S2 E15: Twitter Spaces Special: Success Strategies That Work Across ALL Franchise Models
How do you grow your franchise business profitably? In this Twitter Spaces, 3 multi-unit franchise owners share the secrets to their success.
The Wolf is joined by Zac Pennington, owner of 8 Anytime Fitness locations, Brian Beers, owner of 30 Midas units, and Lucas Mitchell, owner of 13 Five Guys locations. All offer different services or products, but all follow the same growth strategies.
You’ll hear insider tips on choosing the right territories, building versus buying a store, and how to scale quickly.
The panel then gets into questions thrown to them from listeners, including the one thing they wish they’d known before getting into franchising.
If you’ve enjoyed listening to Franchise Empires, I’d be so grateful if you could drop me a 5-star review on Rate My Podcast. Thank you so much!
Follow Zac:
LinkedIn: linkedin.com/in/zacari-pennington
Twitter: https://twitter.com/zacpennington
Follow Brian:
LinkedIn: linkedin.com/in/brian-t-beers
Twitter: https://twitter.com/brianbeers
Follow Lucas:
LinkedIn: linkedin.com/in/lmitchellhq
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Stay up-to-date on all things Franchise Empires by following The Wolf on Twitter: https://twitter.com/franchisewolf
The Wolf of Franchises:
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’s episode is a special one. We recorded a conversation with three multi-unit franchise owners. One of them owns 13 Five Guys. The other owns 30 Minuses and the other owns seven Anytime Fitness locations. It’s a back and forth conversation that we did on Twitter, and we even take questions from the audience. We’ve included the entire recording so you can listen to it in case you missed it on Twitter. Hope you enjoy it.
Narrator:
The 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 Work Week. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. The Wolf Work Week and Wolf Pack Franchising may maintain positions in the franchises discussed on this podcast.
The Wolf of Franchises:
So yeah, everyone who’s tuned right now, thanks a lot for joining. We have three multi-unit franchise owners ranging from eight locations to as high as 30. These guys have all, for the most part, gotten to this point by buying out existing locations, and there’s some strategies and commonalities that they’re all using to really get to this point. And leveraging the franchise system’s been a big part of it. So it’s a little different than what I’d call traditional entrepreneurship through acquisition strategy where you acquire local small businesses. And that’s it, right? They’re just a local smb, it’s not a franchise. So there, there’s some differences to this approach and I want to have, you know, the pros on to kind of teach everyone about it. So yeah I, I’ll do a quick, quick intro of each guest and then, then I’ll pass the mic to them to kind of go deeper on their background.
But a, as a start, so Zach Pennington owns eight Anytime Fitness locations is based out of Iowa. Brian Beers based in Pennsylvania owns 30 minus franchises, the so minus the auto repair shop. And then Lucas Mitchell, who owns 13 to five guys locations and is based out of Phoenix. So we got the fitness industry, we got quick service, and we have the auto industry. So three separate industries, but the strategy works regardless of that, which is also why I’m all, I’m pretty happy that these guys were able to join. So yeah, I think let’s let’s start with maybe Brian and then we can move on to Lucas and Zach after that. But Brian, do you wanna maybe just kind of share when you bought your first franchise, so we know how long you’ve been in the game, and just kind of the quick and dirty overview of your ETA strategy to what you know, where you’ve gotten today.
Brian Beers:
Awesome. Cool. Yep. yeah, so actually my family’s been in the franchising business since 1976. My dad started when he was 22 years old with his dad and bought their first location a might a shop. And he had grown it to six locations with, with his brother-in-law, my uncle through opening new ones and acquiring. I joined in 2010. We had six locations and, you know, learned the business. And after six years my brother and I, who had joined then kinda went out on our own and said, Hey, we’re gonna do this thing. And we started buying up you know, one here, two there, three there. And then in the last, I don’t know, 16 months, we went from 12 locations to now 30 with some larger bites of bites of franchises.
So yeah, our primary strategy is, is buying existing ones. You know, 28 of the 30 have been acquired. We’ve, we’ve opened two new ones. And a lot of it is there’s guys who wanna retire and, you know, once you’re in the system and you can be the easy button to take them off their hands cuz their kids don’t want ’em cuz they’d already be running with they did. You can, you can scale pretty quickly as long as you can handle it, you know, from the infrastructure side. So that’s my 32nd intro.
The Wolf of Franchises:
Sweet. Okay. Yeah, thanks. And, and we’ll definitely dive into, you know, really how how you especially went from 12 to 30 in 16 months. That’s pretty ridiculous. Luke, if you wanna give your quick five guys story.
Lucas Mitchell:
Yeah, sure. So I’ve actually been a five guys operator in the system since like 20 10, 20 11. Bought my first five restaurants in a single acquisition in 2017. And then since then have bought eight more. We’re developing our first location that’ll open next year. And we have the rights to build several more. And I got my start, I guess my, my ETA strategy is the prime example of not having a strategy or a thesis. <Laugh>, I’m, I’m an operator first and I’ve always been entrepreneurial and I was just like, Hey, I think there’s a way to do this. I had some friends in the real estate game and I was watching what they were doing. I was dabbling in real estate a little bit and I was like, I think there’s a way to leverage this and do this in franchising. You know, raising private capital, combining it with debt and buying multiple locations.
And I would say like in the QSR space, those are, you know, five to eight at the time are pretty small deals compared to, you know, 50 and hundred unit transactions. Some of the larger players do. But there’s a lot of opportunity there for the same reason Brian was saying, you know, owner’s retiring, I don’t wanna give it up to their kids. There’s also, you know, when, when there’s capital expenditures when you come to the end of franchise terms a lot of times. And so a lot of times owners won’t wanna reinvest capital at that point. They’d rather just sell. So that’s been another part of our, our being formed as we go. Strategy
The Wolf of Franchises:
<Laugh>. Love it. Awesome. Different elements to your, your journey compared to Brian. So we can key in on that. And just a reminder too for everyone, the setup of this, so around one to one 10 will at least East Coast time, which is where I’m based out of, we’ll open it up for questions. So I’ll be asking Zach, Brian, and Lucas a bunch of questions until that point, but after that we are gonna open it up where you can ask anyone question. So with that Zach, you wanna just give your kind of two minute intro on what you’ve been doing with Anytime Fitness?
Zac Pennington:
Yeah, so we’re a Anytime Fitness franchisee. We’ve similar to to Lucas have kind of found our strategy along the way. We initially started with the idea that we would develop areas bought a bunch of undeveloped territories only ended up building out one of them before we found the route of acquisition. And we take a little bit of a unique approach when it comes to acquiring locations. We look for single operators of underperforming stores and a specific geographic region. We come and into that region, we work with a bunch of individual owners. We work to buy them out. We put them together in sort of a small portfolio of, of locations for that region. And then we, we have a play we run to turn around these stores. And so we have our systems and processes down.
So we, we do that and we we use a little bit of economies of scale in each of those geographic regions, able to hire regional managers and, and kind of fill out the, the staffing structure. Up until about 60 days ago, we had eight stores and we had the opportunity to, to sell off one of our regions. So we sold sold one of our regions off to a private equity firm. And that’s the, that’s the long term goal is to, to take individual store owners, put them together with a package of four to four to 10 locations, and then turn their, turn their performance metrics around help, help to kind of expand the margins. And because we are, we’re buying underperforming stores, we can then turn and flip and sell them for a, for a great return on our investment. So that’s that’s what we do.
The Wolf of Franchises:
Sweet man. Hell yeah. Congrats on the sale. That’s, that’s the real deal, baby. Love to hear. Well I’ll, I’ll stick with you, Zach. Diving a little deeper into your story. So, I mean, obviously the classic right debate, and maybe it’s not even debate anymore, but the whole bi verse build conversation, you know, you built your first right and then that kind of from what, when I heard your story, right, I was like, okay, so you cut your teeth on that first location. Do you think it’s a good strategy if someone is trying to own a franchise to maybe build, to really learn every aspect of the business? And then once you have that understanding, you know, it becomes easier to do what you’re doing, which is turning around underperforming locations. But even just to evaluate and know what to look for when you’re trying to buy, you know, an existing location of the brand you’re already a part of.
Zac Pennington:
Yeah, so we buy underperforming units, so we, we get them at a steep discount as opposed to buying performing units or even developing units. We’re buying them at 25 to 30% of what it would cost to build a brand new store for somebody new coming into a franchise. It’s gonna be tough to work a network of a large brand, a large established brand, work yourself into being able to acquire your first store. We actually acquired our first store <laugh>, but we acquired it about 12 months before we actually started swinging hammers on our first build. But we were, we were only able to come across that acquisition opportunity because we had already purchased the rights to territories to start developing. So it’s kind of a fluky opportunity, but it gave us the opportunity to run quickly with an open store to learn the processes and systems and then build it out.
But I mean, yeah, it’s gonna be cheaper. Now if you wanna buy a performing store, your metrics may be very similar to building out a new unit. However, I would say I’m, I’m always in favor of acquiring a unit if you can do that. There’s so many advantages of that for us. The reason, the reasons are, you know, vast, but one of the things that we liked is, you know, that location, because these things are so location dependent, right? They’re, you’re looking at three to five mile radiuss because that location is already established. I know that there’s members there, I know that there’s customers there. Every time I built a new store or consider building a new store, like I, I mean, I really have to do my due diligence and, and at the end of the day, I mean, it comes down to, okay, is that diligence correct or not? And if it’s not, I’ve overspent and now I’m in a bad location.
The Wolf of Franchises:
Okay. All right. No definitely appreciate that insight. I, I guess moving over to Lucas. So Lucas, I’d love for you to kind of share how you went about, cuz correct me if I’m wrong, I know you, you went from manager to five guys to then owning, you acquired five at once. That’s obviously not a cheap transaction. Most people listening are probably like, That sounds great, but how do I get the money? Do, do you kind of mind just walking people through how you went about being a, you know, you did the mix of raising money and using lenders, so you can you kind of just walk people through what that was like for you?
Lucas Mitchell:
Yeah, so exactly. I was, I was operating at the time. I mean, I guess this kind of starts with what Zach was saying. I had a really strong reputation in the brand already as a multi-unit operator, just under someone else’s ownership structure. So I’d already built up a pretty solid reputation and context in the brand. So when I decided to make the transition to ownership, the first thing I did was talk to people I knew within the brand and, you know, what owners might be interested in selling a market in Arizona. And basically just had an honest conversation with the owner and I said, I’m currently an operator. We were in the same region. So he saw my performance metrics, knew we were running solid numbers, built kinda a relationship with trust with him. And then I just had an honest conversation about, Hey, I don’t have the to buy these but I want to, and I’ll pay you a fair price if you’re willing, work with me on the timeline and so I can figure this out.
And I had some, you know, light contacts in the real estate space and I was working, I had bought a duplex at that point and I was kind of running the, you know, berm method of in real estate. And I had some people in that space that I knew and I had a good idea, I might be able to put together the capital, but I really had no idea if I would, if I would or not. And so I was just honest with him about that. And we agreed on a price. Candidly, for those first five, I probably overpaid, but it’s worked out really well in the essence that I was able to have the time I needed to then go back work my network ended up, you know, through educating myself on how to structure partnership arrangement and raise money. Ended up doing some friends and family money for the first five and we combined it with an SBA loan.
So there was like five, I think there was in the first year there was three or four partners I sold my house. And then we combined that with an SBA seven a loan which was a nightmare by the way to do. But it, it took us probably I think we injected like $700,000 of equity that included operating capital and then the rest was banked debt. And that was about a 3 million purchase. And then we ran the same playbook that Zach was speaking of in Anytime Fitness, but it was a little bit longer trend because there wasn’t a lot of room for expense reduction and, and five guys where we don’t do a lot of marketing and we don’t have a lot of control over how much marketing we do. It’s all about just increasing the operational performance of the restaurants and building revenue growth that way. So in, we’re about, we do 30 to 40% more revenue per location today in Arizona than what we bought ’em damn, almost six years ago. And so then we were able to recapitalize those and pull out more debt and combine it with, which I’m sure Brian’s gonna speak a lot seller financing to buy the next eight without any additional equity injection. And so that’s kind of been our, the way that we’ve, we’ve done it so far. Okay,
The Wolf of Franchises:
Gotcha. And when you were raising the money, right? I remember when we first spoke, I think you mentioned you did have to do a little networking right? At like finance conferences and things like that?
Lucas Mitchell:
Yeah, especially on the lending side. Equity’s harder until you get some scale partners reaching out to me pretty consistently. But I would say especially is
The Wolf of Franchises:
That within five guys,
Lucas Mitchell:
You know, different private equity shops or just individual investors looking for capital. But I would say the majority of the networking at first was, and, and on the second transaction candidly, was to try to find the right lenders for the deals. And yeah, did that by, there’s a conference called Rfdc in Las Vegas that I’ve went to the first, I don’t know, three years, a year before we had him. And then a couple years after that connected with a really good friend of mine now who’s a lender at a shop, and he connected me with other people and yeah, just, you know, talked with people I knew who I worked for that owned five guys and figured out how they were financing their deals and just that, that’s how I did him.
The Wolf of Franchises:
Gotcha. Okay. Yeah. Love it, man. I mean, it’s just a scrappy approach, but, you know, it’s something that a lot of people can do. It’s, it’s a lot of sounds like a lot of hustling, asking questions, so people already in the game and, and doing your research and trying to meet the right people. So
Lucas Mitchell:
I would say a hundred percent that’s, that’s how I am here is it’s just been, I didn’t know a lot about it. I knew how to run restaurants and that was it. And then everything else, I just, I mean, even finding that first deal was just pick up the phone and start calling people and, and figuring it out that way.
The Wolf of Franchises:
Appreciate you sharing that. So alright, Brian, the master of seller financing can you just, I mean, we got a lot of people on this call. Maybe just give a quick summary of what seller financing is and Yeah, we’ll start with that, but I have a few other questions, obviously beyond that.
Brian Beers:
Yeah, I mean the easiest way to explain and to understand it is that instead of having to go to a bank to buy the business, the seller becomes the bank in which, you know, you and him come to an agreement for a purchase price, right? And then you draw up additional documents like a note and, you know, security agreement and you know, things like that. And then you make a down payment to the seller and then you’re gonna make him monthly payments that are gonna be, you know, inclusive of, of principle and interest. And just like paying a bank every month, you’re paying down your loan and you know, kind of some of the benefits on both sides. So you’re like, well why would a seller do that right there, there’s a couple big ones. The biggest one I think is tax reasons. While, you know, if they sell the business outright, they’re gonna have to pay capital gains on, you know, the entire sale if they own or finance it to you over, you know, five years or 10 years or whatever you agree on.
They get to basically spread out that taxable gain over the, the five or 10 years prorata based on how much principle they receive. So there’s some benefits for them up front. A lot of business owners we’re used to cash flow, right? Every month we’re used to like having checks come in or distributions that we can go to spend and you know, kind of continuing the lifestyle where they got money coming in versus getting one lump sum of money and then they have to put it with an investment advisor. And, you know, think if somebody just sold their business and then, you know, the stock market crashes, like, you know, it’s the rollercoaster. It’s on how uneasy it can make someone feel. So they’re, they’re getting additional income, they’re getting interest, like we’re, instead of paying the bank interest, we’re gonna pay the seller interest. So there’s like a lot of reasons, once you understand it and you’re confident and you can talk to the seller about it, you know, they’re gonna talk to their accountant attorney and all this stuff, but like, you know, once they agree to it at a high level, then it you know, you really can create some win-win scenarios.
The Wolf of Franchises:
Yeah. And, and right, just the big win for you as the buyer too, obviously is just like the amount of passion front that you need is so much less if you can get them to agree. Yep. Let’s start with for your process on that, Brian. Let’s just start with like the approach. So I mean, just to, to get to even before the approach too, right? Like for this to work folks, I really do think it’s, you gotta be in the system of a franchise and that way you have some type of reputation and some type of proof that like you’re a good operator within that brand. So Brian’s in minus, you got to the point where he owned multiple locations before he really started honing in on this seller financing strategy. So he had that ability, but, so Brian, when you approach an owner, I mean like, can you just walk us through what that’s like? Like is it, I’m a, I’m a pretty direct person, so, but I imagine you’re not just saying, Hey, I own my, do you want me to sell yours?
Brian Beers:
Yeah, I have to. So to touch on a little bit what you said prior, Yeah. The key is you have to be known, like, and trusted. And within a franchise system, it’s actually very easy to make that happen cuz you can get on committees, right? Where you get on these national calls, you go to conventions, you meet people, you go to regional meetings, like there’s lots of opportunities to get your face out there, you know, for a lot of systems. Send sales reports out with your name on it and location and you can see who the top performers are, you can see who the bottom guys are. And so over the years, yes, you, it’s very easy to become known and liked or known and trusted. And as long as you’re a nice person and you try to help other people by adding value, it’s easy to get liked.
So prerequisite for sure, if you’re brand new, it can be a lot harder. So you’re gonna have to probably be in the system before you get your first deal. But basically how I approach it, I mean, I had a conversation a couple weeks ago with somebody and basically we just lay it all out and just tell ’em this is how we buy it. So it’s two locations, they’re currently in our footprint, you know, we don’t own ’em yet. We tell them that you know, send us your, your p and ls. What we’re gonna do is look at like kind of a rolling 12 month what the, the cash flow to the owner is. You know, some people call it seller discretionary earnings. We, you know, take the p and l we add back all the, the seller expenses to it. Yeah. And we tell ’em it’s, to us it’s worth like two and a half to three times.
So if they’re making a hundred grand, you know, it’s worth, you know, two 50 to 300,000. And so in our mind we kinda get that number right, 2 50, 300, and then we go into three numbers, which is down payment, monthly payment, and number of months. And so I would tell you, you send me to p and l I say, all right, this is what we’re gonna do. You know, we’re gonna pay you $25,000 today and then we’ll pay you, you know, $3,000 a month for the next whatever. We, I dunno, eight 80 months, whatever it is. Yeah. And that 3000 is inclusive of principle and interest. And so you can multiply it out, you know, three times, you know, 80 plus the 25 and that’s like the total amount we would pay, you know, kind of with interest. That’s how we started. We wanna keep it simple in terms of the money that’s leaving our bank account and then the money that they’re receiving, which is down payment, monthly payment in the number of months that’s gonna happen. And then sellers negotiate based off those numbers to say, Well, I want, you know, 25 grand not enough. I want 50 grand, or you know, I want $4,000 a month, or I want, you know, over five years. Like, but then we’re going and we’re just kind of tweaking these numbers back and forth, you know, that, and we, at the end of the day, we’re kind of looking at to say how much can the business make and, you know, can it afford these debt payments? And if it can then, you know, we move forward. Beautiful.
The Wolf of Franchises:
Yeah. All right. So I think big thing there, kind of those three levers that you can pull if you’re trying to get seller financing, right, which is, as Brian said, right, the down payment, the monthly payment, including interest and then the timeframe.
Brian Beers:
That’s right. Yep. I look the total payment and then, and then once we agree on that, then we’ll back into what the interest rates should be. You know, maybe it’s 8% or maybe it’s 3%, or maybe it’s half a percent, right? It can’t be zero. You get some tax issues there, but at the end of the day, the higher the interest rates, the lower the principal amount, but the payment’s gonna be the same. And so, you know, there’s some tax consequences on both sides for us, but most of the time it’s market rate, you know, we’re paying and we just make up a number. It’s literally, we just make it up like 2.3 or 6.9 or you know, whatever. It’s something in that range, but you know, the cash is the same. So,
The Wolf of Franchises:
Yeah. And you know, I know you’re pumping out Twitter threads like crazy. You done a thread that kinda breaks it down like those three levers and
Brian Beers:
Yep. Yeah, I’ve done a few. I could I’ll probably up for another one did a while ago, but
The Wolf of Franchises:
Okay, sweet. Yeah. Well, a after this I can do like a little recap of the spaces and you know, maybe send me that and I’ll just like plug it underneath so anyone listening can check that out.
Brian Beers:
Yeah. And for, for you as the buyer, you know, your goal in an asset based business, so it might, you know, it’s a lot of assets that we’re buying, right? It’s like the lifts and the equipment, all stuff, There’s a lot of tax advantages to be asset heavy. Cause then we can do bonus depreciation and accelerated depreciation and basically we can write off like 80% of the purchase in the first, you know, year and then not pay taxes and it wipes out all of our other income that we’re making from the other ones. And so our goal as a buyer is we want the interest rate to be as low as possible, which in turns makes the principle high, which then we can depreciate as long as, you know, there’s some other things there. But that’s our goal. Yeah, seller, he is the opposite goal where you know, where he wants kinda the interest rate higher and that to be lower cause he’s gonna have to pay, you know, the other side of the taxes on it, right?
Lucas Mitchell:
What’s good for me is bad for him. So,
The Wolf of Franchises:
No, it, that’s, it’s really important for people to know that, like going into the negotiations where the incentive structure is for the person that they’re negotiating against. So, no, it’s, it’s great info. I wanna bring it back to Lucas real quick and like Zach obviously feel free to chime in whenever I mean really all of you can always chime in, but Luke is something you said that I have not found someone, you know, right. I have the podcast and been interviewing a bunch of franchise owners, but you are the only one so far who was a manager before becoming an owner. So yeah, I’m just like curious, do you recommend that almost as a strategy and o obviously right, you can only base on your experience and some people might not be able to financially, depending on their personal situation, if they have family or kids or whatever the case is. Like they can’t necessarily leave their job to be like a manager inside a franchise system if that’s happens to be a pay cut for them at the time. But yeah, just thoughts on like doing that, right? Like if someone says, Hey, I wanna own franchises for this brand, like would you recommend if possible for them to first like, Hey, go work for a franchisee first before you decide to acquire any locations?
Lucas Mitchell:
Yeah, I mean, I think there’s definitely benefits to it. I, I don’t, I think there are other ways to do it now that I’ve been doing this longer. I could definitely think of, of some other ways to do it. But I would say huge benefit for me was, I think there’s two sides to franchise business. One is the actual operations of the franchise, location or service, whatever it is itself. And then the other side of it is the business side of it, which the franchisor doesn’t usually give you, right? Like accounting, human resources, all that kind of stuff that you have to figure out. I didn’t know how to do any of that. I knew how to run restaurants. And so that was my unique advantage that I had. That helped me a lot because I knew I could run the restaurants while I figured out how to do the business side of it.
If you know the business side of it and that’s easy for you to do, I don’t see any reason why you couldn’t also buy locations and then just get in them and get your hands dirty and learn the operation side of the business as you go. But I do think, you know, getting in and getting hands on experience is important and being a successful franchise operator to whatever degree necessary, depending on the complexity of the, of the concept you’re running or, or how many systems and processes are already there by the franchisor, how easy it is to follow them and also the level of management that you have in place. Yeah. the interesting thing too for maybe people that, you know, just kind of going back to I think the theme so far that I’ve heard is it really helps to have a foot in the door inside of the franchise system in order to run an an ETA strategy through franchising.
Another side to that is if you’re interested in franchise brands, you know, figuring out a way to partner with people who are already operating is another really unique strategy that I’m starting to explore now. But if you don’t have the opportunity to get in, so it kind of piggybacks off this theme of I was a manager first and that yes, I was, I had all this operating experience. I’ve now learned the business side. Somebody that knows the business side but doesn’t want to, or can’t operate the concept or whatever the franchise concept they’re trying to do. You know, connecting with other operators who are really successful, what they’re doing and either figuring out a way to learn from them or, or leverage their, their team and their experience and, and what they’ve built to help you get your foot to help you get off the ground is another way to do it. So I guess the short answer to your question is, yes, there’s a huge benefit, but I think it’s really important that you have at least one of the two sides of that equation. Mine just happened to be the actual restaurant management side of it, and I think anyone out there who is actually a franchise manager for somebody else right now has that same unique advantage. And you should, if you’re really interested in buying your own really dig deep on how you can leverage that experience to go into ownership.
The Wolf of Franchises:
Yeah, I think if I had to guess, right, like the business side is probably the part that you definitely wanna have down cuz you’ll have support from the franchisor obviously on the ops, like they’re gonna train you up and it, it of course takes work. But that, that’s probably more doable. I just think and like if I had to pick one right, and that maybe Lucas, if you just wanna quickly confirm, like if you have to pick one, you probably wanna like understand the business side as far as keeping the books in order and everything that goes with that over the op side, right?
Lucas Mitchell:
I would say yes or you need to have somebody on your team that’s really good at that, that you trust. Yeah, I would say the benefit of having the op side down first, especially if you’re gonna run like a, a larger acquisition strategy is I was able to get financing primarily because of all my operating experience had. I just partnered with somebody with money and I just knew the business side of running businesses, but I had no operating experience in the franchise. We would’ve never gotten approved for financing.
The Wolf of Franchises:
Okay.
Lucas Mitchell:
That’s another important, important component.
The Wolf of Franchises:
Right? Amazing. Thanks for sharing that. Yeah, I wouldn’t have I mean, hey, that’s why I had you guys as the, the panelists here, <laugh>. That’s awesome to know. Zachy, you went off mute, you wanna
Zac Pennington:
Yeah, I would, I I would also add to that, I mean Luke is kind of hit on it, but you know, this is also where the strength of the brand you choose comes into play. I mean, I didn’t have any, any experience within the fitness industry before we, you know, bought 10 undeveloped territories. But I, I was assured after visiting with a corporate team at any time, fitness, that I would have great support brands. And just because your promised support, I think you better know what kind of support you’re going to get. I think it’s probably pretty typical, at least from my experience, that most brands will offer you an initial training as part of your fees. But what, what does ongoing training and support look like, I think is really big from, from your, your franchise org. You know, I have calls every single month with what Anytime Fitness calls is a, we call ’em an fbc, a franchise business consultant.
I work with a guy who works with, you know, specifically multi-unit operators that own over, you know, 800 plus locations and there’s only like 15 of us. And so, you know, they have a, they have built out a support team that is very specific to where you are in your phase of growth, where your and and ownership and you know, I’m learning as I go. But I’m also relying heavily upon the support team through my franchise org but also that network of owners that comes along with that. I think Lucas mentioned that is only going to, is only going to help you to expand and grow as well because your, your franchisor is likely to give you information and knowledge and they will. But specifically within Time Fitness, you know, there is a lot of different things where we can operate in various ways where there’s flexibility and operating in particular ways can give you different sorts of alpha and, you know, other franchisees know that and have been in that game and connecting with them and leaning on them just as heavily only advantages you as you move forward.
The Wolf of Franchises:
Absolutely, man. And yeah, just for folks listening to a, any time you’re evaluating a franchise, you will be given the opportunity to speak to existing franchisees. So, you know, when Zack says really understand the support that you’re gonna get from the franchisor, I’m not saying like obviously ask questions of, of the representatives of the franchisor, but the reality is, is that, you know, their job is to, is to sell and make a good impression on you. So I’m, I’m not saying they’re gonna lie, but you know, it’s usually gonna be a pretty rosy picture they paint and there’s a lot of franchises out there. So for some of them, you know, it, it’s not necessarily the best support system, but if you speak to franchisees, I mean they’re gonna tell you how they really feel. So that’s a great resource for you to have. So alright, we’re gonna do little fun intermission before we open it up for questions. We got Kenny Rose here on the call. So Kenny is the founder and CEO of F Shares pretty cool franchise company that is doing something very different. Yeah, I guess Kenny, I just figured why, why not have you give us a little background on your startup and what you offer so that maybe some people can learn about it.
Kenny Rose:
No, I appreciate it and honestly hearing all these great franchisees like really validates a lot of what I’ve been talking about. But you know, F Shares is a platform that lets anyone invest into franchise ownership for as little as 500 bucks. So you can, you know, add it to part of your investment portfolio, start getting passive income, equity, diversification, a hedge against inflation. And a big part of our strategy going forward is actually working directly with operators who, you know, typically don’t have the capital and to go out and do their own location and scale to multiple ones. You know, sometimes franchisees either you know, came in with whatever they had and it was okay, I’ve gotten up to start one location, but then to be able to build and scale to five or 10 locations can take them a decade. And so they really need the capital.
And so we see that there’s a big separation between the money and the operation. So I love what Lupus was saying about like, you know, getting more operators involved as owners because honestly that’s, that’s the Chick-fil-A model. That’s why it only costs 10 grand to get one, is they realize the people who really know the ins and outs of the business, Yeah, they tend to be the best quality people. And you know, I, I’ve been on the brokerage side before franchises for almost 10 years and you know, there’s always people who, they’ve got a check and they say, Hey, I want a franchise. And it’s, well, they need the operations part too. It’s not, you just write a check and it starts raining cash down from the sky. And so, you know, he made a great point about having the balance between the business side and the operations side and you know, I really see it as the operations start to drive everything else that, where, where you’ll start needing the business management portion versus if you come in just the business management and you say, Okay, now I need to get a manager.
You know, a lot of times people will can straight at that p and l and say, Okay, well if I can find one for this cheap, I’m gonna get to pass break even faster. But then, you know, they think they saved themselves 20 or 30 grand on an operator, but really they just doom the foundation. You know, and I, I love everyone talking about the roll up strategies here. Cause that’s a big part of where I see this all going in the future too. You know, there’s just so many people who I think I I read recently, over half of franchisees are over the age of 45. And so, you know, you’ve got a ton that are going into retirement now or within the next 10, 15 years. And I think it was Zach that said that, you know, a lot of people are wanna pass down to their kids and their kids just don’t want it.
You know, they don’t wanna get their hands dirty. And that’s kind of the same thing with the business operations people who just wanna write a check and that’s it. You know, we need people who actually know the business, who actually work the business. So I, like I said, I think there’s a big separation between the capital and the operations and that’s what we’re trying to solve here. So I love hearing from all three of these guys. They’ve just done a great job like identifying this and in each having their own unique solution to be able to make it happen.
The Wolf of Franchises:
No. Well thank thanks for sharing. And, and just to clarify for folks, so Kenny so like everyone from the consumer perspective, right? F Shares is basically a fractional trading platform for franchises. First of its kind. So if you know rally road, which you know, you can buy like trading, like shares of a baseball card or a bottle of wine all these crazy things, like that’s what Kenny’s doing for franchises, but it’s also sounds like Kenny’s. So you’re saying that like franchisees, like a Brian or Zach or Lucas could, if they need to raise some equity for their next, you know, acquisition mm-hmm. <Affirmative> which we know Brian’s not gonna do that cause he’s the master of seller finance, but the other two, like they can use F shares and your your crowdsourcing platform.
Kenny Rose:
Yeah. Launching Q1 next year we’ll have a whole marketplace. So you’ll be able to, you know, it’s like, hey, here’s my business, here’s the locations we have, here’s what we’re trying to do and here’s the use of funds. And so that way you’ll be able to work with investors who are, you know, not only are they directly interested in franchise investing, but also they’re people who, you know, we prioritize people who live in your local areas. So, you know, if you’re trying to open up new Times in Austin, Texas, we’re gonna prioritize people who live in Austin. So in that way it’s not just capital that you’re getting, it’s people who are actually going to go to the businesses who are going to tell their friends to go there. You know, if you have a choice of places to go for any, you know, food or good or service, you’re always gonna go to the one that you own a piece of and you’re gonna tell everyone, you know, to go there too. So that’s why we see as our capitals better than like, you know, the bank capital or private equity capital. Maybe not seller financing, but we’ll work on something there <laugh>.
The Wolf of Franchises:
Yeah, and and just to be clear, right, it’s you don’t have to be an accredit investor, right? To, to do that
Kenny Rose:
Month for non-accredited investors. We’re doing our initial portfolio right now, it’s a 25 million portfolio, which we’re about 16 or 17 million into. It’s for credit investors only, but then the next one will be available for everyone.
The Wolf of Franchises:
Beautiful. Okay. Love it man. Really stoked to keep watching you you know, build that. So congrats on everything so
Kenny Rose:
Far. Likewise
The Wolf of Franchises:
Man. Alright folks. So we’re, we got about 20 minutes left on this schedule. I can obviously keep riffing for days if I really wanted to, but yeah, any, any questions for Zach, Brian, Lucas, Kenny or, or myself, you know, just feel free to raise a hand and I’ll, I’ll tag you in. I mean, I guess you know, Brian, you were off meet there for a while. Were you trying to jump in and share anything or
Brian Beers:
I mean 1, 1 1 I thought just as like a, you know, more encouragement for buying versus building. I know the Mightest system and I, I don’t know the exact stat, but I have some friends on the, you know, the inside information here, but like, brand new franchisee into a brand new location had an extremely high failure rate. Like 80% of ’em within three years, it was outta their hands. Like they sold it or closed it or did something else with it. So I don’t know if you could get that by asking others. I don’t know if they would tell you, but you could kind of find out if you, if you talked to, you know, former franchisees, but at least for them it was kinda a huge red flag. And then from franchise development standpoint, their goal then was instead to get, you know, new people into lower performing stores that can get ’em up. But the new person in a new store had an extremely high failure rate, at least in, in, in that system. So.
The Wolf of Franchises:
Interesting. Okay. I, I know in the f d so that’s franchise disclosure document for people that aren’t familiar with it, you can check like closures and transfers from the last three years I believe. But yeah, that can inform people on, on failure rates going into it. But I wanna call Zach. Sorry, just give us a sec. Saw Reza, you
Zac Pennington:
Have a question there?
Speaker 8:
Yeah. Hey guys great chat. I’ll follow all of you. So it’s really good to hear you guys live. I’m curious, as obviously some of you already had experience in the locations makes a lot of sense why you would go out and and acquire those as somebody who was a little bit more of a generalist. My background’s banking and tech, which doesn’t lend to specific industries. I cover quite a few things. Curious to hear your thoughts on evaluating different franchise opportunities, different businesses, good things to look for. Is it really just going back to things that we can do really well, things that I can focus on? Just curious how you would think about that if you didn’t have the same experience that you guys do.
Zac Pennington:
Yeah, I can take that and I think at the end of the day, yes you do wanna find something where you’re skilled at, but ultimately if this is something you want long term, I mean it has to be something you’re passionate about it, it really does. Cuz that’s ultimately what is gonna sustain you. And I know and we’ve all heard that before, but you know, there is a lot to be learned on the technical side just by executing, just by jumping in and doing. And that will come, that will come over time. But you know, ultimately it has to be something that you’re passionate about and that you enjoy. You know, for me it was, you know, finding a brand that kind of met my core values but also allowed me to have and my team really to have a positive impact in the communities we serve.
I mean, we’re providing health and fitness. We’re, we’re literally changing people’s physical lives, you know, that’s pretty big and exciting thing that we get to do in each of these communities. And so, you know, that inspires, you know, not only myself but also my staff every day. It gives ’em a bigger purpose to work towards. And when your staff has that, it’s a lot easier to go into work and and be inspiring when, when they’re, when they’re around those types of stories every day. So yes, you do wanna find something that’s technically sound, you know, we had our business and metrics that we were looking for when we chose a franchise, right? You know, one of those things being membership based. But yeah, find something you’re passionate about. There’s a lot of opportunities out there.
Lucas Mitchell:
I’ll just piggyback off that if you don’t mind Zach, and say, you know, what you said is absolutely great, finding that passion. I’d say on specifically I’m going through evaluating franchisors now as we look to potentially at a second concept. And part of what I’m looking for is the reality is you’re paying a lot of money to the franchise or to be a part of their system. And so one of the things that I really look at is what am I getting in exchange for those dollars that we’re giving to the franchisor? And what I’ve found is really the biggest, you know, they can give you systems and processes and all that stuff’s great, but at the end of the day, the biggest monetary impact they can make on your business I found is really two things. One is brand recognition. So where can you go that people recognize the brand?
And that doesn’t mean it has to be a huge national concept. It could be somebody that’s really regionally focused and is really well known in that region, but brand recognition is the most important. And then what are they gonna do to make sure the brand is, is safe and protected and that the brand itself doesn’t have any issues long term by bringing all these different operators into the system regardless of what industry it is, what are they doing to protect that brand reputation, the brand name. I think those are the two biggest piece of ROI you get in exchange for the money that you paid at the franchisor. So I would be looking at that too. And when you’re talking with previous owners or current owners of franchises, you know, ask them specifically what kind of ROI do you think for the do you’re getting for the dollars that you’re paying to the franchise or I know in my case I couldn’t go up out and open up a burger shop that does 1.7 million in sales
Kenny Rose:
<Laugh>
Lucas Mitchell:
Flex on, right? So it’s like, I, I couldn’t do that and, and call it Lucas’s burgers, so I’m leveraging the five guys brand and, and they’re getting a lot of money for that. But it’s, you know, if I were to take that, that royalty out that I’m paying them, I’m probably still coming out way ahead as if I open my own shop. So just really, that’s another piece I would add
Brian Beers:
To be the contrarian. I I don’t think you need to be passionate about the business itself, like the, the widget. I don’t care about cars or tires or brakes. What I enjoy is like running the business, solving problems, you know, the business side of it. And so, you know, in the beginning, obviously, you know, I’m, I’m in the stores. I, I ran the stores myself for a while and you know, I didn’t hate it but it wasn’t like I’m a car guy by any means. I, I can barely fix the light bulb. I would say you find something that you like in terms of running the business and then yeah, if it happens to meet, you know, things that you enjoy that’s great, but if it doesn’t like I don’t know and you can make money, you can roll ’em up and you can find good people to, to work with who, who do love it, then that, that’s what matters. So
Kenny Rose:
Yeah, I’d have to agree with Brian there cuz when I first got involved in franchising, I was part of a franchise that did franchise brokerage and funny enough, like five or six years of growing up, I opened in a town that didn’t have franchises. And so, you know, it was really something where I got to learn the industry and it was something where I wasn’t passionate bound originally, but I learned how to work with it and eventually like just fell in love with the industry and went all in. But a big thing I always recommended to people is like, make sure you vet very different brands and industries. Like yeah, you might have your heart set on food or fitness, but hey, take a look at both. Take a look at a couple brands of growth, go deep into them. Especially cuz like a lot of people end up going with like the first brand they see and that’s like walking into an open house, writing a check on the table for the first place you’re taking a look at, which is never how you would do it. And at the end of the day, like every franchise is there to sell more franchises too. And so you know, you don’t want one person to be very convincing. You wanna really like, dig deep into all of them and get like a very thorough understanding, even if like you decide like, hey, I’m probably not gonna go with this one, dig underneath. Like keep learning more and more about the model and like what makes them good compared to this other one.
Brian Beers:
Yeah,
The Wolf of Franchises:
I think that the going deep on due diligence is obviously important and I don’t think there were any wrong answers there. You know, know, especially between Brian and Zach. I think the big thing is like knowing yourself, right? So if you are like Zach is clearly someone who needs to be passionate about business for it to, for him to enjoy business ownership or Brian is more of a process guy and he doesn’t really necessarily care what he’s selling, but he enjoys the process of building an organization, scaling it. And I’m not gonna ask you a number Brian, but I’m sure owning 30 auto repair franchises have some financial reward as well. So yeah, just keep that as food for thought for everyone. But moving along here. Thanks for that question. Reza Blake, I know you had your hand raised. What’s up man? Thanks,
Speaker 9:
I appreciate it. I’m coming from a software background, quite young, dropped outta school to make some apps and that’s been self-sustaining, but I’ve been real interested
The Wolf of Franchises:
In congratulations.
Speaker 9:
Thanks. But I’ve been real interested in, in you guys and the whole local game of business because that’s what’s exciting to me is, you know, seeing real people seeing real value added to the community. And I’ve had a few friends who got into franchises that are making great money, buying existing revenue, buying an an existing brand. So my question is, if you were starting out from day one, what’s something you wish you would’ve known or wish you would’ve done sooner?
The Wolf of Franchises:
That’s a great question. Anyone anyone wanna chime in? Yeah,
Zac Pennington:
For me it’s go bigger, go faster. <Laugh>, you know, I mean, we’re talking about businesses yes. That they are local, they’re local to a, at least mine are, you know, a three to five mile radius, right? Nobody’s, you know, seeing great wealth explode or great success. I mean, you can certainly see success off of a single location, but it comes from multiple at least in my experience. And you can easily find yourself stuck in a first location or even two locations, but not being afraid to, to run hard, trust your team and put a team in place as soon as you possibly can is some of the things that I learned early on and have helped us grow over time.
Brian Beers:
For me it was, you know, originally all of our stores were just in Philly and like, you know, driving distance, six of ’em or whatever. And it was a, we were very successful, but then we had this like limiting belief that we were successful because we were very hands on and in the stores every day. And that if we went outside of our territory and our area that we would not be successful. And we looked at other larger franchisees who, you know, average volumes were, were lower than ours. And so for a while that held us back from, from deciding to grow. And then I overcame that by saying, Hey, instead of how about we put people in place who can, you know, have the similar traits to us in terms of their in stores, you know, they kind of have our core values and then that that’s, you know, even for us in, you know, last 18 months have have grown up a lot. It’s overcoming that limiting belief for me. So that’s what I wish I would’ve known sooner is that they weren’t successful because of me. They were successful because of the way we did things and I could duplicate, that
Lucas Mitchell:
Is a hard question for me. I don’t to look backwards. I was reflecting and I’m, what I’ve done seems well how I did it. But I would say if I was looking for something specifically and, and I’m involved in partnerships, right? So I would say really understanding the value that you bring to the table initially and holding firm to the value that you bring to the table initially would’ve been something I would’ve done a little bit better at. I don’t think I got in any bad deals by any means. I do think I could have a better deal in some cases had I taken a little bit more time to really evaluate that and kind of countering what, what Zach was saying. I did go fast. I mean, we did five units in one, one transaction even though it took 12 months <laugh> to get done.
That was our first transaction. And then our second one was eight and that was only a year and a half later. So we, I went fast, but in doing that, I didn’t necessarily slow down enough to think through what that would mean long term and how that could change things long term, if that makes sense. So I think just really understand the value proposition that you bring to the table. If you’re gonna do it on your own, awesome. If you, you know, think about the resources that you have ahead of time and, and who might be able to help accelerate your growth and then what value they bring to the table and just really understand those roles ahead of time, I think would be my recommendation.
The Wolf of Franchises:
Awesome. Great insight guys. Blake, hopefully that answer your questions. We have a few more requests in the queue, so we’ll try to get through ’em before one 30 Eastern time here in about six minutes. Let’s jump to who’s next. Mr. Espinoza, my fellow work week colleague. What’s going on, man?
Speaker 10:
Hey, how’s it going? Thanks for having me on, man. Yeah. So question for the group, kind of building off the the building a team theme. Are there tasks that you learned to delegate earlier, but then also other tasks that you learned that you should hold onto longer as you’re, you’re building your, your franchises?
Lucas Mitchell:
I’ll take that one. For me, I would say I would’ve gotten outta operations a lot sooner and focused more on strategy and projecting our growth. I’ve always kind of been looking, you know, we grow and then we figured out, and it would’ve been after we kind of got a nice base set, it would’ve been cool to have pull out of operations a little bit sooner and start thinking more about the strategic pieces. I think that slowed us down a little bit and leaned on my team a little bit more to handle most of the operational stuff in the business would’ve been
Brian Beers:
For me. I mean, it would be similar, taking yourself out operations. You know, we recently hired a, a COO who started August 1st and he’s like 10 times better at it than, than I am. And it’s like, I wish I was able to get a guy like that a lot sooner. That’d be higher your weakness and, and kind of get outta your own way. He says like, you know, it’s like the, the speed of the, the leader, the speed of the team. So,
The Wolf of Franchises:
Oh, Zach, sorry. Yeah, you can,
Zac Pennington:
Yeah, no, I, I would just second Brian, you know, it, it’s so easy to get sucked into the, the day to day operations. And for us, every time that has happened, for me specifically, we have slowed growth. So finding ways to pack one or two people in between you and the day to day operations and learning to be a good coach and a good teacher I think that’s a skill that’s often lacking. But, you know, those who can do are, are great. I can step in and do it, you know, the, I can run the operations, but I found when we succeed the most is when I’m, when I’m teaching my people really well and I’m not sucked into the data operations and I’m focusing the strategy and decision and, and our future growth.
The Wolf of Franchises:
I love this question. So nice one Jacob. But like, just the reality is, right, if if someone’s in this, you know, listening and wants to get to Lucas’, Zach’s or Brian’s level, I mean, you’re gonna have to at some point give up the reins on, on locations to someone else, so to speak, and like let them manage the day to day. Right. And Brian’s the best example just cause he’s got 30, right? I mean it’s, it’s just, it would be insane for him to try to, and obviously they’re like all over the country, but even if they were local, it would still be insane to drive to 30 locations every single day and check in on things. So at a certain, if you want the scale, it’s just at a certain point it becomes inefficient. So you’re gonna have to kind of like just face that reality head on. All right. So we got another request in Don’t crucify me sir if I butcher the name match. Pause.
Speaker 11:
Yes. Thank you. Thanks for letting me speak. My question is mostly for Brian. Like currently I’m in a, I’m trying to acquire a location for franchise like Autocare franchise in the New England area, but as I’m talking with the owner, he seems like he’s had it for like 30 years. He’s there every day, six days a week, even though he’s not like, you know, doing any repairing work. But I, I see that as a risk, like how do you deal with that in those situations when you have like entrenched, you know, owners?
Brian Beers:
Yeah, yeah. We bought a few of those just like that literally six days a week. That’s, he’s the manager, he’s the owner. He’s tired, he’s near retirement, wants to sell like, yeah, I mean that like, Anna’s just like, he gave us a number, it was cash and we, it was like 150 grand I think we paid or something like that. And that was it. He was out, you know, for us, yeah, it was a risk cuz like, he was kind of the manager. So we bring in an employee who you would hope is not as good as the owner. And yeah, that honestly, that store has struggled a little bit now, you know, is in December we bought it and it’s, you know, we’re kind of getting it back now, but you know, definitely a risk. But you know, a lot of times too with someone like that, they’re outta touch. Like, you know, they’re not investing back into the business, the equipment’s, he’s got a lot of deferred maintenance, he’s not advertising, he doesn’t, there’s not a lot of culture energy in the store and you know, so you may have a, a person running the store who’s maybe not as strong, but like you’re getting employees pumped up and you’re doing all extra marketing and you’re investing into the business and, you know, those are some quick easy wins that you know, you can get the energy and then helps, you know, get the sales.
Speaker 11:
Yeah, I mean the interesting thing with this one is like, it’s like the top 5% in all of United States, at least for that franchise, like in sales. Like the sales are very high and like my opinion is like, like, am I buying the top here? Oh, I see what you, you know what I’m saying? Yeah,
Brian Beers:
Yeah, yeah, yeah. Yeah. That’s a huge risk. I, I I mean almost all my, a lot of mine have been value add similar to the turnarounds of Zs. You know, we do buy some performing ones and we pay a premium, but we get him financed. So I’d be nervous about that. Cause you’re gonna pay a premium and if he’s the business and it could go down if you can’t step in play at the same level.
Speaker 11:
Exactly. Okay. Thank you. Appreciate
The Wolf of Franchises:
It. Yep. Thanks a lot for the questions guys. Great job. And thanks. Thanks to my panelists here, Kenny, Zach, Brian, Lucas, it was great to hear from you all. Yeah, guys, so it’s one 30, i I gotta jump. Thanks for everything. Give everyone on this panel follow, I mean these guys are pros at what they’re doing and obviously give us a shout on Twitter if there’s any questions that you didn’t get to ask or something pops into your head later. But I’ll be dropping a recap. So yeah, Thanks everyone.
Speaker 12:
Thanks
The Wolf of Franchises:
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.