Might be home care, might be in an assisted living space, whatever. So it runs the gamut. But as an industry, you're typically dealing with a lot more day to day managerial issues than you are if you say have a roofing company, you know, more regulation, more, you know, you're dealing with people's emotions. These are families, they're very, you know, concerned about their loved ones. You're managing those emotions, those relationships. You gotta have soft skills. Like there's a lot more to think about if you're in a senior care environment than if you're managing like guys that are putting roofs on houses.
- [16:14]
A
Yeah, 100% you manage. You mentioned a lot of these service based industries you like because not a lot of overhead, you often don't need a ton of payroll, you don't need a bunch of debt to, to get started. Are there any consulting or coaching franchises that are pretty big in this space?
- [16:31]
B
There are consulting and what else?
- [16:34]
A
Did you say consulting or like business coaching?
- [16:37]
B
Coaching, yes, absolutely.
- [16:39]
A
Life coaching. There's a lot of coaching out there, consulting. I just curious, is this something that people franchise?
- [16:44]
B
There are definitely coaching franchises, but it's more like executive coaching. So it's more like business coaching I see than say franchising life coaching or maybe some of the softer skills. But I think the demand for guidance is there. So coaching is something that I think a lot of people didn't think that they really needed it or that who's going to pay for that. But there is actually a huge demand. People want help and it's hard to know where to go and who to trust. Especially in this environment where we've got, you know, all this access to information online. But with AI, it's getting harder and harder to know what's real. I mean, is that video I saw real? Is that person who's, you know, promoting this product, is that even a real person? I could be a figment of your imagination. Exactly.
- [17:42]
A
We're just hanging.
- [17:43]
B
So I think that's where the demand for coaching services has increased, because people want guidance from a real person that they can trust. And where do you go to get it?
- [17:55]
A
I'm a big fan of coaching. I've been working with my business coach for three and a half years now. We meet every single Monday for an hour, and I fly him in for every single quarterly meeting here at our office location, annual meeting. And it's great. Like, it's. It's so good to have that sounding board, someone to, you know, spitball my ideas, any issues that are going on and really get clarity around, you know, moves, direction and all that sort of thing. Because, yeah, I think as you grow in business, you know, there's less and less people that can relate as you continue to grow. Right. And it can become very, very lonely if you don't get in the right rooms, you don't get around other business owners. But I think having that business coach in your corner is huge.
- [18:38]
B
It absolutely is. You know, and I think if you're an entrepreneur surrounding yourself with other entrepreneurs who understand the struggles, you know, it's. It's a whole different animal than working for somebody else. The responsibilities are completely different. The headaches are different. The. The struggles are real.
- [18:59]
A
Yeah, you. You mentioned the experience tax, Trish. What is the experience tax?
- [19:05]
B
So I work with a lot of people who are torn between acquiring an operating business or investing in a franchise model. And one of the biggest misconceptions that I see is the idea that it's less risky to buy something operating because there's already a team in place, there's already cash flow, they've already got a book of business. So the idea that most people have is they're just going to pick up where the other owner left off and they're just going to run with that football and they're going to rely on this team that's been there forever, and they're going to, you know, just be able to manage this thing from afar, and it's all just going to cook along. But the experience tax is, if you think about the owner that you're buying this business from, the guy who started this business, probably from the beginning, what did he learn along the way, and how much did it cost him to learn it? Because the bad hires that you make, the, you know, chasing after the wrong customers, figuring out who your real customers are, the money you spend on marketing, that went nowhere, you know, the advice you took that turned out to be wrong, There are just so many ways that that cash flow that you're buying that you're paying a hefty multiple for can dry up. If you don't have the experience and you don't have the understanding of how to be successful in this business you just bought. And if you're a first time business owner and you think that, you know, you're going to leave corporate America and you're going to buy this existing business and you're just going to run with the football, it can go south very quickly.
- [20:46]
A
Yeah. And to take it a step further, if you're working a full time W2, you have a career and you think, hey, I'm gonna go buy a business and even be remote out of state.
- [20:56]
B
Right.
- [20:57]
A
And I'm gonna focus on my career and this thing's just gonna, I'm gonna hire a manager and this thing's gonna operate.
- [21:01]
B
Yep.
- [21:02]
A
Good luck.
- [21:03]
B
Absolutely true. Absolutely true.
- [21:05]
A
At least in the first example, that person's in, in the actual business, in the trenches, going through it with the team.
- [21:10]
B
You'd hope, but that doesn't always happen again. People think, oh, well, they've already got a team in place and there' are there. Well, suppose your key person leaves or something happens to them, like three months after you buy this business and you're living in another state.
- [21:23]
A
Yeah.
- [21:24]
B
Or even if you're there every day, but you don't have the experience or the know how to know what to do if you lose this person. I mean, stuff happens.
- [21:32]
A
Yeah, 100%. So I'm curious, you know, I hear a lot of people say that like, getting in the franchise game could be risky. Um, what, what do you say to those people?
- [21:43]
B
Well, I think there's inherent risk in anything. I think being an entrepreneur is risky. But you're betting on yourself. You know, do you believe that you can be successful? That's, that's the question you have to ask. If you doubt your ability to be successful. I could almost guarantee you won't be. You know, you've got to have some willingness to take the risk and then commit yourself to doing what you need to do to be successful. You know, people think it's more risky to buy a franchise because they don't know what they don't know. So they've never started a business before maybe, or they have and it was so hard and they think it's going to be that hard again. But buying into a franchise system is kind of like buying a business that's already three years down the road. You know, the branding's been figured out, the marketing's been figured out, the processes and the tools and all the things you need to be successful. The franchisor figured out, you're buying that toolkit and then the franchisor is teaching you how to use the tools. So if you do what they teach you to do and you do it the way they teach you to do it, the whole point is that this is a system that can be replicated over and over and over again. That is what you're buying. It's like buying a business in a box. And so if you're committed to doing all the things that you're being taught to do, there's no reason that you shouldn't be successful.
- [23:14]
A
I agree. I mean, I, I look at it as the opposite. I, I think buying a franchise, to me would de risk the investment and it really does take a step further. I mean, if you look at lending, I'd imagine it's a lot easier to secure good lending with better terms if you're buying a franchise versus starting some one off business that has not been proven out before.
- [23:33]
B
Well, you know, if you're buying a business, let's say a business that's already operating, you're borrowing against the cash flow of that business. So it's different than investing in a franchise where there isn't already cash flow. You know, you've got to, you got to back that loan with something. So you got to come to the table with some collateral or with some ability to repay the loan.
- [24:01]
A
They want to see some sort of balance sheet.
- [24:03]
B
Yeah, exactly.
- [24:03]
A
Liquidity, some assets. And then, and they want to see probably a personal guarantee.
- [24:07]
B
Right, but so where the franchisor comes into that equation though is, you know, they're coming with the business plan and they've got the pro forma because we've done this right? Rinse, repeat, rinse, repeat. So the business, or sorry, not the business, the bank or the SBA can look at that and go, okay, you know, we have confidence in this because of the history. You know, if you're buying a business that's already operating, they're going to want to know that you've got the skills to be successful in that. And they're going to ask you, what's your business plan? You know, what's your pro forma? What are you basing that on? You've got to prove that this isn't a bad investment for them and it isn't just about the dollars.
- [24:49]
A
Yeah, no, it's not always about the dollars. Yeah, I think like when you get into business, there's a few levers you can pull. And one is, you know, obviously we got it, increase the income somehow. Can we be more efficient on the expense side? That's also going to increase the, the net income or the EBITDA in real estate, commercial real estate, we call it the noi, the net operating income. And then, you know, I think when you can increase the cash flow, that takes a lot of pressure off the business. You can reinvest this cash flow into improving the business, more marketing, all that sort of stuff. But then also when you increase the, the net income, the ebitda, the noi, you're increasing the value of the business or the value of the real estate. So you're forcing appreciation, which is a big lever. And so I think there's a bunch of different levers and things that you can do to push and pull. Talk briefly, I'm curious, what are some of the ways to get into owning franchises with maybe low, no money down seller financing opportunities? I'm curious, like is it, for example, is it common to have franchisees sell to another franchisee and then sell or finance it with their own cash?
- [25:58]
B
It is not.
- [25:59]
A
It's not. Okay.
- [26:00]
B
It's not common. Okay, so if, let's say I'm a franchisee and I bought five territories, but I'm, you know, two years in and I've decided that I don't really want to develop those other three, the first thing I would try to do is sell them to a neighboring franchisee. That would make the most sense. But it would be unusual for someone to carry a note on locations that haven't been established. So if, if those had already been built out and someone wanted to like sell off part of their business, that might be more common, but typically it's just kind of an asset sale and they transfer ownership and then it's up to the next franchisee to develop those locations, per the agreement with the franchisor.
- [26:46]
A
Now, the benefit of the new franchisee coming, coming in is, is they likely probably don't have to put in all the same startup costs, finding the location, doing the tenant build out, right?
- [26:55]
B
Well, it's going to depend because again, if, is this a brick and mortar or let's say is this, you know, an H Vac franchise or something where I'm building out routes? So typically what happens is, let's say, let's say I bought, you know, a pool care franchise and I bought five territories and I developed two and I've got My, you know, my couple of trucks and my routes all dialed in and I don't want to develop those other three. Well, the other franchisee is going to come in and he's just got to develop those routes. So he's got to buy a couple extra trucks and hire some more crew and go out and develop those routes. That's very simple. But let's say I didn't buy that. Maybe I bought, you know, a Pilates studio franchise. Well, for every territory I buy, I'm committing to put a studio there. So there's a brick and mortar build out that has to happen. So if I were to sell off territories that I didn't develop, the new owner would have to come in and they would have to secure a space and do the lease and do the build out. You know, they would be subject to the same things that I agreed to when I bought them.
- [28:04]
A
Yeah, I personally think that that part of the process is fun. Going and shopping for, you know, your retail location or maybe your office location and negotiating the terms and agreement, the, the TI allowance, the tenant improvement allowance. We just finished our first 39 month term here at this office and then we just renewed another 36 months and I negotiated some, some concessions. So we got a little bit of free rent baked in there and then new TI allowance, which the, with the renewal. But I don't know, I looked at some other, like what was available on the market when our lease was coming due and I just didn't see any other options out there that I thought would have been cooler. And then.
- [28:45]
B
This is a super cool spot.
- [28:47]
A
Thank you. Yeah, thank you. This is built in the 19, I'm sorry, the 1800s.
- [28:51]
B
Get out.
- [28:52]
A
So this is 140 years old? Yeah, 140 years old. You can see the original brick and the arches behind you.
- [28:58]
B
Oh, wow.
- [28:58]
A
This is all og, but it's a good, it's a good reminder that real estate is time tested because 140 years later, this thing's still bringing in cash flow in the form of office space. But I don't know, I looked at some other options at a time and I, I realized that there wasn't anything that I was like, got me excited to be like, okay, it's worth the move because, you know, think about the time, right? And the cost of like moving everything and switching addresses and all this, all this stuff, moving the podcast studio, like, yeah, it just wasn't worth it. And so I'm like, you know what, we got a great location where, you know, a block from the water. And then we're a block from India street, which has all the stuff, restaurants, coffee shops. I'm like, you know what, we're good here. I think one thing I want to do and maybe, maybe next time you come on the podcast, Trish, I want to rebuild the podcast set. So Oscar's got some good ideas.
- [29:50]
B
Cool.
- [29:50]
A
And so we want to, we want to refresh the set a little bit. So we'll see. But anyways, back, back to this. What is the number one mistake that you see franchisees, franchise owners make when they get into the game?
- [30:04]
B
You know, I wouldn't even say this is just relegated to franchisees. I think across the board, one of the biggest mistakes, if not the biggest mistake I see business owners make is not putting enough money into marketing. I see particularly in the, in the franchise space when someone's new, you know, they're so focused on I've got to do my build out and I've got to hire people and I've got to buy vans and I've got to get equipment and all these things. They budget for all that stuff because they're hard cost that they actually, they have to spend money on. But then people look at marketing as this elective expense, like, like they can just decide what they want to spend on that. And I see people always trying to cut corners and that is how you drive business. Like every business, every single business is about marketing. You have to get people in the door. So that is what I always tell people. Over budget for marketing. If you don't need to spend it, great. It could go back into the business in some other way, but plan on, on spending it.
- [31:09]
A
Yeah, that's really good. I always say if you have good marketing, it makes the sales a lot easier. You get way warmer leads, you get people that are more bomb, no question. The sales cycle is shorter and you get waste way more sticky clients. They stay longer, they're more bought in, they're way stickier, no question.
- [31:24]
B
And, and the other thing is, I think people marketing is a skill that most people don't have. And finding good people to help you with their marketing I think is also challenging because everyone who's doing marketing says that they're the best thing since sliced bread. And they have all that, they have this plan and they're going to do blah, blah, blah. And you could spend thousands of dollars figuring out that these people are not going to help me. Like they, they're not going to be what I need. So it is challenging for people to do marketing well. And again, this goes to the budget because it might take you time. In fact, it probably will take you time to find the right people and get your marketing dialed in. So you're going to be spending before you're seeing a huge return. Usually. I mean, I know that for myself and every business I've ever started, every business I've ever done, it's always been this circuitous route to get to the people that could really help me move the needle.
- [32:24]
A
And especially in today's age, like, I think people have no excuse to do some capacity of marketing. I mean, we got social media. 4.8 billion people use social media today. It's free to download the Instagram app, it's free to download Facebook, it's free to post, and then even like a podcast like this where we're having an organic conversation right now. But this is a form of branding and marketing, and so it means a very powerful form of it. Look at Joe Rogan. You know, Joe's been doing three episodes a week for 19 years, and look what it's done to his brand. Right. And so I think, you know, Joe might be the most powerful dude in the world today, has the ability to pick up the phone, call ex presidents, Elon Musk, Jeff Bezos, any movies, music star, celebrity musician, any.
- [33:11]
B
Yeah, you don't need to be a movie star.
- [33:13]
A
No, no, no. And so, yeah, I think, I think marketing is, is big, but I think also in today's age, because our access to information has never been easier. I think it's one of those things that, like, man, like, people don't have an excuse today. Get out there, market yourself, promote yourself. Those that are the best promoters and marketers, those are like the wealthiest people
- [33:34]
B
in the world today, there's no question. But it can be really intimidating for people who don't know where to start. There's so many options. There's so many ways to go about it. Do I, you know, do I do TikTok videos? Do I do YouTube videos? Do I do little short videos on Instagram? Do I pay for it? Do I try to build organic traffic? Do I like. There's so many options and everyone has an opinion about the right way to go. And so I think there's kind of decision overload for a lot of people. I don't know what to put my energy into. I don't know where to put my dollars. I don't know how to start. And so they kind of just shut down.
- [34:12]
A
Yeah, information overload. Yeah. So I agree with you and I Think. I think if you are confused, well, I think you need to get around people that are good marketers. Get a pick one person that you really like and they've successfully done it before. You trust them and. And go see what their blueprint is.
- [34:30]
B
Well, and you always talk about being in the right room, and it's so important, being in the right room, being around people that are where you want to go and learning from them and asking questions, it raise your hand. Like, people are out there who are willing to help you, but they got to know that you need it.
- [34:48]
A
Yeah, 100%. And speaking of marketing, actually, Oscar might like this one. So our marketing director of a couple years, she got presented a really good. A really good opportunity last December right before the holiday break, and she decided to take that opportunity. And she left on really good terms and there's no friction at all. And she actually, like, stayed for like another 30, 30 days after she announced. And she's been great, and the team loved her good energy and she was great at what she did. And she actually reached out to me yesterday afternoon and she said, hey, Rich, like, my new gig wasn't what I thought it was going to be. And she was like, I would love to come back if you have an opportunity. And we jumped on a call last night. We chatted for an hour. And yeah, she's like, hey, I'm all in. I can start as early as next Monday. She's like, I missed the team, I missed the culture. And we decided when. When this happened, we decided at least for the first half of this year, I said, hey, let's go bring on a marketing consultant that's really good in the hotel space, and let's bring them on and look at them more like a consultant role. And so we've kind of been piecemealing some, like, marketing and leveraging some different pieces of what we already have. But we didn't go out and hire a new marketing director yet. It's only been a couple months, and so we're gonna bring her back.
- [36:05]
B
That's awesome.
- [36:06]
A
So I'm excited for it. Yeah.
- [36:08]
B
I just read a book called Unreasonable Hospitality, and I think it is one of the best business books I've ever read.
- [36:17]
A
Unreasonable Hospitality. What is that about?
- [36:19]
B
Hospitality.
- [36:19]
A
I'm gonna write that down.
- [36:20]
B
So the number one restaurant in the world is 11 Madison park in New York. And that restaurant was originally part of the Danny Meyer Union Square Cafe, like, restaurant group. And he always ran his businesses and his team with this hospitality centered rather than a food focus. I Mean, the food was amazing. But his idea was that people don't come here just for the food. It's. It's the whole experience.
- [36:52]
A
Yes.
- [36:53]
B
And so the guy who wrote the book is Will Guidera, and he's a young guy. Like, by the time I think he was 29, they were one of the top 50 restaurants in the world, and he was their GM. And the whole book is about how they went from being this kind of middle of the road, good restaurant, little bistro, to the number one restaurant in the world. And unreasonable Hospitality is about the experience and the culture they created and how it was a holistic approach to. You have to have amazing food. Of course, that's why people come. But people remember you and refer you because of how you made them feel when they were there. And so this, to them was all about not only the diner's experience, but the culture and the experience of the people they work for. And creating a vision that everybody was so passionate about and so dialed in on that together as a group, they were able to make this thing happen. And how he did it is just unbelievable. I mean, I shouldn't even say he. They. I mean, it was definitely a collective experience and, you know, getting the right people in the right seats and empowering them to do what they do the. To the best of their ability and giving them the tools they needed to bring their vision to life. And, you know, thinking that every idea is an idea worth considering, whether it came from the guy busting dishes or, you know, the guy who was managing your beverage program, everybody had something to offer, and they made everyone on the team feel like an integral part of what they were trying to create. And, you know, to your marketing director who just asked to come back, like, you created an environment that made her want to be here. And I think in any business that is such a core principle to being successful is having a team that's rowing the boat in the same direction. Because I think that we get focused sometimes, so tunnel vision focused on the numbers and on, you know, KPIs and on, you know, getting more customers. But do we think about the whole experience that we're delivering? Do we think about our customer service? Do we think about our employees? Are they happy? Are they staying? Are they evangelists for our brand? Are they out there singing our praises when they're not here at work? All of that stuff creates. It creates legacy.
- [39:32]
A
Yeah, that's powerful. And I gotta read that book, first of all. But, yeah, I mean, I've had on guys like, like Brian Malarkey I'm good friends with, he's Top Chef Food Network at his own channel. He's at a bunch of really cool restaurants here in San Diego. But, you know, he says it, he's the first to say, he's like, it's, it's not all about the food. He's like, it's about the service. It's about how you make people feel when they walk in the door, the experience. And he's like, that's what brings people back. And I, I have to agree, like, when I go to a restaurant, I mean, I, I really appreciate good service and, and people that welcome you back, when you come back a second time, a third time and remember your name and like, are personable and like that, that goes a long way and, and I'll pay up for that stuff, you know. But on the flip side, you go into a spot where maybe they have a lot of turnover and every time you go in it's like new people and they don't really treat you the way that you want to be treated. It makes you not want to go back to those spots, you know?
- [40:27]
B
Yeah.
- [40:27]
A
You know, so interesting stuff. Okay, so I'm curious, you know, if someone listening as they want to get in the game, what are some creative ways to add value to some of these franchisee models? Or are you, are you pretty tied to, I guess, better question, how restrictive are these franchisors in terms of guidelines to operate?
- [40:49]
B
Wow, that's a great question. And I think people get hung up on this all the time. People have the idea that being part of a franchise means someone is like micromanaging them or telling them how to run their business and that they're, you know, locked into these strict, like, rules and guidelines. The rules and the guidelines that exist are there to protect the brand and to protect all the franchisees. They, if they wanted to manage your business for you, they don't need you. Like, as a franchisor, if they wanted to grow the company organically and manage all these locations and be heavily involved in the day to day, they wouldn't bother. Franchising as a franchisee, you own your business, you're responsible for running it every day. As long as you're doing well, you know you're succeeding. The franchisor isn't looking over your shoulder. Now you start to slip or they get, say, some bad feedback, maybe you're starting to get bad reviews on Google or, you know, they get some complaints, you can bet they're going to come in and figure out why? Because if you are not maintaining the standards of the brand, that damages everybody's business, that damages every franchisee, it damages the brand, it damages the culture. So you can't have that. So that's what the guidelines are about. The franchise agreement that you sign is, this is what you're agreeing to as a franchisee. These are our standards of conduct. This is what's allowed, this is what's not allowed. You know, you can't just go off and do your own rogue marketing that maybe doesn't align with the brand. Those are the kinds of restrictions that exist. But this is not a situation where somebody wants to micromanage your business. They, they don't want to be involved in your day to day.
- [42:39]
A
Yeah, that makes a lot of sense. Um, and so with that, what are some, some levers that you can pull to come in as a, as a new franchisee and, and add value, increase cash flow, stuff like that marketing you touched on, one of them is marketing.
- [42:53]
B
Well, I, I think marketing is huge. You know, it depends on how you think about that. Because most people think about adding value and increasing cash flow as like, I've got to add another product or I've got to add another service or I've got it. But you really don't. What you need to do is do what you do the best that you possibly can.
- [43:15]
A
So do more of what's already working.
- [43:16]
B
Do more of what's already working and doing. Do it the best possible way that you can, because that is how you get a loyal following. That is how you get people that are willing to keep coming and spending money with you when they have so many other options. Again, let's go back to the idea of unreasonable hospitality, like make your customers fall in love with you. That's how you add value.
- [43:40]
A
That's really good. That's really good. So when you come in and buy one on, on average, how much, how much capital should one expect to come to the table with? Whether it's franchise fee, startup costs, all that sort of stuff. And I know it's probably a range, but what is that kind of range? Generally speaking?
- [43:56]
B
You know, I would say the, the average is probably, I mean, you got to come to the table with roughly 50k minimum.
- [44:05]
A
That's not bad.
- [44:06]
B
No, it isn't. And you know, your minimum net worth is probably about 250k. So if you can meet those two numbers, there are a lot of franchise brands that are an option for you now. You bump up just a little bit and then it opens up, you Know if you've got 500k in net worth. Net worth. Thank you. And maybe you've got 150k in liquid capital. Now we've got another whole tier of franchise brands to consider. But if you don't have that much, if you have 25,000, there are brands that you can get into for that too. So it runs the gamut.
- [44:44]
A
And so you'll get a Performa. And what does the process kind of look like with becoming a new franchisee? They typically want to meet you in person and go through like a meet and greet, qualify you and show you, make sure it's a great fit on both sides. What does that look like?
- [45:00]
B
So there's a discovery process that goes on. Some franchise brands do this discovery process in house. Other franchise brands will contract that out to a franchise sales organization that will manage that discovery process for them. But the idea behind the discovery process is a full disclosure and really a peek behind the curtain so that you are fully informed of what it would mean for you to be a franchisee, what a day in the life would look like, what you can expect. You know, you're going to get an opportunity to talk to other franchisees and ask questions of them. What was their ramp up time like and what have they struggled with and what went really well for them. Like, you can ask all of those questions up front. Um, you know, you get to explore the different territories that are available, look at the demographics. They'll help you make a decision about where you might want to be located. So that whole process takes usually four to six weeks. I mean, that's kind of the average that I see. It can be a little longer depending on, you know, what your timeframe is. But four to six weeks is a pretty standard timeframe.
- [46:08]
A
Yeah, that's really good. Um, and so you had a Performa. And so then you can look at the Performa and say, okay, this is how much out of pocket it's going to be. This is what my year one, year two, year three kind of cash flows look like.
- [46:19]
B
Well, they don't give you that.
- [46:21]
A
They don't give you that.
- [46:21]
B
Okay, well what they do though is walk you through a sample one based on the operating locations that they have. And then they'll give you a blank one and some guidance to fill it out. Because every market's going to be different. Right. The guy that's in South Beach, Miami is going to have a very different looking proforma than the guy that's in, you know, northern Arkansas. You know, the payroll costs are going to be different. Insurance costs are going to be different. Marketing spend is going to be different. So that's why you really need to fill your own pro forma out with the numbers that are relevant to the market that you're considering going into and, and budget so that, you know, realistically going in, this is what it's going to cost me to get to cash positive. That's the idea behind that pro forma.
- [47:09]
A
I'm curious, is there any sort of value on the exit for being a franchise owner or franchisee? For example, like when we buy the hotels, it's like we'll buy them underperforming, we'll add value, will operate, will increase cash flows. And then we know when we exit, you know, 10 years down the road, hey, like we're going to get a payday for that. All the value and work that we put into the asset. Now, as a franchisee, let's say you, you buy a franchisee and then you really get this thing to perform great, great location, you hire the best team, you create systems and processes, you do a good job with the marketing and this thing performing is performing at, you know, 2x3x what you thought it would, right? And now you got like the best location. Is there value on that exit to where you can sell this to another franchisee to come in and take over. What does that look like?
- [48:00]
B
So in every business, whether it's an acquisition, whether it's a business you started from the ground up, a franchise, run your business from the beginning like you were going to sell it tomorrow. One of the mistakes I see people make is that they don't get their processes and their systems dialed in in the beginning. And then they wait until like one day they're like, okay, I'm ready to sell. And now they find out that, you know, their books are a mess. They don't have the right people in place. You know, they're working in their business and they're now they want out of their business. You know, those are all things that need to be dialed in. So get your processes and your systems right, get the right people in the right seats and don't be working in your business, work on your business. So if that means having a manager in place, you know, whatever it is you have to do to be the guy that's working on and not in that how you get the best multiple when you sell.
- [49:04]
A
Yeah, that's really good. Say that quote again. That was really good. You said, you said run your business from day one. Like what?
- [49:10]
B
Run Your business from day one, like you're going to sell it tomorrow.
- [49:14]
A
That's so good. That is really good advice. I haven't heard that one before. That's, that's really good. Yeah, I mean, I think obviously, you know, thinking about who that ideal buyer is when you go to exit and asking yourself, like, what does that ideal buyer look like, Even if it's seven years down the road, 10 years down the road, and you could apply this to any business or real estate deal, but getting clear day one, before you even, you know, get into the business, it's like, well, what is that next buyer going to look like? And how are they going to look at this business? And then how can I optimize this business to position ourselves to be most attractive to that avatar?
- [49:49]
B
Yeah, absolutely. So whether it's a private equity group buying your business, whether it's a neighboring franchisee, whether it's, you know, somebody coming out of corporate America, there are things they're going to look at. They want to, they want to see clean financials. You know, your, your books should be clean and easy to understand for anyone who wants to come in and evaluate it, because getting the best multiple is going to be a lot about the numbers, and they've got to be clear and understandable and not a convoluted mess that somebody's got to unravel. Again, working on your business, not in your business. So do you have the right team in place? Is this a team that's been with you for a while? You know, are they, are they doing everything that needs to be done and doing it without your guidance? For the most part, that's really a key factor. And then how long have your financials been stable? So it's great to have one good year, but if you don't have three and you're not showing growth and you're not showing, you know, that this is repeatable and I can rely on it, you're not going to get the multiple that you would get if you had that. So don't have one fabulous year and go, okay, now we're ready to sell. Because anyone is going to come in and go, well, anybody can have one good year, but what about those two years? Because those weren't looking so great.
- [51:09]
A
I love it. I love it. What's one piece of advice you would give to someone listening right now that, that is thinking about getting into the franchisee game? What's the biggest piece of advice that
- [51:19]
B
you could give them about someone who wants to become a franchisee? Yes, it's I mean, the number one decision is which franchise do I buy? And getting that decision right makes everything about owning a franchise easier. And I think there are a lot of questions people don't know to ask, and there are a lot of things people don't even understand about themselves. So I think getting all of that stuff right is so critically important. And is franchising even right for you? Because it isn't right for everybody. There are people I talk to that I say, you know what? I don't. I don't think you're the right fit for a franchise. I think you should consider, you know, one of these other paths. There are people who think they want an acquisition. I'm like, I. I don't think you do. I think we should talk about franchising. And these are the reasons why. So getting that fit right is so important to your success.
- [52:09]
A
Yeah. And what's the best way to determine what the right franchise is for you?
- [52:15]
B
You know, if you're just coming in off the street and going to a franchise portal and surfing around and looking for brands that look interesting, and then you go talk to the franchisor, every one of them is going to tell you that their franchise is the best thing since sliced bread. And every one of them is going to tell you why you'd be a good franchisee. And I think one of the benefits of working with a broker, at least if you're working with someone who, you know isn't just trying to sell you something, but is actually really looking out for your best interest, they're going to tell you whether or not you're a good fit. I have people calling me about particular brands that they saw in an ad or something that, you know, they saw on my page and say, you know, I really like that. I really want to investigate that one. I'm like, okay, well, answer these questions for me. Tell me more about this, tell me more about that. And as I'm listening to them talk, I know this is not the right fit for them. And I need. And I tell them, you know what? I don't think this is really what you're looking for. I think there are other things that we should consider, and these are why. And then we go look at the other things. And when I point out to them, like, why I think they'd be better suited to this or that, it starts to click. They're like, oh, you're right, I get it. I never would have thought of that. But you've got to be with somebody that knows what Questions to ask and then knows what to listen for and then knows the brands well enough to know where to send you, what to pivot to.
- [53:41]
A
That's really good. Are there a couple industries out there that you think, man, this is a good one to get into?
- [53:48]
B
Well, one of my favorite brands right now is in the home services space. It's like four franchises under one umbrella. They're doing roofing and windows and siding and gutters. So I think that's a fantastic brand. There are other brands in the service space that, you know, their first year numbers are really incredible. A very strong ROI right out of the gate. Quick ramp up time is important to a lot of people, particularly if you're transitioning out of corporate America and you're trying to replace your income within a certain timeframe. You know, you've got so much money, so much capital to work with, you really need to maximize that timeline. So. And then, you know, there are some brands in the health and wellness space that I think are really doing inventive, interesting, like cutting edge stuff and I definitely see the demand in that sector growing.
- [54:41]
A
Yeah, like Peptides, trt.
- [54:44]
B
Yeah. Botox, Longevity, all the fun stuff.
- [54:47]
A
Yeah, I love it. I love it. Trish, this has been amazing. Dropping so much games, so much value. Where can the folks get in touch with you if they want to learn more? But more importantly, where can they go to work with you, Take your franchise fit free assessment test, all that sort of stuff.
- [55:02]
B
So minted match.com is our website. You can book a call with me there, you can take the fit assessment score test there and you can also find that on LinkedIn.
- [55:15]
A
There it is. Minted match.com I'm loving the name. She is Trish Scalpo. I'm Rich Summers, listeners. Thanks for tuning in. We'll see you guys on the next one. Peace.