S2 Ep13: Zaxby’s Franchise: How Ben Little Learnt His Trade
From a commodities trader to licensee of 14 Zaxby’s units. How did Ben Little do it? He just said ‘yes’.
From helping to run 8 units with his father and his business partner, Ben has grown their empire to 14 units, including the no. 1 and no. 3 best performing stores in the country. But he had to start at the bottom.
The Wolf and Ben get straight into it, discussing how Ben had to learn the brand by working on the shop floor, how a long-term mindset helps grow business and the best real estate strategy to employ.
You’ll also hear Ben’s thoughtful takes on incentivizing employees and his plans for the future.
And If you work in franchises, your most precious resource is time. BELAY exists to help you regain control of your time and your focus. They will match you with highly-qualified US-based virtual assistant, accounting, social media, and website contractors. In fact, only about 3% of those who apply to support roles with BELAY are actually accepted. Text WOLF to 55123 to get started.
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Episode Transcription:
Ben Little:
They put the biggest chunk of humble pie you could possibly imagine in front of me and said, you know, you have to start all the way at the bottom. So, you got to go work at this with this other licensee. And you have to work as a cashier and a cook for minimum six months just to, you know, understand the business, understand what the team members go through on a day to day basis, understand what the managers need to do, understand why the person has to prep the chicken a certain way, so on and so forth. Welcome to Franchise Empires where aspiring entrepreneurs learn exactly what it takes to become a successful franchise owner. From one location to 10 and beyond. I’m the wolf of franchises.
The Wolf of Franchises:
Hey everyone, it’s The Wolf. Today in the show we have been little, the owner of 14 Zaxby’s Chicken franchises. Zaxby’s has over 950 locations and Ben’s stores are all within the top 50. One of them is the top performing store in the system. The other is the third best performing store in the entire system. Ben’s a wealth of knowledge, we go all over the place from discussing how Ben was literally willing to die to make his Zacks be successful, why he gives all his restaurant managers skin in the game. And also why location is the most important thing for any brick and mortar franchise. It’s a longer episode than usual, but I promise it’s worth to listen. I hope you enjoy it. The
Narrator:
Wolf of Franchises is the CEO of Wolf Pack Franchising as well as a creator at Workweek Media. All opinions expressed by the Wolf and podcast guests are solely their own opinions and do not reflect the opinion of Wolf Pack franchising or workweek. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. The Wolf Workweek and Wolf Pack franchising may maintain positions in the franchises discussed on this podcast.
The Wolf of Franchises:
Well, I guess just get right into it. So you own 14 Z vs the number one store in the system out of like 900 as well as the number three store. So it’s right off the bat, super impressive. Yeah, and I would say the, the most impressive, or to me the thing that I’m proudest of is that all 14 of our stores are above the brand a u damn. Okay. So a u for anyone who doesn’t knows average unit volume, which that’s kind of like the general measuring stick for sales, but I’ve got six of our 14 are in the top 50 overall for growth sales. But like I said, thing I’m proudest of is that every single one of ours is above av. Yeah. And I mean I was checking up the FTD beforehand, so the average, the AUV was like two and a half million in 2021. So that’s not too shabby by any means.
Ben Little:
Yeah, it’s probably crept up to 2.6 or so by now, just from inflation, but yeah, it’s, it’s, it’s somewhere right around there.
The Wolf of Franchises:
Okay, cool. And just for folks listening, so this is the day after Labor Day 2022 when we’re having this conversation, so for a little benchmark there. Yeah. But when did you, so when did you buy your first Zaxby’s?
Ben Little:
So my group started in 2004, started with location one. And you know, I think that was, well one of the main things that I at least wanted to talk about with the audience is why most people fail, I guess first off, and then kind of go down the sequence from there. You know, at least with location number one it, you know, I think the biggest thing is a lot of people go into franchising and just small business in general and they don’t know what their why is, Why are you doing it? Why do you want to quit your day job? You know, why do you want to pick franchising over starting your own business? And, and really knowing the answers to those questions a lot of times, you know, but I mean, I’ve talk to people all the time that are interested in doing it and you know, I ask them what’s their why?
Like, why I just want to make a bunch of money. I was like, Okay, well you should probably not do it then. Yeah, <laugh>, because if money is the sole reason you’re looking to do it, then you are already setting yourself up for failure because of money is the sole motivator. You’re going to make really short-term decisions and when you make really short-term decisions, you’re not going to invest back into the business. And when you don’t do that again, you’re just inevitably setting yourself up for failure right from the get go. I know you’ve had plenty of guys on that have not started with just one location and you know, have acquired multiple units or restaurants or whatever, which is fine. You know, you’ve got a bunch of partners and you know, you’ve got a really nice infrastructure in place right from the get go. You know, go, go buy out, go do as many as you want.
However, especially if you’re starting out as a solo entrepreneur and or only have one partner, I cannot recommend enough, Start with one. Learn the business in and out. You know, learn a bunch of these other things about the list off first before you even consider going to location. Two, make sure location one is going to work and that you can actually make money and you can make a living out of this. And then go down to these other things of understanding what is your limiting factor. So, this is another question I ask people that want to talk to me about should they get into franchising or small business. And, and this is probably one of the most important things that very few people understand from the get go. So, seems like for a, a restaurant for me, my limiting factors are, you know, either going to be dining room seats, parking spots, civil engineering slash a number of cars I can get through the drive through per hour and fryer capacity. So, one of those five things is eventually going to limit my AV Yeah. In every single restaurant. And, and you’d be amazed the number of people that go into business that try to either a save money on the front end that end up costing them potentially millions of dollars on the back end because again, they got short sided and didn’t want to spend a little more money up front of, you know, having the parking or having the fryer capacity or, or you know, anything, any simple thing like that.
The Wolf of Franchises:
Can you just give a, an overview? Cause I’m, I’m going to guess that a lot of listeners might not really know Zaxby’s, so like I know it cause I, you know, Study franchise all the time, but growing up in Northeast never seen his Abe’s in my life. Mm-Hmm. <affirmative> still to this day, I haven’t seen one in person, but obviously just, you know, doing all the things they do on Twitter and whatnot and the numbers they put out, I’m aware of it. But yeah, just like is it a Chick-fil-a competitor? Is it a KFC competitor? Like where does it kind of stand in the fast food to fast casual range and like Yeah, just the standard most popular menu items, if you had to say. So
Ben Little:
We’re mainly based in the Southeastern United States. You know, we would be considered chicken QSR, I consider our two main competitors, Chick-fil-A and Raisin Canes. Some of our fp and a people say that those aren’t our two main competitors, but, but that’s, so I view are kind of our closest peers and, and they’re the only two as far as a u v that are higher than Zaxby’s is, is Canes and Chick-Fil-A mainly just serve chicken fingers, salads, wings, sandwiches. That’s kind of our specialties, you know, mainly the, the chicken fingers are really what we’re famous for. Crinkle fries, Texas Toast, that there’s been quite a few copycat that have, you know, popped up recently. Yeah.
The Wolf of Franchises:
Chicken Hot Chicken Asheville, Hot Chick. Like those concepts are popping up all over the
Ben Little:
Place. Yep, yep. And, and, and I’m sure there’s some people in Georgia yelling in their microphone saying that Zaxby’s just copied Guthrie’s back in 1990. But you know, Guthrie’s still around too and, you know, I still really like to eat therapy now and again and, and you know, like it’s funny too, you know, I mean, just be completely open and honest. I mean, my, my kids eat a Chick-fil-A all the time. I like eating it Raisin canes. I really respect what Tide Graves has done. He’s a really brilliant entrepreneur and I love the simplicity of their concept. Yeah. But I guess to give a 32nd sales pitch on Zaxby’s is that, you know, for Chick-fil-A at maximum you’re going to get to operate three stores and you know, when you go to hang up your chicken selling shoes, you know, you got nothing.
I mean, you got no real estate, you got no building, you got no residual income. I mean, that’s it, you know, it’s just like retiring from a w two job. Yeah. Raising canes, you know, you can’t franchise raising canes. It’s all inner operator, you know, just, just like Chick-fil-a, Chick-fil-A is all inter operator. So, you know, if you want to build real generational wealth and chicken QSR, you know, Zaxby’s is your best bet because you know, it’s, we’re all franchisees, you know, we can own land, we can own real estate, you know, we can do all these things that Canes and Chick-Fil-A can’t do. And by the way, I don’t make one single penny if anyone signs up for Zach’s franchise <laugh>. So that’s ultimately why we ended up picking Zaxby’s way back when. And,
The Wolf of Franchises:
And you’re based are you based
Ben Little:
In Georgia? I’m from Georgia, originally from Athens, Georgia, living Raleigh, North Carolina now. And that’s where all my stores are. It’s just greater Raleigh all, all within a, probably about an hour and a half of Metro Raleigh. But I would say probably 60% of all Zaxby’s licensees are from greater Athens, just cuz that’s where the corporate headquarters is and, you know, started in Statesboro, Georgia and both the co-founders still live in Georgia now, but they actually just sold out to Goldman Sachs about a year and a half ago, I guess now. So that’s been a, a fun transition to go through. That’s
The Wolf of Franchises:
What a big
Ben Little:
Payday. Oh yeah, yeah. They, they did okay. They did okay. Yeah. But you know, that’s been a fun transition and that was actually my background before I got into Zack’s piece was, I was a futures trader, so I specialized in crude oil and the s and p futures. So I’m very familiar with Goldman Sachs. I could tell you they’re, they’re the smartest bank on Wall Street and you know, whether you like them or don’t like them or whatever you think of them, they’re <laugh>. They are the smartest. So, you know, I’m excited to see what they can do with Zaxby’s moving forward. But
The Wolf of Franchises:
Let’s take it back to 2004 and you said, you know, knowing your why is super important. So to go from futures trading to buying one, you know, QSR restaurant, it’s a big jump. So yeah. What was your why heading into it? Or did it develop over the years?
Ben Little:
Well, I guess that’s where my story is similar, but also really different and unique from most people. So I have two partners. One is my old man and the other is my other partners just turned 90 years old and still in the game and still going strong and just a unbelievable human being. But it was just those two in 2004, I didn’t get involved until about 2012 and I’m terrible with dates. I’m probably getting some of this wrong. But the somewhere around there is when I came on and basically they had eight stores then. Okay. And they had asked me for a long time to, to come on board and, you know, I was like, no, you know, it’s, you know, that’s y’alls thing. It’s not really mine. You know, I wouldn’t be able to like create my own legacy in the business, which is what I would really be interested in doing.
So it’s, you know, kept saying no, no, no. And then right around then the Zach speeds was basically all the counties around where those stores were. Corporate Zaxby’s owned the rights to those counties. So future expansion wasn’t really in the cards at that point, but at that point really, I mean there’s just luck and randomness for the most part. They ended up throwing a bunch of those counties back to the licensee community and that’s when my group snapped a bunch of those up. And so that’s when they came back to me again, were like, you know, getting ready to grow again. You know, here’s your opportunity to kind of make your own legacy and this business and that this future growth is, you know, mainly going to be up to you cuz we’re not going to be around that much longer. And so that’s when I finally said yes.
But the catch was, you know, they put the biggest chunk of humble pie you could possibly imagine in front of me and said, you know, you have to start all the way at the bottom, so you got to go work at this with other licensee and you have to work as a cashier and a cook for minimum six months just to, you know, understand the business, understand what the team members go through on a day to day basis, understand what the managers need to do, understand why the person has to prep the chicken a certain way, so on and so forth. And so that’s exactly what I did <laugh> and I, I’m not going to sit here and tell you I enjoyed every second of it because I, I certainly did not. But you know, in hindsight I’m so eternally grateful for that time and, you know, the franchisees I worked under, you know, were just in, in credible stewards to me and, and really kind of helped me along and, you know, showed me the ropes and, you know, I learned so much from both of them that, you know, like I said, I I’m extremely grateful for the time in hindsight now.
So anyways, then the opportunity to acquire a store from a failing licensee came up and Raleigh, So this is when I moved to Raleigh. So this is 2015 now. And
The Wolf of Franchises:
Do you guys still have at this point, are you still just with this, the first eight stores that your father and the other partner had? Or have you expanded from eight before this acquisition?
Ben Little:
Nope.
The Wolf of Franchises:
Okay.
Ben Little:
Nope. So, so this next store is the next one. So I basically was the operating partner of that store and, and you know, this is kind of where the rubber had to meet the road. So the licensing and this particular store lit literally just up and closed his doors one day and just put a note on the door that said, your last paychecks will be mailed out. So that was what I was walking into. Holy
The Wolf of Franchises:
Crap. Yeah,
Ben Little:
Yeah, <laugh>. So, so we closed that store you know, went probably six months or so remodeled it, put all new equipment in, all that kind of stuff. And to kind of fast forward here, within four years we had quadrupled the sales. So that was kind of, you know, me not only proving to myself that I could do it, but you know, proven to the other people in my ownership group that, you know, I was ready to take the next step and take the reins and you know, kind of go from there. And you know, there, there’s a lot more to the story. But after that I basically became in charge of all of the operations for our group. And now we just started the process of, of me buying both my other partner and my old man out. So here we
The Wolf of Franchises:
Are. Amazing man. Yeah, I’m well curious to learn more about that, but what would you say, I mean, so quadruple in the revenue of a single location that, I mean that’s no small feat. So like what would do you think that other franchisee was doing wrong and maybe more broadly even like why do franchisees from what you’ve seen in Zaxby’s fail if they do fail?
Ben Little:
Oh yeah, I mean it’s, it’s some of the stuff we’ve already mentioned, you know, like I said, not, not knowing your why in this particular case, I wouldn’t say this happened, but, you know, I see a lot of franchisees try to grow too fast without the infrastructure in place. Just really not understanding the general timeline it takes to make a business cashflow positive. And, and understanding that time is kind of a double edged sword that can work both ways, you know, for you or against you. You know, if say you’re leasing a piece of land and you know, the sales are just kind trickling along, tricking along, but you know, you’re kind of just doing just enough to get by and then you get to the end of that first term and then your lease goes up 3000 a month. Well, when you know now time’s working against you at that point, but like if you own the location and you keep reinvesting back in and back in and you keeping, you’ve grown your sales, you know, 10% a year, you know, every year and keep paying down the note on your ff and e loan and, and your real estate loan, you know, then time does the opposite.
It starts to work for you and not against you and you keep adding more and more free cash flow every month when that happens. But, you know, people generally way overestimate or underestimate how long it takes to make a business cash flow positive. You know, I mean, it, it is great if you come right out of the gate and month one you get to take a little money out. But I would tell you that that is the exception and not the rule. And, and just FYI any rule I say on you there, there is always exceptions to all of these rules, but that’s exactly what they are, is their exceptions. For example, in 2004, that first store, it took four years, four years to be cash flow positive. So, you know, again, advice to new people looking at doing this, you know, any franchising or any new business, I would say minimum, you better be prepared for minimum two years of not getting any paycheck, one single dime out of the business. And you again, we’re kind of hoping for the best, but preparing for the worst. I’ve heard a couple other of you guys have kind of alluded to this, but you know, I think it bears repeating that having like really, really clear expectations and being really upfront with your significant other and or children or you know, whoever’s at home with you about what it’s going to take and the sacrifices you’re going to have to make otherwise one day will come where you’re going to have the talk.
The Wolf of Franchises:
This doesn’t sound good, already does not sound good <laugh>
Ben Little:
No, no. It every single franchisee out there knows exactly what I’m talking about when I say the talk. And, and I’ll tell you, I I’m terrible with dates, but I remember the day I had people
The Wolf of Franchises:
<Laugh> Okay, that that’s saying something. Yeah.
Ben Little:
You know, I mean I, I remember it playing as day and, and so, so just to briefly tell this story, I was on the back end of working 13 straight open to close shifts. You know, I’m exhausted beyond belief. You know, I get home, you know, kids are already in bed but you know, I can just tell my wife is pissed off about something and, and you know, that’s when we sat down and had the talk and, and you know, I didn’t even realize it at that point but you know, like I had literally pushed my marriage to the absolute brink and you know, that was basically her drawing the line in the sand of like, this is insane. You have to find some balance for, you know, for me, for the kids, for your own physical health and wellbeing because I was on a completely unsustainable path and you know, part of that was my fault cause I had not yet learned how to delegate correctly.
But every single person reaches that point. If you do not find the balance and make it again really crystal clear with your significant other about what it’s going to take and, and you know, kind of going back to my why, you know, my why, you know, has, has nothing to do with money. It has nothing to do with status. You know, nothing like that. My why is I wanted to prove to every single person that said that, that I couldn’t do it. You know, I was silver spooned, you know, I was only put in this position because I had family in the business. That was my why was to prove all of them wrong. To prove that not only were they wrong, that I could do it better than them and to prove that I could win at all costs. But you know, it was starting to reach a point to where that all costs were going to cost me a lot more than I had ever dreamed or intended or wanted to.
Yeah. And you know, I think that’s kind of a struggle that we all face at some point because you know, I think if you’re really an entrepreneur at heart, you know, we’re not wired for balance. You know, we’re wired just to full steam ahead, you know, put the blinders on. Doesn’t matter if I’m literally, you know, working myself to death and you know, like, I mean I, it sounds crazy when I say this out loud now, but like I was literally willing to die on that Z piece <laugh> in that Zaxby’s kitchen to prove to other people that I could do it. That’s how meaningful the why was to me. And you know, like that’s the funny part too is like, is my why means absolutely nothing to anyone else besides me. I I’m the only person on planet earth that cares about it. Which is, you know, funny in and of itself. But that’s why I’m saying, you know, no one’s too wise have to be the same and you know, we all find the things that motivate us and drive us and, and you know, that’s what still drives me to this day.
The Wolf of Franchises:
Yeah, I mean I love that and I get where you’re coming from and I mean what I’m doing, which is, you know, it’s different than franchise ownership but you know, trying to build a massive platform for franchise owners and you know, there’s some other things in the works that I have going on that’ll be announced, you know, in due time. But yeah, I get where you’re saying where your head’s down and you just want to make it work and your capacity and attention for anything else, it becomes tough. And you know, I’m saying that I’m young enough where I don’t have a family or anything, so I couldn’t imagine trying to do both at once. But I, I want to key in on something you, well a few things, but I guess to start, so you mentioned the cash flow profitability. So you know, in like Zaxby’s F dd and you know, for every franchise disclosure document in the initial investment section, a franchisor will usually list out, you know, a line item called additional funds for three months.
It’s typically three months as you outlined. It takes a lot longer than three months in some cases. You know, I was talking to Massage Envy franchisees last week who told me their first store it only took nine months to cash flow profitability, which I’m going to guess that’s a big outlier especially they were kind of first to market in a great area where they were different margins of massage businesses. So I think that’s number one for anyone listening is it varies by concept, it varies by industry, you know, can take it on a case by case basis. And the best way to figure that out is to ask franchisees. But anyway, getting to my question, that additional funds line item is like 1000 to 96,000. So for Zaxby’s, and when you say it took four years, are you factoring in all the debt servicing as well? Like meaning it wasn’t profitable fact? Or are you considering once those were paid off, we’ll consider it profitable versus like maybe your debt services, I don’t know, five to 7% on the equipment and you know, maybe it took out some financing for some of the locations. Yeah, I guess just walk us through that. Was it literally, you know, even after the five 7% there was not a single dollar of extra margin.
Ben Little:
When I say there was no extra margin. I’m talking about writing checks to make payroll every two weeks. Holy shit. Out of personal bank accounts, <laugh> like yeah,
The Wolf of Franchises:
For four years. Damn.
Ben Little:
Yeah. Now the, the good news is that once it finally got there, you know, it’s been cash flowing ever since and, and you know, it’s a beast now. But, and you know, that’s kind of the beauty of our setup too is that, you know, that first store was really the only cash we ever put into any deal because the next store we just were able to use the equity that we had built up. Cause, cause we owned the land, owned the building, we were able to use the equity that we had built up for the next store for collateral for the bank loan. And we’ve literally done that 14 times now. So, so we’ve never ever put new cash back in out of our pockets past store one, which you know, again is another great advantage of owning versus leasing is it kind of gives you that flexibility.
But you know, going back to just FDD stuff, I mean yeah, we could do a whole podcast about warnings for FDD stuff and how it’s generally wrong and how it’s generally every, they’re in a franchise out there that doesn’t want to grow units, you know, you just have to keep that in mind. I mean that is their single easiest path to scale and making a ton of money is growing the royalty space. But you do have to be really, really careful when you’re going through there. So, so you know, I would say again, if you’re looking at a new concept, even if you’re an experienced operator or if you’re brand new, you need to be really careful a couple of these things. So first off, I will tell you build your steel man argument, which is the opposite of a strong man argument. So, like literally make the anti-case for why you shouldn’t do this franchise concept over this franchise concept and then switch it back around and make that same steel man argument the other way around.
You know, I would be really, really wary of any franchise that does not have corporate locations. I firmly believe that if the franchisor does not have skin at the same skin in the game that the franchisees have outside of royalties, then that is like a major red flag to me. You know, as Mark Cuban said, you got each run dog food love Cuban. Yeah, beware of a U V I, I know I referenced it earlier so it’s now I’m going to talk shit about it. But beware of average unit volume, particularly in advertisements and on websites because what you will see all the times, there’s this little teeny little asterisk right next to a U v and if you don’t read that little fine print of, you know, that little asterisk will say, you know, this is a u v oh, but this is only the top 25% of the stores they use.
Exactly, yeah. They partition it out. Yeah, or this is the a u v of stores that were built before 2018. So, see like it leaves all the new locations out which are obviously going to generally be lower volume. So like, you know, it’s kind of a bullshit number. The best thing to do just as like a super quick and easy reference is just do median volume because you can’t fake median volume and you know, at least if the brand has any scale, you know, I would say over 50 locations would be enough to trust the median volume. But that’s what I would look at versus a U V I would be really wary of DDS when you get to item 19, which is where all the financial stuff is. If they are not including things like royalties, marketing fees, low rent numbers, no management fees, no health or insurance fees, you know, no, you know, for restaurant no repair and maintenance bank fees, credit card fees and you know, a lot of times they’ll kind of bucket a lot of this stuff into one thing.
It’s just like general expense then you just kind of like have to trust what general expense is <laugh>, which is crazy. And if you ever see the term four wall EBITDA that you should just read bullshit EBIDA because that means absolutely nothing all four wall EBITDA it means is they’re not including a ton of other expenses that 95% of the franchisees incur. But because 5% don’t incur these expenses, they’re going to leave them out. So for due diligence, the FDD, yes, I don’t think it’s that great of a tool, but there is one section that is really great for due diligence and that is the current and former franchisee section A And I would tell you the best place to actually start is the former franchisee section because most of the time if they did not have a good experience, they will let you know.
Now you also have to kind of keep in mind, you know, I mean there’s bad operators and every single franchise out there. I mean, you know, Chick-fil-A is the goat, I can still say that as a Zaxby’s licensee, but they have bad operators too and they kick people out of the brand too. So, so you do kind of have to, you know, keep that in the back of your mind. However, if they’re former then something went wrong and I would want to know what exactly went wrong. And then once you have exhausted that list, then I would start cold calling current franchisees. Cuz you will be amazed and I mean, you know, your podcast is a testament to this, but people are generally so incredibly willing to share with you almost everything you know about their business and their stories and their financials and their hardships and their wins and you know, I mean most people are more than happy to talk to you, you know, about their business because you know, I mean it’s, it is kind of, it’s our life, you know, I mean that’s, it becomes a part of your identity at a certain point.
So, I mean I don’t think I’ve ever met someone just like, nah, I don’t want to, I’m not going to talk to you about it.
The Wolf of Franchises:
Yeah, yeah, they’re, they’re typically very open franchisees but I’m happy you brought that up cuz I completely agree that, so to me the f DD can be a good tool to signal what might be a good franchise, but, but that’s it, it’s not, no one should be buying a franchise solely off an FDD and you know, in my newsletter I’ll basically give the breakdowns of item six, seven and 19. So it’s royalties and, and you know, brand fund fees, the franchise fee, the initial investment range and then whatever they put, you know, I just screenshot item 19 basically in the newsletter and the whole thought is right. It’s like this is going to signal, you know, maybe there is potential with this brand, but the ultimate and best resource is always going to be current and former owners cuz as you said, right, like if shit’s going wrong or they’re already out of the system, you know, even more so they’re definitely going to tell you. And I actually, I met an owner from a different system, I forget it was like an acupuncture brand and he once told me that every time he’s doing due diligence he just calls he looks up the franchisees by location and just will call the ones from New York, New Jersey, Pennsylvania. Because he says that the people in that area are just going to tell you that like they’re really not going to hold back with how they feel.
Ben Little:
<Laugh>. That’s actually really small.
The Wolf of Franchises:
Yeah, no, I mean I’m living in New York right now so I can definitely attest to that, that New Yorkers don’t go back for damn
Ben Little:
Sure. That’s so funny. Yeah, that’s great. And you know, obviously there, there’s caveats and, and all of that and there’s exceptions to all that for sure. But those are probably my best advice I can give to someone that, you know, is kind of looking at. And, and then one other thing I would say is two more things. If the franchisor is selling a shit ton of license agreements really quickly, that is a red flag to me. Especially if they are doing it from a relatively small base of, of, you know, like if they, if they have like eight locations and that’s it, but they’ve sold 350 license agreements, you know, like that is a major red flag to me because a, there’s no way in hell they have the infrastructure in place to support 350 new licensees. And b is goes into 0.2 is that if they sign up that many people and, and like it’s a bunch of people I get wasn’t just one person buying 350 license agreements, that just tells me that they’re basically going to take anyone that’ll write them a franchise fee check and sign development agreement.
And, and that is the quickest way to des Spiral a franchise is you let any and everyone in, you know, you don’t do your homework from the franchisor side of making sure that you know, you’ve got some nice gates up to keep people that should not be in the brand out. And then the second part of that, you know, when you’re actually having these conversations with franchisors is how do you hold existing licensees accountable? I’ve seen it all the time, you know, even in Zaxby’s, but that existing franchisees have not been held accountable to the brand standards and it hurts the brand. It really does. And you know, I mean that’s a change that Zaxby’s a really positive change that Zaxby’s has made in the past couple years is, you know, they’ve gotten super-duper strict on holding existing licensees accountable. And you know, the reality is you know, like people change, I mean people that used to be really high performing licensees, you know, life changes, people changes, motivations change you know, they kind of slip and slip and slip and you know, now they look up one day and they’ve got really bad stores and the opposite happens too, you know, people with low performing stores and kind of figure it out along the way and they can turn into really high performers.
But if your franchise order does not have good answers to how do we hold existing licensees accountable, that is a major, major red flag to me.
The Wolf of Franchises:
It’s funny you say that cuz as you’re talking about it, I tend to agree it’s something you have to be weary of if, if they’re selling tons of licenses, especially if it’s a relatively new brand and honestly it happens like every single year there’s a few brands that are selling units left and right and it almost becomes this wave of FOMO within the franchise world where you know, like there’ll be almost like these whole hype cycles that are totally in a bubble, right? It’s separate from the rest. It has nothing to do with the stock market or anything else in the economy. But like frozen yogurt went through one cupcakes, like went through one boutique fitness Ossey may be in the middle of one in my opinion. But like as you’re saying it, the thing that’s popping into my head, which this is like the jury is still out but it’s a bit of a narrative violation at the moment is crumble cookies because they only have one store.
They opened it in 2017, that was the only corporate store to this date. And right now, you know, in 2022 they have 576 stores open and as of last year’s financials, cause that’s the most recent we have, I mean they were still crushing it like 1.6 a u 1.6 million that is averaging of volume and their net income was about 357 k and that’s off like a 500 to 600 K build out. I think so. And you know obviously as we talked about probably some extra cash till you hit profitability but you know, just based on those numbers and how quickly they’ve grown, a lot of people are expecting to see a major dip coming. But so far, I mean you know, last year’s numbers were based on over a hundred existing locations that operated the entire year so far. It’s like hey they seem to be able to somehow scaling and supporting all these new franchisees. But again, normally right, you do see the opposite where that they sell too fast and they can’t handle it.
Ben Little:
Yeah and it is funny cuz it all kind of goes in cycles, you know, I mean I would say chicken QSR has probably been the highest overall segment the past two to three years. You know, just cause obviously everyone sees Chick-fil-A success. I think raising Cane’s AUVs up to like 3.6 Zaxby’s has done really well. There’s a lot of other smaller concepts that have done pretty well and you know, the, the unit economics have always just made sense but you know, just like everything else kind of goes in cycles and I think that’s a big reason why you’ve seen chicken prices spike the last six months or so is a lot of things put together. But that certainly contributed to it as you know, a lot of, a lot more competition came online and even for Zaxby’s we’ve had to dig in and defend our turf and so far we’ve been able to do it. But you know, it’s kind of the same thing. I worry about some of these other kinds of up-and-coming chicken QSRs that have just sold a million license agreements and I just, I have no idea how they’re going to fulfill them, but time will tell, Time will tell. Yeah,
The Wolf of Franchises:
<Laugh>, it’s interesting cuz a lot of the ones that are the new ones, like their corporate stores have looked good. There’s a few on my in in my mind like Hot Chicken Kitchen is one of them and there’s a few others. But I agree at the end of the day, I mean I don’t think the market can support like, you know, I mean there’s probably at least another dozen chicken brands out there competing at least. But like the market can’t support 12 more national chicken franchises. It’s just, just not, we can’t eat enough chicken man <laugh>, I think it’s not going to happen. That’s right. So yeah,
Ben Little:
But
The Wolf of Franchises:
Going back to your stores man, like, I mean you have the number one store out of a system of over 900 locations and, and you’re breed corporate, which is also just impressive. So like what do you think, why is that location the best, especially considering right Saxby is a Georgia brand, usually the top performing store is kind of pretty close to that epicenter of where it started. What do you think is going on?
Ben Little:
So the really funny part is that the store that is now number one in the entire system we bought from a failed licensee, he, he threw in the towel cuz he couldn’t make any money.
The Wolf of Franchises:
Was this the one in 2015 or is it a different
Ben Little:
One? No, this is a different one. It’s a different one. Okay. So, so this one, he was a single unit operator and you know, he was just, he just cannot figure it out. And so five of our stores have been acquisitions with the rest, have either been new builds or you know, we’ve converted other building concepts to his aby. But this was our, our second acquisition and all it took was putting the right operating partner, which I’ll get more to that in a second. But, you know, it just took the, the right leader in that store. I mean the, the location was a plus, it was just run bad and you know, that in and of itself, you know, should tell you how important just being obsessive about operations is and, and you know, kind of like getting back to what we talked about at the very top of the conversation of like not being focused on the money and, and being kind of, I call it being long term greedy.
So, you know, like when you’re, when you’re long term greedy, you invest back into the business, you invest back into your people. When you’re short term greedy, you know, all you’re caring about is like this month or this quarter and, and you know, the more short-term decisions you make, I mean I’m sure Twitter or small business is going to have a connection fit when I say this, but the long-term enterprise value is always way more important than what your EBIDA is month to month, year to year. That’s how, you know, I think that’s kind of the, the ultimate goal for all of us at some point is to have a big liquidity event where someone pays you, you know, big multiple x and you know, then you, you know, get to do whatever the hell you want for the rest of your time or go start a new business or, you know, start with another franchise concept or whatever the hell you want to do.
But you like the, the really simple math explanation is you know, say we have operator, a capitalist with a short-term view, you know, that wants to squeeze every little red sent out of the business and doesn’t invest back into it. But let’s say he grows sales 5% a year for 10 years and let’s say he opens up doing $50,000 a week in sales, so I don’t have to do the math here by year 10, that would be 80, $81,000 give or take if he’s growing his sales every year by 5%. Now, now let’s take operator b capitalist with a long term view. So he’s putting every dollar back into the business. He’s not taking all these withdrawals and you know, taking the wife and kids on vacation every other month and you know, buying new cars and all this kind of stuff. You know, he’s dumping all of his EBI to back into the business and continuing to grow it.
So let’s say same 10 years, he grows it by 10%. So, over the course of 10 years, that’s going to put him at about 130,000 a week. So that’s 80,000 verse 130,000 a week. And all we did was grow the sales 5% verse 10% every year. Yeah. And then when you get to year 12, I think it’s year 12, then operator B, the long-term view capitalist is going to have doubled the sales of operator A. That is, I retweeted a, a thread about this, I think it was yesterday, but I mean like that is literally the secret to my group success as we just in reinvest, reinvest, reinvest back into the business. And most small business owners and franchisees do not. I mean that that is literally the whole secret.
The Wolf of Franchises:
Well it it’s fascinating you say that and I think too it’s important to note, right? Like, well it’s a double a two x in revenue, which is amazing. The multiple of the EBITDA off is definitely going to be way higher, right? Cause like especially with these brick and mortar concepts, you get to a point where once you surpass your fixed cost for the year, that every dollar as a lot higher margin. So there’s those hurdles that you kind of learn that you have to get over every year as a business owner. But I’ll say one thing cuz if there’s you know, some small business Twitter people listening here, they might have taken offense to what you said. I would say that, you know, the leaders, the people who have decent followings who are like really trying to just share everything they know, a lot of them are aligned with you, I would say. But again, those are the people who are having success in business already and are kind of, you know, sharing their honest learnings. You know, I really do think it’s a pretty amazing community on Twitter. But
Ben Little:
Well, and, and to plug your newsletter from yesterday, the day before, you know, like Mr. Bees is a literally perfect example of this. You know, he’s making whatever it was like 54 million a year off Twitter ad revenue, but he’s spending three to 4 million every month to produce new contents. Like he’s, he’s spending like two thirds of all of his income every year right. Back into his business just because, you know, his why is he wants to be the best. He wants to be the best creator.
The Wolf of Franchises:
Yeah. He’s obsessed.
Ben Little:
And, and so, you know, like he is a perfect example of long term greedy.
The Wolf of Franchises:
Now you’re right man. Yeah. There’s a, there’s a quote, I forget who it was. Someone’s talk, someone who interviewed Mr. Be who was trying to explain like his mentality to someone else on a podcast. And the way he thinks is there’s people who want to do well in business and eventually once they have the money, they want to go buy a car. Mr. Beast wants to buy the car dealership <laugh>. That’s his mentality, which is, I remember hearing it, I was like, whoa. Like that’s, that’s serious long-term thinking. And also just the scale of what he thinks is possible is really impressive. So and yeah, I mean that kid’s on another planet Yeah. Just another level with what he’s doing. But I want to ask you like for somebody who’s maybe hearing this, it, it might sound just too hard to execute, meaning like, I think logically it makes sense, right?
Dump your EBITA, you know, your profit, reinvest it back in the business, really try to max out the enterprise value. But like how do you physically live, especially if you have a family or something like that, right? Like is the wisdom you’re going to have to have a good cash on hand before you even start this journey? Like cuz how are you paying your bills in the meantime and, and you know, trying to live somewhat of a, have a quality of life, have some fun, right? You know, when you can you know, like what’s your thought process on
Ben Little:
That? Yeah, and that’s a great question. And so the number one reason why people fail in both trading and in franchising and small business, it’s the same reason under capitalization. That is the number one reason why people failed. That’s the reason we were able to buy out this licensee that sold us the now number one unit in the system because he just ran out of money. So if he could have just held on probably a little more longer despite not great operations, he could have become cash flow positive and you know, now he’d be laughing all the way to the bank. But it’s funny that it, it just works like that. I mean I’ve seen it in Zach’s visa ton, I’ve seen it in lots of other concepts over the years of, you know, people, they generally go in with some buffer, but it’s almost never enough.
And you know, when you got to really start pinching pennies, you’re going to stop investing back into the business and that’s when your transactions stop growing and that’s when your sales start going down and that’s when you enter the death spiral. I would say, you know, if your franchisor is saying you need just say a million dollars for example, you know, to, to build the location and, and you know, buy the equipment, you know, all that stuff, I would budget twice that I would say you need double what they’re telling you. You need just to have extra, extra buffer. And especially, you know, when you’re going to the bank or when you’re doing private equity or raising money from family or friends or, or however you’re financing, I would budget double what you think you need just because it, it happens all the time. Cause it, you know, and kind of getting back to, you know, the, the spouse and family part of it. If your wife sees you going to work for two straight years and you know, working 80-hour weeks and you literally have nothing to show for it after two years, I mean at some point the plug is going to get pulled.
The Wolf of Franchises:
Yeah. The talk is going to happen.
Ben Little:
Yeah. The talk is coming, the talk is coming and the plug is going to get pulled and that’s when people like my group come in and take it off your hands for you. And then, and you had just, you had almost gotten it cash flow positive. So you’ve already done all the hard work and now we get to come in, take it off your hands and you know, it’s off to the races from there.
The Wolf of Franchises:
I agree with you. Like if you go back to the Massage Envy franchisees I recently spoke to, even though their stores did great and within, within nine months they were cashflow positive. Like they said, they’re like, dude, just, you got to budget for way more than the franchises are outlining in the investment. So yeah, and I think the, the blunt reality for folks is if you can’t get a line of credit, if you can’t finance it, if you can’t get investors and you don’t have, I mean the reality is Zach speeds, if you’re out there and you’re looking at some of these big ticket franchises you know, like that are well north of 500 grand to get open. I mean you just got to be realistic about where you’re at. And if, if you have the budget for maybe a smaller franchise like a service, a home services franchise and you know, you can use these things as stepping stones, generate cash flow, build your cash reserve.
But I’m with you Ben, man, if you can’t, right, if you don’t have enough capital, you definitely cannot be going into these operations cash light because if things don’t turn out, you know, go in the home run scenario, which a lot of franchises, I’m not saying all of them, but there are many brands out there that they subtly they have mastered their sales process down, they subtly get you to think and look at only the top performers in their system. And that’s what people expect. But you got to think about what does the, the median performance look like as you stated earlier. So, and I got to ask just so people like just to drive it home, I mean, so do you know like what happens to that person who you bought it off of, right? They sunk every penny and they’re personally bankrupt effectively. No,
Ben Little:
Most of the time. Yes. Yeah, which is really sad. And you know, that’s kind of another warning too is you know, most franchisors and you sign your license agreement, whether it’s, you know, 10, 20 years, whatever the term is, when you sign that license agreement, I would say the vast majority of them, you have to guarantee that royalty stream over x amount of years if you have to close the business before the end of your license agreement. So, like that’s like a really big X factor of like the business already isn’t working, you’re already losing your butt on the lease probably cuz you probably didn’t buy cuz you probably didn’t have the cash. So you’re on the hook for that now you’re on the hook for X number years of royalty, which could be hundreds of thousands of dollars. You know, you’re on the hook with your vendors, you’re on the hook with your employees. When it goes bad like that, I mean it’s, it’s usually really, really bad. And I promise <laugh>, before this ever, I’m going to retalk everyone back into why <laugh> they should go into franchising. Cause I, you know, again, I’m trying to build the steelman argument for the audience here.
The Wolf of Franchises:
Well that it’s really important. I mean, and I, there’s a name for it, I forget the clause. But yeah, just, I mean, for folks who, who maybe want to hear that again, it’s effectively, let’s say most franchise agreements are 10 years. The, the bigger food ones seem to be 20 years, so maybe Zaxby’s is 20, but let’s say you just by year five, you’re, you’re hemorrhaging cash and you want to get out and you shut down, like yeah, you still have the lease that you have to deal with cuz that’s usually longer than five years. And then on top of that, a franchise, if they have this clause, which I, I’m going to find it again cuz I, I used to represent a brand that was thinking about putting it in there and we said, no, it’s, it’s, you’re far too new to even be commanding something like that.
Like we have to prove it out. But yeah, basically there’s brands out there that if you close early before your agreement, they can legally enforce the collection of those royalties based on the average of the system up until that point. Cuz they’re considering it lost revenue on their behalf if you shut down when the average franchisees, you know, doing x in revenue, which translates to, I don’t know, 40, 50, 60 k in royalties or whatever the number is. So yeah, it’s pretty scary. And I, I mean, I don’t think, think anyone ever wants to be in that situation where that’s even a possibility. I do know sometimes that’s in there more as a motivating factor so that franchisees don’t just, you know, sit on their hands and ruin the brand and tarnish the brand. And a lot of times, or I’m not going to say a lot of times there’s too many brands out there to really know, but I do know some brands, they don’t actually go after people because at that point most people usually don’t have the money anyway, which is also equally as sad. But yeah, definitely that’s why you hire a franchise attorney folks, so they can point these things out to you.
Ben Little:
Oh my goodness. Yeah. and I know we’re getting long winded, but there’s for sure two other things I want to make sure we discuss. Yeah. One, I would say real estate is really needs to be the ultimate goal for any small business owner slash franchisee. Again, exceptions to every rule. I know some concepts, you know, are almost always going to have to be in like a strip mall or like some funky space or something like that, or like super urban where it’s really impossible. But by and large real estate should be the ultimate goal. And the reasons why is how I explained earlier, you know, we put cash in for store one and then we never had to put new cash in again because we would just borrow from the built up equity from that store. And then yeah, when store two got a little more equity, now we could borrow against store one and store two and so on and so forth.
You know, the tax benefits are unbelievable for real estate owners. You know, I’m not a CPA or a tax attorney, but I could just tell you do your own homework. It is highly, highly advantageous. It provides flexibility that you otherwise wouldn’t have. So, you know, like let’s say you’ve got a handful of stores and you, you own the land on a couple of them, but your next door neighbor who’s got, you know, 10 units for sale that, that you may not have the cash for right this minute, but you want to try and acquire those now if you own the land and, and your own businesses, it provides you the flexibility of, you know, like I can sell my land and keep the businesses and, and you know, sell to an institutional investor at X cap rate and raise a bunch of cash that way I can sell one business to get, you know, X times EBITDA to go acquire these other ones, but keep the land.
So now I just, you know, I, I get nice checks in the mailbox every month and don’t even have to worry about operations anymore. And then one day, like I said, when, when we, hopefully y’all get that big liquidity event, it just, it provides you so much more flexibility. You’re way more attractive to potential buyers if you own the land, the building and the business altogether. We get offers brought to us all the time for Zaxby’s. And you know, the first thing we say if they don’t own the land is, let me see the lease and if the lease sucks, then we’re out. That’s as far as the process goes, that that’s all we need to see. And so, you know, every lease is going to have big escalations. You know, heaven forbid your leases were tied to CPI the last two years is, you know, oof.
Oh man. It’s just brutal. When you own the land, again, time becomes your friend. When you don’t own the land in the building, time is generally working against you. You know, you have to keep growing transactions, you have to keep growing sales, otherwise you’re floating dead in the water. I know a lot of times that’s a really big expense. I get that part. I’m not saying you have to go out and do it for location one, but you know, if, if you get location one up and running and you get it finally cash flow positive and everything’s looking good, I would highly, highly encourage you to try to acquire the land with location number two. Just, just because of all, all the reasons I mentioned. And then for, you know, existing franchisees that are listening to this show. I would say my best piece of advice would be to get involved with your fellow franchisees.
You know, I’ve heard Brian mentioned this on his episode, I think Jamie talked about it for a little bit. Yep. But you know, it has probably 10 Xed my development as a Zaxby’s operator just from getting involved in serving on subcommittees and serving on advisory councils and, and all these things is, you know, a, you get to surround yourself with highly engaged like-minded entrepreneurs that are all fighting the exact same battles that you’re fighting. B you get to learn from different point of views and different approaches to the same problems that you’re having by what is always going to be a time commitment. I promise you; you’re going to 10 x you’re going to get back 10 x what you give, you know, get involved in district meetings, get involved at yearly conferences, you know, make a point to meet everyone and say hello and get to know them.
There’s just so many little ancillary benefits in there. And you know, I know seller financing is a very popular topic on you. Exactly. Guess how you find those deals? Yeah. Yep. You get to know the other franchisees and you know; I see it all the time. You know, these people just kind of operate on their own little island, you know, never intermingle. Like I never even knew they existed if their name wasn’t on the FDD. But telling you that that’s the wrong way to go about it. I mean, I cannot encourage you enough to get involved with your fellow franchisees and, and you, this, this is another red flag I would say when you’re doing your due diligence is if your franchise award does not have advisory councils and the franchisees do not have a real seat at the table when you’re making big decisions and, and going through, you know, how to grow the business, how to improve processes or whatever it is, you know, if franchisees don’t have a seat at the table, then that is like super, super red flag right there for sure.
So, yeah, you know, I, again, I cannot encourage that part enough. And to go back to the real estate part, I’m sorry, I promise this is the last thing I’m going to force this to talk about here. No, it’s, it’s good. It’s good man. Location is the most important thing that, the most important decision you have to make when you are setting up your franchise. It’s obviously super, super critical for anything food and beverage, but it, it’s, it’s the same, you know, maybe like business to business or home services is not quite as important, but everything else with the physical brick and mortar location, it is literally the most important thing, the most important decision you will make. I think a good example of this is, you know, like there’s a lot of dying businesses and franchises out there currently, but the ones that you still see hanging on <laugh> and hanging on for dear life are the ones that are in a plus locations.
You know, like not to pick on some of these. But you know, like there’s still Quizno’s around, you know, there’s still Applebee’s around, there’s still all of these kind of franchises that haven’t grown net new units in, you know, five plus years, but they’re hanging around because the location was just that good. And you know, the literally, if you take nothing else away from this episode that the single best piece of advice I ever got from a mentor was you can pay for a location once or you can pay for it every single day. That is the best advice I ever, ever received from anyone. And, and what I mean by that is you can, you know, if you find a good site, but it’s just a little more than what you want to pay or you think it’s overpriced or whatever, but you’ve done your homework and you’ve done your due diligence and you know it’s an a plus site, pull the damn trigger because when you go to that B minus C plus site right down the road and your sales are 25% lower year over year because of that, you know, that’s when that <laugh> location is literally costing you money every single day.
Yeah.
The Wolf of Franchises:
That’s a fire line man. Not going to lie. Never heard that before.
Ben Little:
Yeah, I love it. I say it all the time and it’s so true.
The Wolf of Franchises:
Well I think what you’re getting at right, is just that where you’re located, there’s a ceiling that you’re putting on your revenue and if you pick the wrong one, like you said,
Ben Little:
Gets back to that limiting factor conversation.
The Wolf of Franchises:
Yeah, exactly man. Yeah. Wow. Yeah, so we’ve come full circle there, but
Ben Little:
I love that man.
The Wolf of Franchises:
This is great knowledge you’re sharing and especially just on just my two sense in the real estate, I, I think a few things I’ve learned, cuz again, I come from the northeast, so, and all the owners I’ve spoken to out here, it’s kind of like you said, where we’re pretty close to since tier one cities where whether it’s Manhattan or Philadelphia, Boston, whatever, it’s really tough to buy real estate there and in some cases, maybe some people it feels like it’s way too out of their league to even be operating in those expensive markets with minimal experience. But just two things I’ve learned and you know, again, even in the suburbs of those markets with the strip malls, there’s usually commercial real estate developers that own those things. So the opportunity doesn’t necessarily always even, it’s not even there, but a previous guest her name was Dr.
Grace in the Florida market, she has gotten opportunities to buy real estate a just by being friendly and b she just asks for landlord. So I think those are just two things. Just always be friendly, try to make everyone an ally. You never know what’s going to come your way. Maybe that’s a little philosophy juju on life or whatever, but like you just see that where people who treat others nicely and when it comes time where they want to ask a favor, sometimes they get lucky. So kind of increase for surface area for luck. But then also I just discovered, this is the second thing they reached out to me via Twitter. It’s this very interesting startup. They raised, you know, 30, 40 million from some big time investors. It’s called with co real estate, W I T H C O real estate. And what they do is they have a lease to own model for small business owners and effectively you lease it for the first five years and then they put your lease payments over the five years into the down payment for the mortgage on the business.
And it’s founded by an immigrant from Asia whose parents own two supermarkets, but the landlord recalled, you know, the property and they wanted to do something else with it. And the parent, his parents’ life’s work gone in the blink of an eye effectively. So it’s a very inspirational story, super interesting company. But yeah, just for anyone listening, if you’re trying to own real estate, you know, go to their website, reach out to them, I mean, they’re actively looking for small business owners and franchise owners are within their demographic, right? Cause at the end of the day, that’s what you are is a small business owner. So wanted to share that.
Ben Little:
Yeah. That that’s, that’s really great advice. That’s awesome. Yeah. And yeah, you’d be amazed. Generally we have had some a-hole landlords, but generally most of them are more than willing to work with you. Most of them want you to be successful. I would always add one caveat as if you are leasing, make sure that you have a first rider refusal on that property if that landlord ever goes to sell. But you know, most time all you got to do is ask and you would be amazed what happens. So it’s, yeah, that’s great advice. And, and I guess to come circle back around one more time of you know, why I think my group has outside success would be my advice to, you know, if you get to multi-unit level and even I would say single unit level, I cannot un recommend enough to not do the traditional area manager, district manager, general manager, assistant manager
The Wolf of Franchises:
Model. Interesting. So you mean like just cuz so for like most of my guests who own, whether it’s five locations or Jamie Weeks, who owns like 140 theories that I’m oversimplifying it a bit, but the typical structure just seems to be on a store level, there’s a manager and then it depends on the, you know, economics of the business and how much cash flow is coming off on a per unit basis. But generally between three to five stores they end up hiring like an area manager where that area manager then manages the group of store managers and that becomes kind of the corporate hierarchy as it goes. Right? It just kind of, once you figure out how many clusters one area manager can serve, that’s pretty much the main new hire that goes in there from like in a leadership perspective. So you’re saying don’t do that.
Ben Little:
That’s exactly what I’m saying. <Laugh> and again, a nice small business and franchising Twitters ago probably blow up on me, but I, I cannot recommend against it enough. I firmly believe that my group’s success is due to our owner operator model. So in every store we have an operating partner and they get paid a salary plus 25% of the net profits for
The Wolf of Franchises:
Each store. Interesting. Okay.
Ben Little:
I could tell you I have taught myself in circles for hours, days and weeks and months and years on end of how to incentivize other human beings and how to make them think like an owner, like the franchisee. And the only way I have ever found to successfully do it is to give them the exact same skin in the game that we
The Wolf of Franchises:
Got. That’s fascinating. I mean, I, I do know like a Jamie Weeks, he, he gives, you know, he’s got some leadership employees with equity, but that’s fast. I’ve just never heard it done on a store level. Honestly, it reminds me, which they’re not a franchise, but In and Out Burger I is famous for paying their, they have a manager at each in and out and those folks get paid really well, like upwards of $250,000 salary. So I, I don’t think they’re getting any equity in and out as a whole, but still fascinating and maybe they probably have performance bonuses based on how their store does. So it kind of sounds similar to that, honestly. But yeah, I mean I could see why, right? If you’re getting 25% of the profit from that store, I mean yeah, you’re going to make sure your employees are online and you’re providing kick ass service and I mean, it’s incredible how quickly you become a team player once you have some skin in the game. <Laugh>.
Ben Little:
That’s right. I’m telling you. I mean there’s all these other ancillary benefits of, you know, you have, you know, the incentive to get involved with the community and, and go out and, you know, really advertised for the business. And you know, like when it’s, it kind of goes back to that wide and almost that mental aspect of like, you know, it’s not Ben or someone else’s store, it’s my store, you know, and when it’s just your store, you’re going to treat it differently than if it’s Ben store and you’re going to treat the guests differently and you’re going to go above and beyond and do things that you would not normally do, and you’re going watch the food cost a little closer, you’re going to watch the labor percentage a little more closer. You’re, you’re going to double check that towel and apron order twice instead of once. And you know, you do all of these little things because it is now your money.
You know, it’s not just Ben’s money. It’s your money too. And, and, you know, the only way these guys keep getting pay raises is you got to increase the transactions and you got to increase the sales. And the only way to do that is you got to take care of the guests. And so again, it’s just the lining, the incentives and I’m sure people are probably screaming at their phone or whatever that they’re listening to right now because they, they think I would be crazy to give up that big a percentage of the profits. But I mean, the, the business case has been established. I mean this is what Chick-Fil-A does. I mean, it’s, it’s different, but it’s the same <laugh> and they kick everyone’s ass. Yeah. Raising canes, same thing that those are the only two companies that beat us on a u and they have the identical model.
The business case is done, you know, in and out does something similar that the business case has been established. Yeah. You know, I understand like if, if you sell like a big chunk yourself to private equity and like you just can’t give it up, you know, that’s one thing. But you know, like I have no overhead. We hired a director of HR last year that was the first above store person we’ve ever hired. So I have none of those other line items. So, you know, you no GNA call that part of the 25%. Yeah. And, and the results speak for themselves are sales and transactions of outpaced the Z system for a decade. And, and it’s not by accident. And I truly believe that this is the reason why, because we’ve provided the same skin in the game for the people that, you know, are in the store day to day where the rubber meets the road taking care of the guest. Like I said, they got the same incentives that we have.
The Wolf of Franchises:
It’s fascinating, man. Yeah, I mean, well this, this is going to be a longer podcast episode, but I have been letting it go cause you’re saying on some certain levels a little bit contrarian thing, but I think it’s super interesting the way you run these businesses and I mean, you can’t argue with the results, right? At the end of the day. So I think everyone who’s listening to this, especially in the food space you know, there’s a lot of good food for thought here
Ben Little:
And if you want to scale too, I mean, it just makes it so much easier to scale. Cause it’s not like what, you know, what does this area manager do? What’s his relationship to this gm? And you’ve got this fricking cobble web spider web thing going on. It’s just like, this is your store, you’re the owner operator of it, you’re in control, go to town. Yeah. And so all we ever have to do is keep growing new owner operators, which, you know, makes it easier for us to keep developing peoples, you know, like when we have high performing AGMs and GMs, you know, they’re generally next in line to be the next operating partner. And so our recruitment pipeline stays stronger than almost any other franchise group in Zaxby’s because of that. Because they all know, you know, hey, if I do a really good, good job in these positions and I kind of build a working resume, so to speak, we have now two about to be three operating partners in our group that started with us as cooks and cashiers, and now they have their own restaurants.
And you know, I think that’s always the dream in this business is, is, you know, we don’t ask them to put any money up. We pay for everything. They, they have no downside skin in the game, only upside. And for most of these people, you know, they would never ever have this opportunity if they were to go somewhere else. So it’s, you know, like that’s one of my favorite days in Zaxby’s is the day, you know, I get to go up and shake someone’s hand and say, All right, you’re getting the call. Time to step up to the major leagues.
The Wolf of Franchises:
That’s a good version of the call.
Ben Little:
Exactly. Yes, yes, that’s right. Yeah. And yeah, just to see the smile on their face and you know, just to know that they’re hard work is paid off and, and you know, they get to go have their own restaurant now and, and you know, we have multi store operators as well, so, you know, it doesn’t just have to stop at one. So I just wanted to put that out into the universe that I will go to my grave believing that that is the proper way to set these things up.
The Wolf of Franchises:
It’s fascinating man. And I’m going to, you know, we’ll, we’ll see when this episode drops, I’ll, I’ll be sure obviously to, to promote it on Twitter and I’ll tag a few of our multiunit food operators out there to see what they think. So I’m curious, but I mean, again,
Ben Little:
Yeah, they’re all going to roll their eyes, <laugh>. Well,
The Wolf of Franchises:
Look this, this has been an awesome conversation. I’m sure at a minimum <laugh> if folks maybe don’t think they learn something, they’ll, they’ll definitely have thought through some things. But yeah, it’s just great man. And yeah, I guess just before we go here, so where, where, you know, if you want people, if you know, if they want to follow along online, you know, is there a good spot-on Twitter, LinkedIn, et cetera, where they can watch your journey?
Ben Little:
Yeah, most likely on Twitter at True Mav T r u m a V, it’s, I know it’s, it’s an old trading username, but, but that’s, you know, that, that was my old stuff. But I made the commitment to start tweeting again. Cause I, I used to tweet, you know, like 50 times a day and then I, I kind of stopped somewhere in there, but I, I made the commitment to start tweeting again. So, so that way you’re not following a blank page. I do work with a golf podcast, but enough, the Tour Junkies is the name of the podcast. It’s mainly golf betting dfs. We do player interviews, caddies coaches, and, you know, just have a good time. It’s like my, basically my only hobby is golf, so kind of fits right in there. And I think that’s pretty much it.
You know, I’d say to, I guess for a Zaxby’s plug, you know, they did just announce a development incentive to where they’re going to stairstep the royalties to where year one is 2%, year two is 4%, year three is 6%, which 6% is what it’s always been. And they, they’ve never done this before. And they’re waving the franchise fee, which is $35,000. So, Well, if you are interested in Z and again, I, I make nothing if 81 signs up, just to be crystal clear, I have no incentive to plug it, you know, I don’t get anything, but I believe in the brand and my fellow licensees and it’s, it’s been a great business for us. But definitely just throw that out there as well. So but yeah, I mean, just, just reach out to me on Twitter. That’s, that’s probably going to be the easiest place to find me.
The Wolf of Franchises:
Sweet. Well yeah love it. And yeah, we, we will plug his podcast if there’s any golf fans out there. And then the Twitter handle will also be in the show notes, so you guys can go follow along. And yeah. Thanks again, Ben. This was a lot of fun.
Ben Little:
Yes, sir, my pleasure.
The Wolf of Franchises:
Thanks for listening to Franchise Empires. We’re coming to you soon with actionable insights to take the next step on your franchise journey. So make sure to subscribe on Apple, Spotify, Google, or wherever you listen.