Smart Franchise Investing w/Marty Greenbaum

Speaker A: Welcome to Grind. Grind. Sell. Sell. Elevate. Elevate with your host, Tizer Evans, a, uh, podcast dedicated to bringing you the top minds in all areas of business, entrepreneurship, sales, and leadership. Let's elevate together.

Speaker B: Thanks, everybody, for joining me on Grindstone. Elevate. This is your host, Ty, and I'm here with Marty Greenbaum, who is the founder of Smart Franchise Investing. Marty, thanks for joining me.

Speaker A: Ah, great to be here. Thank you. I appreciate the opportunity. I look forward to it.

Speaker B: Yeah. Well, as we were chatting offline, uh, franchising is something that, uh, is always intrigued me because I love. I love the idea of franchising because, you know, so many people want to become an entrepreneur, but they're typically so scared of, like, well, what if my idea doesn't work? You know, what are the costs associated with it? And, you know, as, you know, franchising alleviates a lot of that. Um, you know, uh, so I'd love to hear how you got into the space and you've got 30 plus years of experience and what's kept you in the space.

Speaker A: Great, great. Well, first of all, thank you. Um, listen, my family started a franchise years ago. I don't know if you've heard of a brand called Postnap. They're like UPS stores. So I was involved in that as a very young man, and, uh, I worked in operations. So I was the guy who was opening up stores. I had opened up like, 100 stores in a year. I mean, probably involved in about 500 stores, you know. And, um, and then I got into marketing, and I loved marketing and decided, uh, to open up my own company and leave the family business. And, uh, that evolved to a company, uh, called Greenbaum Marketing, where I was one of the dominant force in the franchising space. I. I was a marketing strategist, and I helped franchise companies grow for many years. I was very active in the International Franchise Association. I'm a certified franchise executive. And, you know, I worked with brands like Ben and Jerry's and smoothie King and ReMax and fast signs and Famous Dave's Barbecue, and I helped them grow. And, um, listen, when I hit 50, you get tired of traveling, tired of the grind. I wanted to change, you know, and I. I decided to kind of downsize. And, you know, that, uh, led me to what I do today. I'm a franchise consultant. Um, and instead of working with franchisors anymore, I just help people. I help, you know, professionals, business people, and just anybody who's really interested in looking to open up their own business, but, you know, they know the risks involved and they're seeking franchising into, you know, looking into franchising. So, um, I, I serve my clients as basically a consultant, an educator and kind of a matchmaker. So that's where I'm at today. I love it. I love doing what I do.

Speaker B: Awesome. Well, thanks for sharing that with us. Um, you know, you said something that was a great, I think, question to start because people, I think most people have an idea and a concept of franchises. Um, but I don't think that a lot of people understand who might be a good fit. And so I think that'd be a great first question for you is, you know, I'm thinking about becoming an entrepreneur. Would I be a good fit for a franchise? Is there a typical profile you see for somebody? Um, yeah.

Speaker A: Well, listen, going into business is not easy, right? You have to really get focused and you know, you have to be determined. Um, and we could talk about the benefits of franchising. But to touch on this point, you know, the fact is, is I work with all kinds of people now. There are people, you know, if I look at the reasons why people do it, right, you know, you have people that, let's face it, they've been in corporate America. I have an ah, executive at NBC. He's 58 years old. The writings on the wall. He knows he's got a couple more years and then they're going to, you know, basically he's, he's got a couple more years before he gets put out to pasture, unfortunately. You know, and he wants to create something, to get something going because that 60, 61, 62, he's not going to be, he's not ready to just sit back and play golf and, you know, stare at his wife and you know, have little to do. And that's what I find. You know, um, people are no longer, you know, looking to retire at 60 or even 65. They're, they're willing to work and many of them have to work into, you know, until they may be 70. But, uh, you know, so you have those group of people that um, are looking for something to do. They want some freedom. Um, and if you ask many people nowadays, have you really hit the goals that you thought you'd hit financially? Do you have a good nest egg built up? You know, so a lot of people are looking at this and even younger people, when I say younger, I'm talking like 50, 45, you know, they're, they're looking at the path, they're on in life, right. And they've been in careers and they've been capped out. And, you know, um, they can't get to the next level. And the fact is they're saying, okay, if I stand this path, I'm going to get to this point, but that's not going to be good enough. So if I go into business, can I scale a business? Can I grow it bigger? You know, you hear these stories about people that do that. You know, they get it, they get into franchising. There was a guy here in Las Vegas, he bought one Meineke. Five years later, he had 14. Okay. And he didn't, by the way, he didn't have any automotive experience. And that's another point. You don't have to have that experience. And we could talk more about that. So there's people that are looking to get into franchising because, you know, they want their freedom. They've always wanted to own a business. There's those that realize that, um, the writing's on the wall with their career. And if you lose a career when you're in your upper 50s, it's kind of hard to find another one. And how long would that last? Right? So the fact is, is it's those reasons. And then sometimes I even have like, people that, um, you know, want to put a kid in business. They want to create a legacy. Right. Or I have a lot of people that are, you know, executives. I, I have, I, um, have a tech executive right now. He's looking at, not. He, uh, he doesn't want to work full time in another business. He doesn't want to leave his job. You know, many people are looking for what I'm going to call semi absentee or semi passive franchises too. And there's a lot of those out there. So whether you're replace income, um, create an additional revenue stream, help, you know, build something for your children. There's a lot of reasons why people go into franchising.

Speaker B: Yeah, absolutely. Uh, that, that's, you know, we didn't get into. But I've looked at a semi absentee models probably over the last 12 months. You know, what's something that I can spend 15 to 20 hours in and have someone on the day to day running the business, but I have oversight on it. Um, so I think that that model is really attractive. Now you did say something that I think that is interesting about. Uh, the guy with the Meineke, you know, is. I think a lot of people would make the assumption that. Oh, hey, um, let's just say that M. Maybe they're an executive like you're talking about, and then it intrigues them to buy maybe say like a home, a home service type business. But they're like, I've never been a plumber, I've never been a roofer. How do they, how do you help bridge that gap for a business that they think that might have great cash flow, it might have great margins, but they just don't have experience in.

Speaker A: Well, listen, the funny thing about franchising is you don't have to be, you know, they don't want the painter buying a painting franchise. They don't want the uh, auto mechanic buying a, uh, Meinekey. Right? They're looking for people that have transferable skills. If you, if you've managed people, if you've, you know, has some sales, perhaps experience. It really depends on the franchise, you know, what experience they're looking for. But in general, most people that have been around business for long enough, you know, and manage people and, and are, you know, good communicators, they're great, you know, franchisees. You know, the fact is, is they, you know, these franchise systems, they provide total training and support. So you don't have to even go in an industry that you knew before. A matter of fact, 70% or more of people that get into a franchise, um, they, they get into one that was never the industry that they were in all their lives. It's, and it's nice to have a change, you know, it's nice to do something different. But um, you know, the service you mentioned, the service industry, that's really hot right now, it's really recession proof. People are working on their homes, they're building things, they're adding to their homes, they're getting things fixed. Right. So, um, I, I, you know, I have so many, I have a guy from IBM who's going to, who always, you know, he's handy. They've done, him and his wife did, we're flipping houses and doing all that. And he's very serious about a few service brands, you know, because he feels he could go into the market, there's a lot of opportunity and grow a service brand in his market. And it's, you know, that's quite different from being an executive at IBM, right, to go into a service brand. So I think it's pretty neat, you know, and there's a lot of different opportunities. The key is finding the right thing for you. Right? Yeah, that's the key.

Speaker B: I agree. And it's interesting. So I was having um, a conversation with this is so funny that when we scheduled this was way before that. I was got to where I'm at now but I had a Facebook ad hit me for this uh, franchise called M14 Hoops. And I've been a lifelong Hooper. My kids play a basketball and um, I love working with children. I've coached my son's teams and so this, it was a franchise app, right? Yeah, oh yeah. So I live in St. Augustine, Florida and I can't find a good basketball program or I never saved my life for my kids. And we have to drive up to Ponte Vedra almost Jacksonville area. Anyway, long story short, so I talking to this gentleman who represents them and um, he said have you ever looked at anything before? And I said yeah, I'm not going to mention the company. I said I looked at X company before and I got pretty far down the path where I had to reserve three territories. It was a home based service, lighting uh, company. And um, and so he goes man, it's a good thing you didn't pull the trigger on that because I have a friend that did it. He put in 600,000. He was the number one grossing franchisee and he made about you know, 250. That was gross, right? Net. He's done terrible. The whole thing's done terrible. So how do you not every franchise brand, right, is, is the best. So how do you help pick the brands and how do you help assess where people should go to navigate them in the right direction? What's what it is, what you're talking about. The back end support is going to be there, the marketing support is going to be there. Can you kind of walk us through that?

Speaker A: That's a big question you just asked. Okay, he asked like four questions. But uh, really. So the fact is, is like um, first of all, um, I represent over 600 brands. Um, and I spend a ton of time learning from conferences and by the way I'm drawing from 30 years experience in franchising and when you're a marketing guy in franchising, you know, and I'm at their headquarters and I'm working with the teams, I get to really, you know, see under the hood, right? And then I'm at these conferences and you know, and here's the thing, you know, there's um, how do you know for franchise is a good franchise and then how do you know it's the right fit for you is what I hear, is what I'm hearing from you. So, so first of all, um, every franchise has a franchise disclosure Document, right. And you probably got one in your due diligence process, right? So you, they, they have all these, um, you know, every franchise, by law, has to provide a franchisee a, uh, franchise disclosure document 14 days before they buy. And in that document you have things like, you know, who's the leadership, what's their background, um, you know, what's going to be the investment? How's that broken down line item by line item? Are there any fees? What's the requirement of the franchisee? What's the requirement of the franchisor? Right. So, um, what kind of money could you make? There is an item 19 in the franchise disclosure document that, you know, will give you earnings claims, names. I could say, you know, if you get into a brand, and I'm going to use that Meinekey as example, right. If they have, you know, 800 franchisees and they are showing an average unit revenue of nine, uh, hundred sixty thousand. Right. And they claim a certain net profit. Right. So you could say, okay, well, that's some assurance that, you know, this is a profitable business. If you look at the asterisk in the item 19, uh, you know, next to the numbers, that may be the top 25% quartile, or that may be the top 50% quartile or whatever, you know, so you got to read the fine print. But the biggest thing is you have to talk to franchisees too. All right? So to validate what they're making and what their experience has been. Now, I actually have a client of mine that's going to what they call a discovery day. He's there today for a brand. And this gentleman, he spoke to 28 different franchisees before he decided to move forward, you know, which was probably the most I've ever seen somebody do it. All right? So there's some ways to do due diligence, to say, okay, do I really have a clear picture on, um, performance, what's in the FDD and how, how do I validate that with existing franchisees? Now, the other question is, like, what could be a good fit for you and how do I help? Now, I've developed a process in evaluating my clients and matching them with brands that I think are a good fit. So I have a very, you know, well thought out process. And, uh, and it's been effective. It's been highly effective. You know, but the key is this. It's got to be, you know, a fit on many levels. Right? It's got to be something that's, you know, affordable for somebody within their. Really within Their skill set, Right. We got to be realistic about the time they have and the, and, and, and you know, and setting the right expectations and what it's going to take. But you also have to make sure that the franchisor has, you know, is a good franchisor, right. And has, has what you know, this person's going to need to succeed. And one of the big things in that for me, because I, I owned marketing companies so that one of the big things I always look at is how do you get customers? What are they, what, how is a franchisor helping you? Right. So that's key. Getting customers is a big part of any business and it's usually one of the biggest challenges. Right. And if you, and there's a lot of franchises, big franchises with what we call brand power. Right. But probably 80% of the franchises out there don't have the brand power. Uh, you know, some of these big brands do. So. So I hope I answered. I know I covered quite a bit there, but I hope I gave you some insights.

Speaker B: No, you did. I appreciate a big question. So I required a big answer.

Speaker A: Okay.

Speaker B: No, no, it did. I appreciate it. To your point, my father in law, he um, owned 20 Taco Bells and then he owned I think about 20 Wendy's and 15 Sonics. And so you know, they're big names, um, with regards to that. And so the, the marketing was clutch. Like you can have a lot of assurance that they knew how to market because they'd already built a billion dollar brand um, behind them. And that was one of my questions where one was about marketing. Maybe we can just tackle that now. Is there something to look for? So I think that sometimes you need to get your licensing fees, you're gonna have the royalties, different things like that. They're going to come up as you get started, your initial investment. And I've seen some franchises where they don't require a uh, marketing, uh, fee. And is that a red flag or you know, through that, that marketing piece?

Speaker A: Right. So um, first of all, touching on the fees and leading into the marketing fee, you know, let me share the fee structure. For most franchises, I think it's relevant people want to know most franchises you're going to pay a franchise fee, a one time fee to kind of join the club. All right, now they're on it. They're like 50 grand. All right, um, for most franchises, 49, 5, whatever. All right. There's a royalty and that's the big number. You pay a percentage of your gross revenues which is typically 6 or 7%. All right, if it gets into 8%, you're getting kind of too much, too greedy. Because keep in mind that 7% of, you know, gross revenues, let's say you had a million dollar business, right? They did. A million in revenue. You're paying 70 grand a year for a uh, 10 year franchise agreement. That's uh, 700,000 tons of money, right?

Speaker B: Come on.

Speaker A: So now if you take that 7% of gross, you also have to ask yourself, well, what percentage of net is that? Now if you're netting 20%, all right, it becomes a big, you know, it becomes a big number of net, right? Is it worth it? We'll get into that. Could be another discussion. So getting back to the marketing. Most franchises will have what they call a national, you know, marketing fund or a brand fund where you're paying 1 to 2% into a national brand fund. They do websites, they develop the marketing, they will have an agency, maybe they have a PR firm. The value really comes with bigger franchises because they have bigger budgets because there's more franchisees paying into it. However, most people buy into franchises that have 50 to 200, 300 franchisees, where the marketing budgets, they don't. You're not seeing commercials on these brands. They're not, you know, but what the things that they are doing it, you know, maybe they found a great um, marketing like digital marketing agency that manages the websites or all the marketing. Digital marketing, you know, you have, you know, review engines and, and all these various aspects that, you know, there's some great vendors in franchising and there's some amazing economies of scale. If I put the marketing up of a good franchise against a mom and pop in the same market. These franchises know how to get you to rank. They know how to get the phone to ring. And if it's a service franchise, most of them have call centers. So if you're getting into a service business like, and you're busy, you know, the last thing you want to do is either answer the phone to try to give somebody a quote while you're in the middle of a job, or have some young girl that doesn't really, you know, or some person who doesn't really know how to sell. So they, these companies have call centers, which is kind of under marketing for me. But listen, um, some franchises will require a certain spend because you know, if you're in like oil change business, they're going to require 4 to 5% of your, of of your revenues to be spent in marketing. If you're in rejuvenation centers, like, you know, Botox and all those type of things. You know, I know of one brand that requires you to spend $7,500 a month, minimum. Okay. Um, you know, and there are like, there's a painting franchise, which I love because they do all the marketing for you. Okay. So I love that where they do the marketing for you and take it totally out of your hands. Because most people, like, even if you give them the tools or the resources or even the people, sometimes it doesn't work out. So there's, I mean it's, it's across the board. But, uh, the best thing is when you got a bigger company that has sophisticated vendors and marketing programs that are kind of plug in, you pay for it, they're easy. And I will tell you, marketing is one of the strengths and reasons to get into franchising because getting customers is very tough. And for most companies that have to grow customers over time, it's a challenging thing to do and it costs money.

Speaker B: So. Yeah, yeah. Well, that's, I think one of the benefits. Uh, hopefully by the time, you know, someone's become a franchise or they've done the testing on how to market their business. Right, right. And then so you're, they're either doing it for you, like you said, or they're at least giving you the blueprint and saying you need to spend this much to acquire this many customers to get to the X results.

Speaker A: Or they use those vendors that, you know, again, in franchising there's some amazing companies that do all this different stuff, these different things, you know, um, for you. So, you know, there's some amazing vendors. So make it easy.

Speaker B: Yeah, that's, yeah, it's very cool. The one thing I wanted to, I think did too, that uh, when people think about, uh, I mean, the gig economy has kind of helped people find entry points. I was talking to a guy in the way home to the airport yesterday. Right. He's an Uber driver. He got laid off from his facilities job and he was in his late 50s and he said, I can make the same lunch to driving my car, set my schedule. And so you've got these different things. And I think when people think of starting a business, it's not always going to be financially viable for them. And so could you talk us a little bit through about maybe investment ranges, um, people would have to potentially look at and then any type of like liquidity or asset range that people may need to have in order to qualify.

Speaker A: Well, let's start with the, the uh, financial Requirements that, uh, franchises have in general. Okay. So, um, first of all, there's kind of three factors that initially that I look at when I'm working with a client. Like, I want to know how much liquid capital or cash they have, because most franchises would require like, the, at the bottom range for decent franchises. Now, it goes a little bit below this. But 50 grand in cash without borrowing, you need about 50,000, you know, in cash or liquid. Right. If you had stocks and you could liquidate them, that's liquid. Right. Um, you need usually a net worth. Now, net worth for those that may not understand fully is like, if you were to take all your assets, the value, your assets, and you know, and then subtract what you owe on it, liabilities, then you're going to have net worth, right? So you take your house, your car, any stocks, ira, whatever, and anything you owe against that, and that's your net worth and your net worth. Really, you know, you could get in as low as, like, there are some, you know, net worth of 100 or 200, but really at the 300,000 mark, there's a lot. It opens the door to a lot more great opportunities. All right, so you don't need 300 net worth, but if you did have that, you're going to be a lot open to a lot more opportunities. So 5,300, kind of where I kind of feel is a good place. And then you need a good credit score. It doesn't have to be massive, but it needs to be 700 and above. Okay. You know, would be great. Um, maybe some 680, but really 700 and above. Okay, so that's the financial qualifications. I see. Now let me break down, um, franchising in two big buckets. There are service companies and then there's something called, I'm, um, going to call retail. And retail is anything with a store, Right. So, you know, in a service company, what differentiates it is usually you don't have a retail store and you bring the service to somebody at their house, at their business, right? So those investments are, you know, 100 to 200,000 on average. You don't have to sign a lease. You could work from home with many of them, you know, so you could get into that. You don't need a ton of money. If you had 50 grand and you have some decent credit, you kind of hit those requirements that I mentioned. You know, you may be able to get an SBA loan. You may be, uh, if you got a 401k, there's a way to access 401k dollars and roll them into a business without penalties or interest. So there's, there's ways to get into it. But service businesses, you know, 100 to 200. Now are there ones for under 100 that are decent? Definitely. Okay. Are there ones that are a little bit over? Yeah, there may be. So there are. But really 100 to 200, there's tons. Everything from home improvement to repair, tutoring, senior care. These are services that you bring to people. Right. And then there's B2B. There's a lot of like bookkeeping. And you could be a consultant, you know, a business consultant. I mean, low investment, kind of around 100. So there's a lot of lower end investments. And then the other side of things is retail. All right, retail. If you're going to go in and you're going to sign a lease and you know you're going to buy a store, you're going to have to build out the store to their specifications. Okay. And you're looking at three to 600,000, you know, a range. I mean, could it be 800,000 to a million? Yeah, some, um, could it be a little bit under 3? Some. But the majority are 3 to 600,000. You're going to have to, you know, spend a good portion of that money on in, you know, tenant, what they call tenant improvements. Maybe you need to buy a sign right now when there's an investment in franchising. So let me also give you some thoughts, you know, here and some details. Every franchise breaks down their investment line item by line item in the franchise disclosure document. So you're going to be able to see like a range. And I said 100 to 200. Why is there such a big range? Well, the range is because some of the costs, like if I had to buy X in, you know, and I was in Nashville, it would cost different in California. Right. If I was building out a store in D.C. it's definitely going to cost way different in, uh, Des Moines, Iowa. All right, so. And it really depends also on these, on those type of stores, you know, do you. What if you got instead of a thousand square feet, which you could get by with, you found a great location that happened to be 1200 square feet or 1400 square feet. Right. So you never know what's going to happen there. And the bigger the unit, the more you're going to invest in a build out. So, um, but just know this M those fees and those ranges, like I mentioned, the franchise fee of $50,000 when you pay A franchise for the most part. All right. If the investment was $300,000 on like a, uh, haircutting place, and you pay the franchisor the franchise fee, which is 50, that other 250, you're not there. That's not profit for the franchise. You're paying the contractors. Some of that is marketing money you'll spend. So you're not paying when these investment ranges, you're paying them the franchise fee. They're typically not making money on the rest of it because you're just, you're having money that you would. Norm, if I were to haircutting place without the franchise, I would spend 250 and the difference would be the franchise fee.

Speaker B: Yeah.

Speaker A: Okay. Uh, so hope that was helpful.

Speaker B: Very helpful. Thank you. I think it's good for people that are interested in the model, have some type of context of the parameters of the upfront, uh, money which you'll be looking at as far as from a qualification perspective. Um, so very helpful. Marty, um, a couple of last questions for you. I'm just, I'm curious from my own knowledge. You said you represent over 600 brands. I know there's thousands of different franchises out there. So how do you go about your selection process?

Speaker A: Well, listen, I, um, again, well, I'm part of a larger group on a, ah, network. And um, you know, and they're very helpful in this with me, you know, there's an association called ifpg, so I'm a member of ifg, but you know, when I select, you know, and I look at these brands, I mean, I'm looking for brands with innovation, right? Strong leadership, with vision. I definitely look at the marketing. I look at uh, their infrastructure, training, support. Look at definitely the unit performance, how well they do. But my process with clients, first of all, um, I have an initial zoom meeting where I get to know my clients. I want to know their backgrounds, I want to know skills and abilities. I want to, I want to understand what drives them, right? Why do they get up every day? What's their purpose? You know, are they community minded? You know, Um, I want to understand what their goals are. You know, are you looking to create an additional revenue stream? Are you looking to totally change your life? Are you an empire builder? Right? So we get into those questions, we talk about the local market. You know, like, if you live in a market, what's growing? Where is it? Where is it hot in that market? Right? So there's what I call your criteria. Criteria. First I learn about and, and help them develop their criteria. But Then I have a process. You know, most people that look into franchising, they look online and they gravitate to things that they know. Okay? So if I ask, you know, you to name five franchises, most of them may be restaurant franchises. It's typical, right? But guess what? You know, most people, they don't know much about healthcare franchises, it franchises. You know, maybe they know a little bit about fitness because they see them all around, but, uh, most of them don't know. So I also help them. I have this exercise, and I really help them. We work together in a zoom meeting to nail down their preferences. I kind of want to know and put like, you know, a picket fence around what they think they like and. And why. Right. And. And so, because obviously, at the end of the day, you know, people make decisions two ways, emotionally and intellectually. Right? So there's that part of people that they want to love what they do, and then there's that other part that, you know, it's about the data. It's about unit performance, it's about the numbers. It's about, what could we prove? What do we know? You know, what, what's on, what's black and white, right? So we kind of work together and kind of, uh. And, uh, you know, through this process, I help people kind of find franchises that make sense, and then, you know, I connect them with franchise brands and help them do a really thorough due diligence so they know what they're getting into. You know, there's a lot to this. And, you know, most people without help, I mean, if you make a mistake, it could be a costly mistake. You don't want to lose a big chunk of money doing this.

Speaker B: Yeah, I totally agree. Why, I appreciate that. Now, Marty, if somebody wanted to work with you, uh, where could they contact you and find you to help you guide them through the process?

Speaker A: Thank you. Thank you. I do want to mention something. You know, most people don't understand this. I don't charge anything. The franchise buyers like, I work with you. And if we find something I just like in real estate, I get a referral fee from the franchisors. Now, my website is smart franchiseinvesting.com so, uh, my email is Marty smartfranchiseinvesting.com but check out, you know, smartfranchiseinvesting.Com and you could definitely reach me through there.

Speaker B: Perfect. Well, thank you. Um, everybody listening. Whether you're watching this on YouTube or on any of the podcast outlets, uh, the website and Marty's email will be listed in the show notes. So I would, uh. If you're interested. I mean, it's worth a conversation. I, um, think that there's. I don't think people realize the vastness of opportunity that are out there within the franchising space, so. Marty, I appreciate your expertise and time you spent with me today.

Speaker A: Thanks. Appreciate it. Had a great time.