Franchising Isn't a Shortcut - It's a Business Model That Still Demands Business Skills

Welcome to Second Life Leader. This show is for founders, operators, and executives rebuilding after the hit. Layoffs, burnout, failures, exits that didn't go the way they were supposed to. I'm Doug Utberg, and I've led inside the broken systems and rebuilt from collapse.

I've learned what actually holds when the old playbook stops working. If you're done pretending that everything is fine and ready to rebuild with clarity, you're in the right room. We have Greg Moore with us today, and we are going to be talking about how franchising has the potential for value, but it is not magic. And just to preface the conversation a little bit, one of my failed startups was an expense reduction consulting franchise that ended up being a bit of a boondoggle.

A lot of which was because the organization didn't really know how to sell and was not set up to help people sell. They had sales training from people who had not actually done the business work. And then their support was basically just like PowerPoint templates and corporate presentations and a bunch of stuff that doesn't move the needle. So you had no real support for business development at all.

But anyway, I don't want to monologue too long, even though I'm at risk. I want to give Greg the microphone and let him talk about where he is seeing some of the value of franchising, some of the downsides. And of course, as we said, it's not magic. work for everybody, but it can work for a lot of people.

So Greg, take the floor. Thank you for having me today. And I appreciate that intro. Yeah.

Franchising is definitely not magic. It does take work and it does take a lot of effort on your part as a franchisee. The first thing you got to do when you're getting into a franchise and looking into it is talk with as many franchisees as possible to get a good feel for their systems and what they have to offer. Make certain you ask questions like, how much do you make?

How long did it take you to get there? What do you got to do to get it? And make certain that last part, what do you got to do to get it is something that you can do on that. Now, if you're going into something like Doug went into an ERA type thing, you got to think about your skill sets.

You got to think about what skill set do you like to use and you're really good at and doesn't feel like working. What skill set do you like to use every day? And if you're a good Wheeler dealer, you're a good salesperson, then those could some of those consulting franchises like ERA might be something that you'd want to look into. But you've got to be a really good salesperson because you're going into that business and offering to help them with something that's not broken.

It's not broken. Why fix it? That's a big challenge for folks out there. Businesses are running smooth.

They don't want to rock things up. Exactly. But when you're looking at a franchise itself, you've got to look at a few different things. You've got to look at one is how are you getting clients?

Are you getting the clients? Yes. Are they helping you get the clients? That is probably the most important thing is because without clients, you do not have a business.

Yeah, that is true. That is very true. So some of the ones, so those consulting ones like that, when you're helping them with expense production, that's a tough one. So they've got to have, you really want to have them have someone who's actually making appointments for you.

Or if they don't have it in-house, at least they have a team set up to do that. A lot of the ones that are home services franchise, they've got a whole team of people that are driving their clients to you. So home services, the service industry in general, your clients don't know you exist until they need you. So when they need you, you want that franchise right there with whatever kind of marketing they do, drive people to you.

You want that call center, taking those calls, scheduling appointments so that when you get up in the morning, all you have to do is look at your schedule and say, that person has a problem that I need to help them fix. They want me to show up on time. Now, in order not to buy a job, in order for this not to be everything dependent on you, you've got to have all those structures and systems in place where that business does not revolve around you. Some of the ones like the ERA, that's a bit of a challenge.

You would have to hire yourself a salesperson in that case, one that's really good at sales. you know or yeah or yeah there's there's any number of things but yeah but it still ends up all being on you for customer acquisition and so so then and because then i guess this is one of the one of the places where i came to is i'm like okay well if acquisition is on me then why not just do something where i can deliver then i don't have to pay the zor and i don't have to pay minimums and i don't have to pay technology fees and all this other kind of stuff what you're looking at there when you're looking at a franchise and you're evaluating the franchise you're going to have two different fees.

You're going to have the franchise fee, which is a one-time franchise fee, generally around $50,000. Then you're going to have your ongoing fees, which are your royalties, generally between five and 10%. What you want to do is you want to know, what do I get for that? Now, the $50,000 is just to get them to train you and all those systems, all that.

What you're looking at there, since you're paying those ongoing royalties, is that's the incentive for the franchise or to make certain that you do as well as you can. So you want to, again, you want to go back and talk to the franchisees that are already doing it and asking them what are you getting for that royalty fee Do you feel it worth it Would you do it again if you had the opportunity So then you want to take a look at as you going through the investigation process and doing your due diligence you want to get all that information gathered up and find out from the franchisor what are they doing for you.

So what's the value proposition to you as a franchisee? What is the value proposition to your clients that you're going to be working with? What does the company bring back? Now with something like you would want them to have a nice system in the background so that when you bring all those bills that you're going to run it through their system and they can spit out, bring back to you a nice sheet of this is how we're going to save them money with the same or better service.

And you want them. So that's all streamlined. You want that in place. Yeah.

Well, and in all fairness, that side was great. It was just, it was the getting customers in the door. That was the, that was the horrific challenge. But this is the thing without customers, you don't have a business Now, without execution, you don't have a business either.

But generally speaking, most people who go into business are usually better operators than they are acquirers. We as entrepreneurs, we have a goal in life. One is not to have other people telling us what to do. Now, the franchise is not going to tell you a whole lot what to do.

They've got a few rules and regulations and things you follow. But the business is yours to go out and do what you want. So we don't like people telling us what to do to begin with. The other thing we want as an entrepreneur, why we go into entrepreneurship and get our own business, is we want free time.

we want a business that runs by itself so we can do what we want when we want and have the money to do it so whatever business you go into whether franchise or not you've got to go with that plan in mind how am i going to execute this having somebody else do it and you run the manager now most some franchises it can be what that's what we call semi-absentee type business some once you're working in a full-time to begin with but either way you do it as long as that business is running great, the franchise doesn't care for the most part who's running it as long as it's still running good.

So you want to go in there with the mindset that you're going to sell this one day. And if you're going to sell it, it can't revolve around you. So if you're the one out there getting clients every day and you're the one knocking on doors and shaking hands and kissing babies and all that, you're not going to be able to sell it because somebody else is not going to want to buy a job as Douglas does. Exactly.

So always put those systems and processes in place and find out from those other franchisees who has done that. how have they done it? How has it worked out? And how soon can you do that?

But you got to have a great manager in place. And if you're doing that, then you've got to be able to be comfortable hiring that manager. Some franchises give you help with that sort of thing. Some don't.

So find out ahead of time, find out what is the expectations from the franchise or point of view, what do they expect you to do on a regular basis? And again, make certain that that's in your comfort zone for this kind of skillset that you like using. Yeah. And I completely agree, but I'm going to dial up the contrast a little bit.

I'm like, okay. So, so like, yeah, so we figured, okay, essentially that you have two ways of going about doing a business. One is you can't go in with the franchise, which is where you have potentially systems, business development, et cetera. Another way is you just say, you go file a fee, say I'm in business and then go handle stuff.

Um, I guess my, um, because I mean, in theory, what a franchise does is it takes a number of things off your plate. Um, however, what I've found is a franchise award that does things poorly is actually less valuable than just doing them yourself, because then you are not only paying for somebody to do something poorly. Usually you have to go in and fix it for your own business. So it can end up being more work.

maybe that's just my trauma speaking, but, but, but that's the thing that that is, that's the thing. I guess the, the, the issue I have is that you don't know what's on the other side of the curtain until you've paid to go on the other side of the curtain. And it, you know, so then you can end up having a very expensive mistake that you don't have visibility to find out is going to be a mistake until it's functionally too late. How many franchisees did you talk to?

About five. Okay. Yeah, I recommend at least 10. Yeah, okay.

Yeah, probably. Yeah. The more the merrier until you start hearing the same thing over and over again. Hopefully good.

But that's really the way to do it from that point is finding out from them. Talk to the ones that just started to see how well they'll be fresh out of training. The ones that have been around for years, why are they still there? What are they getting from it?

You want that franchise to get you to where you want to be two to three years quicker than you can do it yourself. Now, keep in mind that franchisor did it themselves. to start off with. So you can absolutely do that.

If you've got something in mind that you like to do, by all means, start it up yourself. Make the mistakes ahead of time. Get that all weeded out. Then when you get to the point where you're ready to become a franchise, give me a call and we'll make you.

Simple as that. But it is tough. You've got to talk to many franchisees. And I do recommend at least 10, if not more than that.

And if you can, it might not always be logistically possible, but if you can, go spend some time with a franchise franchisee that's somewhere near you or maybe even somewhere far away before you invest that kind of money and spend half the day with them and take them out to lunch and you get some great information that way. Okay. And there's a thing that you said that I'd like to unpack a little bit. So you said, okay, like every franchisor build it themselves, which is true.

So then at some point somebody decides they want to take a business and turn it into a franchise. So let's turn the conversation a little bit from the Z to the Zor or the franchisee to the franchisor because there some built businesses that are great to franchise others that are terrible to franchise In your experience what are the characteristics that make a business a good thing to franchise versus a poor thing to franchise? Some of the best franchises out there are the ones where the product or service can be used by as many people as possible in as many cities and states as possible.

That way your customer base is much, much, much greater than that. When you're looking at the business, if you're looking at an emerging brand or if you want to turn your business into a franchise, you want to make certain that you've repeated it once or twice. So if you're looking at a franchise that's brand new and has one location, they haven't repeated it yet. Now we've taken some franchises that have just had one location they just had a great concept and we built them up on but you really want to make certain that they repeated it when you're looking at that so you know that that business is repeatable and can be done especially if they put it into so you know someplace a little bit further away another city or something like that and you also want to make certain that that franchise is making at least a hundred thousand or more or your business itself if you want to turn it into a franchise make it make certain that your locations are making a hundred thousand or more that gives you the opportunity to bring in more people who are looking to get into a franchise because most of my people are looking to make a good six-figure income if they're going to invest in the franchise.

Otherwise, just get a job. I guess, yeah, a part of it was a part of my aversion is I'm like, look, I'm not going to just smile and dial and cold call all day because that is like my personal version of hell. I'd rather have a job. True and true.

If that's something that the franchise expects you to get done, you don't want to be the one doing it. You want to outsource that. And again, everything that you don't like doing, you outsource. Just make certain that when you get in there, when you're going to turn that business into a manager-run business so it doesn't revolve around you, make sure you have the money for it.

It's going to take a little time to begin with. The sooner you get a manager going on it, the better. But you also want to make certain that you're well-capitalized. So if the business says you need a $200,000 net worth to get into this business, they're saying that because they don't want you to run out of money.

But if you're going to do it somewhat passive, you're going to want to make certain that you've got about twice that amount so you have the money to pay for it. Otherwise, you will be stuck in there doing things that you don't particularly care to do until you can get enough money to where you hire somebody else to do it. There's things I don't like doing. I did them all myself to begin with, and I figured out which ones I didn't like and outsourced those and stuck with what I like to invest with.

talking to wonderful people like them. Well, exactly. Well, and because I think there's a little bit of a, I would say a wrinkle in what you said, because what you said is absolutely correct. Yeah.

Say it's like, you know, if you're talking to typical standard, they'll usually have a net worth requirement, but net worth and capital available to invest are often different things because a lot of times net worth can be tied up in home equity or in retirement accounts. And most people are very hesitant to liquidate those things for the purpose of trying to get a business off the ground, or at least I was. And so, you know, because I think one of the things, again, that if either I was more disciplined or if I knew what I was doing more, I would have said, okay, I am nowhere near capitalized well enough to do this in that there is enough free capital that is not needed for something else to where I can absorb the ups and downs.

But of course, what a lot of the, and not all, but what enough of the sales folks will do is basically, if you can pay the fee, they'll sign you up, which thankfully not everybody operates this way. Unfortunately enough due to where the reputation's there for a reason. um i guess so so so the question then is right in your experience because i mean just my my experience would tell me okay however much capitalization you think you need like double it to triple it and however much time they say it's going to take like quintuple it um and then decide and then say okay if it takes all of this to get to where the average franchisee is is it still worth it?

And in some cases, the answer is going to be no. I mean, because like the, I know the, some of the, when people have talked, reached out to me as a former franchisee, one of the things they asked was, okay, well, you know, what's your view? And I said, well, my view is you absolutely can be successful in this business. But my feeling was that the skills necessary to be successful can be leveraged for far greater rewards in other opportunities.

And, you know, in other words, in order to be successful in any kind of business, there's a certain skill base you're going to need. Certain types of business have different skills. Certain businesses have a steeper skill ramp. And generally speaking, the steeper skill ramp, especially if you're talking enterprise sales, if you are good enough to actually to get CFOs to sign POs, you should not be working for somebody else.

You should be doing your own thing and owning the labor yourself because that's where the high leverage is at. You know it like you know don be the person down you know down at the bottom of the of the waterfall who doing enterprise sales That like the highest leverage activity there possibly is It like you know get rewarded for it because that hard stuff to do True. And if you, if you're doing something like that, definitely go into business for yourself, because at the end of the day, your job, you can't sell whatever business you get into.

Yeah. If it's a job, you can't sell it anyway. Yeah. You can't sell it.

So precisely. And I think that that's i think and so you you mentioned it before but i think this is a really good heuristic if you are a franchisor or franchisee is that if it's something that can't be sold you probably shouldn't be pitching it nor buying it it's going to be yeah it depends on what your goals are what you're really looking to do to like now in my case what i'm doing right now cannot be sold i can't sell my business because revolvers are on me. Yes, correct. Everything I do is me.

I chose. But I assume you're also not franchising it. No, I can't. They have broker organizations that you get into and you can sell those.

But no, I'm not franchising it. But some of the things that you do can't be sold. So you got to look at that. You got to look at that franchise that you're getting into and how easy is it sold.

And I got to tell you, some people will buy into franchises that don't make $100,000 a year that make a whole lot less than that and they love them uh they just like this some of the hair salons they don't make that much and people love you know getting into hair salons and they make less than a hundred thousand just just another place to put money very simple and easy to operate yeah and you just buy more territories yeah build up a nice annuity that way so everybody's a little bit different and it comes down to what is the end game for you what are you trying to accomplish and will that franchise get you to where you want to be within that time frame?

Yeah, exactly. Exactly. All right. Well, hey, Greg, I've really appreciated your time today.

So I think we've covered a number of topics. Does it feel like there's a question I should have asked but didn't? Well, you know, it's interesting that you mentioned about funding the franchise and we're talking about that. I use my 401k plan to get into my business.

I bet it on myself. And as you indicated, that's not a lot of people like doing that, but that's a rollover for business for those folks who don't realize that. That's one way to go into business without going into debt. Most of my people want to make certain that, want to use other people's money, as long as the investment services the debt.

So in order to have enough money, the reason you have the net worth is so you can get a loan that will compensate and it's based on how much your net worth is. So that will get you the money. You just have to, again, do a thorough examination of that franchise. And Doug's right.

Not all franchises are created equal. The Federal Trade Commission had to come up with rules a while ago, many years back, because there were some nefarious characters out there saying, if you get into this franchise, you're going to make $100,000. And it just wasn't happening. So now the Federal Trade Commission came down on all the franchises, franchise disclosure documents.

If you're going to talk about how much you make, it's got to be in that franchise disclosure document and you've got to be able to back it up. Yeah. And the FDDs are typically around 60 to 300 pages. They are always, always get a franchise attorney to look over everything.

Franchise agreement, franchise disclosure documents before you sign on the bottom line. About $2,000, $2,500 for it, well worth it. They'll let you know what you're getting yourself into and make sure you're okay with it. Yeah, exactly.

Greg, well, I really appreciate it. And give us your last couple of thoughts and then yeah, let everybody know where they can learn more about Greg Moore and the Franchise Maven. Absolutely. Doug, thanks again for having me on the show.

I would say that there's probably a franchise out there for everybody, but everybody is not for franchising. It's a good option to look into. So reach out to me, give me a call. As you can tell, I love talking about it.

You can find me at FranchiseMaven.com. That's Franchise, M-A-V as in Victor, E-N.com.

I am kind of old and old fashioned. So if you want to do it the old fashioned way, you can just pick up the phone at 361-772-6401. Or if you want to find out about me, just get my book. Real Freedom.

It'll walk you through exactly how you should investigate a franchise, give you some background information on me. You're going to either do one of two things, think I'm absolutely crazy and never get a hold of me, or the book's going to resonate with you and you're going to say, I'm going to give Greg a call. But good information. Excellent.

Greg, appreciate it so much. Thank you for having me, Doug. If today's discussion resonated and you're feeling friction inside your finance architecture, I've put together a short executive briefing at secondlifelieder.com.

It breaks down why enterprise finance feels blind. and why fast-growing companies outgrow their systems before they realize it. If you're a CFO, VP of Finance, or a founder scaling a complex operation, you can schedule a 30-minute assessment directly from that page. No pitch, no theater, just clarity about what's slowing you down and what to fix first.

That's secondlifeleader.com. I'm looking forward to talking with you.