The Exchanges

Q focus back towards hospitality, I guess, and small business. Um, so I know you have experience in franchising. I also know that you didn't want to put too much time into talking about franchising, but I also feel like I would be preventing the audience from having an opportunity to learn about something if I didn't ask at least a few questions regarding franchising. Why would someone want to franchise?

A Globally or just big picture speaking, franchises are very attractive in so much as it can reduce risk for the sector you're trying to go after. Uh, my background is in hospitality, you know, restaurants specifically, um, the ability to get behind a national brand, to not have to develop awareness, marketing campaigns, sourcing, and a lot of the Foundational items is where franchises are very attractive. And for the most part, if you choose the right one, that is accurate. I think the hard part in the franchise world is A lot of people only think of the national brands when it comes to franchising, you know, the McDonald's and Chick-fil-A and Burger Kings of the world. There's a lot of regional franchising, and I think that that's a story that doesn't get, that gets mixed into the franchise world that I think should be covered because the big brands have figured out the formula. I think that the barriers to entry, you know, it's, it's capital, it's location, it's the other things that are there. The national chains, like I said, more or less bulletproof in what the expectation is going to be, how it's supposed to run and what that's going to be. When you move into something maybe more regional, I think you have to be a lot more careful because you may think you're getting what a national brands offer from a franchise level, but not often the case or not always the case, I shoul…

AI assessment note: “franchises are very attractive in so much as it can reduce risk”

Q So you own some brands, some restaurants and all that. Did you ever own a franchise? And if you hadn't, why not?

A So we explored quite a few of them and I happen to live in California. California is a difficult place to operate small businesses in comparison to other parts of the country for a variety of reasons. Employment law, cost of doing business, and all of the things. When we looked at national franchises that we were interested in, we were looking to buy a territory, put it in, use that brand to Accelerate our growth into building other locations. And what we found was that we weren't attracted to the price points of what the items were selling for on a national level versus what they sell for in California. And you can have a model in the middle of the country someplace where you can afford to have six people do. I'm just going to use fake numbers, six people doing a million dollars in top line sales and make money. In California, that same exact model that that franchise built, you need six people to do this volume in this place would lose money due to our cost of labor. So I'd have to figure out the franchise or model, but with maybe four people where they say I need six because I very simply can't afford to have six people and I can't change the price of the item enough to make up for my wage gap. So we were looking primarily in the fast casual fast food model. And I didn't like what I was seeing. Not to say they're not working elsewhere, but it just wasn't our, our kind of mod…

AI assessment note: “we explored quite a few of them... would lose money due to our cost of labor.”

Q So then how did you come up with the ideas? Did you buy existing restaurants? Did you come up with your own brands and started from scratch?

A Yeah, so I have one location. Being that I run an accounting firm, I have interesting access to a lot of information. A lot of it's regional and all that fun stuff. During COVID, I had a client who I became very good friends with. I liked his model. I thought he had a very poor location. I got access to a very good location, asked him if he wanted to partner and move. So that's That's a partnership that we developed together. He had a brand. I liked his brand. I thought we found a better place, uh, with much higher traffic and we have, it's been very successful. We're very excited about it. And we're gonna have a couple more of those locations in the next few years. Um, and then similarly, there's something in the restaurant space where people who have developed a brand realize that there's not really an exit for the sale of the restaurant per se. But maybe they have a good legacy. So it's cash flowing. It's doing very well. But, you know, if you've been running your restaurant for 30 years, the sale and the exit are usually not that lucrative if you're cash flowing well. So there's something called the restaurant management agreement. So my firm executes those. And so we took over a legacy brand and do the management for that restaurant. And then we happen to design and build You know, we have a couple other things going on where we're designing and building the brand ourselve…

AI assessment note: “asked him if he wanted to partner and move... we took over a legacy brand”

Q What kind of things have you learned in working with small businesses?

A Fascinating question. I think, you know, being a Having outlets, uh, creative outlets and making sure that the work, even though it's all consuming, that you have the ability to step away is probably the one that I don't think enough people, even if it's leaving at a reasonable time in the evening, decompressing, coming back to work with clear thoughts, I think is something that I find, especially COVID was a really interesting time. My particular industry that I support the most got hit. Pretty hard. And it led to so many changes in the industry that the people who were able to take a deep breath To review what was going on, to step back and make the best critical decisions are the ones who are being most successful now. Um, I think the other one is, as I mentioned before, it's one thing to be really great to be an expert or have a significant expertise in something. But I would say that the first thing is you need to speak accounting. Accounting isn't a numbers game. It's a language. It's like learning a dialect of Chinese. It's like learning Spanish. It's like learning French learn. It is the language of business. So you, even if you're, I don't care if you're a painter, a photographer, a chef, if it's, if it's an artistic pursuit or you're building three D printers, it's, if you don't know about cashflow, cash management, and how to review a P and L, At some point, you can'…

AI assessment note: “Having outlets, uh, creative outlets and making sure that the work”

Q What's generally the cost? What are the total costs, I guess, to franchise something on average in the US?

A So it, I mean, it's massively different, um, by brand, by scale. There are some groups where it costs very little. The franchise, the licensing or franchising fee can be tens of thousands of dollars. And in other cases, um, don't quote me on the numbers, but if you're looking at like McDonald's versus Chick-fil-A, just to keep it within the food world, Chick-fil-A actually has a very low barrier to entry. It's tens of thousands of dollars. It's not a terribly large amount of money, but there's quite an involved process and you don't own the business as much as it is a partnership. Um, where if you get involved with something like, um, a Jimmy John's, there's a relatively small licensing fee, but the buildup cost is very defined and you're using a lot of their pre-supplied vendors. So if you're gonna get into a Food business in general, you're probably at half a million dollars to actually get the business open with the percentage of that going to half a million to 750,000 dollars with in a non standalone location, meaning you're building it in a pre-existing location with the percentage going to the franchisor between 10 and 40% of that cost, 50% of that cost going to the franchisor as an initial fee potentially. It varies depending on the brand pretty significantly.

AI assessment note: “you're probably at half a million dollars to actually get the business open”

Q Was it Mark? The guy with manufacturing background?

A Yes, it was. Ah, I'll, I'll look it up. I had the note prior to the podcast. He did a lot of coaching. He was on the phone for like nine hours a day all over the world. And a lot of people were calling him up for coaching. Jeremy, it'll come to me. I believe so. Like I said, I'll, I'll check my notes, but he had a fascinating company. He's like, you know, you can see these people that are running a hundred million dollar businesses where he gives them something to do. And four hours later he gets it back. And then there's a guy with two million dollar business. It's going to take him five days to get it back because he's still being pulled in so many directions that it's a matter of making sure you're aligned with what your goals are and who gets what time. Time's a commodity.

AI assessment note: “Yes, it was.”