P: We started getting talking at our booth, going through the demo at Vetted Biz. And then the topic of semi-absentee franchisees came up. Owning a business, but not working full time in that business. Just the peel of that and how much demand there is. What the potential there is in the franchising space for franchisors to offer that. But many, many more franchisors should be offering that in a manner that’s more tailored to the prospective franchisee.
Therefore, in today’s conversation, we’re going to focus on semi-absentee ownership of a franchise. Vast majority of franchises don’t get set up for semi-absentee ownership. And it’s Bill’s job as a consultant to help you navigate all the franchise opportunities. Figure out which one might be the right fit to match that with your time management, your industries of interest, investment amount, etc. Bill, really appreciate having you on today.
B: Yeah, happy to be here. It’s a bit of a hot topic for me.
P: And remind me before you got into the franchise consulting space, you were working in wealth management?
B: Yeah. I was a branch manager for one of the Morgan Stanley branches in Michigan.
P: Okay. I can imagine a lot of those types of persons that are using Morgan Stanley services on the wealth management side. They have their business. They’re interested in investing in stocks, ETFs. But they might want to also invest in a business that they’re not working full time in, right?
B: Yeah. I mean, when I first started looking into the whole franchise broker/consultant industry, it kind of hit me like a ton of bricks. Because, as a branch manager, I had about 50 financial advisors that work for me. And I would spend about half of my day helping them improve their client experience. And, the other half of the day was all talking to competition and trying to get top producing financial advisors of UBS and Wells Fargo, or Merrill Lynch to franchises and come to work with Morgan Stanley.
That’s why, once I kind of dug into this, I quickly figured out that the skill set to be successful at that. And I was very successful at it, is very similar to what it is for this. It’s helping people figure out what it is they’re trying to accomplish, dig into the database, check all the boxes, and, you know, match them up with a handful of things that would be a really good fit for.
P: What’s your typical client? Is it someone coming right out of college or they’re more established in their career?
B: I do a lot of work on LinkedIn, and my average client is probably somewhere between 40 and 60 years old, has been in corporate America for 10 to 30 years. He has got a little bit of a net worth built up. He has probably got a significant chunk of money in a retirement plan or a 401(k) plan.
And maybe they just took a severance package, and, maybe, it’s not the first time that’s happened. And they wake up in the morning and light bulb goes off and they go, “You know what? I’m done with corporate America. I’ve been thinking about starting my own business for a long time, and now is the time to really dig into that to see if it’s going to work for me.” That is probably half of my clientele.
P: Okay. Then, you have those folks that got a nice severance; they have the capital. And I imagine they’re willing to work, they have the hours. The opportunity cost isn’t so high, but you also have those 40 to 60 years old that have a nice paycheck. 100K, 150K, 200K, and leaving that. Especially if their partner is not making the same amount of money is probably a bigger step, right?
B: Yeah. I mean, if that person is the main breadwinner in a household, and they’re younger. That combination of things makes it harder for them to just walk away from a six-figure paycheck. If the person is closer to that 60-year-old mark, and, you know, they built up some network over the last couple of decades to be able to fund a startup of a business and support their own household is not such an arduous task form.
Which brings us to what you and I were talking about. The conference is that the number of franchisors out there that will allow for semi-passive ownership of the onset, meaning, they can hire a manager on day one to run the business form. I think the industry has realized that to attract the kind of people they want, they’re going to need to morph their business model to accommodate that. And, I think, that’s happened over the last 10 years, because you see more and more that will allow for them on day one.
B: The newest trend and I think it’s where the industry is headed. And there’ are a few franchise concepts out there that’ll do it now is that they have an in-house field management team that will, for a flat fixed fee, literally run the business for you. It almost doesn’t matter what type of business, obviously, you want to own a business that you see the value in it then you eventually want to get involved in it, but, you’re signing the franchise agreement, you’re funding the bank account.
If there’s real estate involved, you’re signing the lease. Other than that, you have absolutely no involvement in the business. And for the people of the younger end of that age spectrum that we’ve been talking about, they’re maybe the 40 to 50 years old, and they really like to own their own business now, they don’t wanna wait another 10 years, but they just can’t afford to walk away from that six-figure paycheck.
P: That’s going to keep going out probably over the next 15 years potentially.
B: Exactly. And so that allows them to get the business running, and, maybe, they let the in-house field management team run the business for the first 12 or 18 months and ramp the revenue up to the point where the person can draw enough money out of the business to replace that lost income. And they almost kinda use the in-house field management team as like a set a training wheels. Not only does it buy them some time to get the business ramped up, but it also allows them to sit in the background and watch and learn.
There’s not many of them that offer that right now, but we’re starting to see more and more, and learned about a couple few more new ones when we were to conference a couple of weeks ago. And I’m hoping that more and more the franchisors… look, I realized it’s a big undertaking from the reason they’re franchising…
P: For sure. And some people become franchisors not to be managing those corporate locations.
B: Yeah. They don’t want to run 700 different locations. But, I think, if they could look at this through the lens of, we’ll help you run the business for the first year. Maybe, we can do that for 20, or 40, or 50 franchisees a year. And very few people want the franchisor to run the business for ’em forever. They want to run it in the beginning to get the business ramped up. They can stand in the background watch, and learn. That’s why it’s going to take some additional staff for most of the franchisors to be able to do that. But most of the franchisors will tell you off the record that the locations that their field management team is running are performing better than their franchisees.
Patrick: Well, some franchisors disclose that. For example, Marco’s Pizza will break down corporate locations versus franchise locations, which essentially that’s what it is. If it’s their field management team running the location, you’d think the financials are more turning as if they were a corporately owned and operative one.
P: Yeah. I’ve seen a few different businesses in the space. Especially, the services, health care, pet care, some food concepts. But, I definitely do see a niche of anywhere from like three, five locations where the concepts have been proven up to 50, potentially even more. Where a franchisor should really consider this as a way to basically receive a fresh injection of capital and grow together with their investors, these individual franchisees.
B: Well, and I tell you the proof is in the pudding. But, I mean, one is in the fast-food space, one of them is in the in-home elder care space. The fast-food space over the course of item franchising for two or three years. They got to the point where I think they had just right around 100 locations. And then they opened up this idea that they had an in-house field management team that would run the business for you. And they added on 35 or 40 licenses in a matter of 6 months.
This is so quickly that they literally pushed the pause button, said, “We’re not taking any more of these, because we can’t handle volume.” And the exact same thing happened with the in-home elder care business that they’ve been franchising for four or five years, had 35 or so locations. They opened up this, you know, this concept of will manage the business for you for a flat fee, and they doubled the number of licenses that they had less than a year. It was great.
P: It’s a kind of proof, too, that the concept works that there’s enough margin in the business to have a day-to-day manager from day one, which that will eliminate 80%, 90% of franchises. Where, maybe, it’s just not that great of a business. Or it’s going to take a year or two years like a staffing franchise to really break even and have the owner drying dividends out. And that’s something that you should be mindful of when you pass breakeven and when are you starting to get money out of a business?
B: Yeah, exactly. Yeah, for sure.
P: And for those, I mean, there should be a wake up for franchisors, especially emerging concepts that are trying hard to recruit franchisees and maybe spinning their wheels to look at this option. Bill, for the franchisors that allow an owner to maybe just work 5, 10, 15 hours a week, could you walk me through that process and kinda how that works selecting franchisors?
B: And, again, it’s a whole idea that the industry has kinda morphed over time. That’s probably one of the best examples of it. Because, you know, the database that we use the franchise broker association will use in the past. Do they allow for a manager to run the business on behalf of the owner from the onset? That’s one option. The second one is they will allow for a manager to run the business after the first 12 months or after the first 24 months.
I kinda keep a list in my back pocket of all the concepts that I like that all have the box checked. That says, “You can hire a manager from day one, because there are just certain subsets of the clients that are out there to go.” I want to be own my own business in either I can’t invest 40 hours a week. Or 60 hours a week in my own time. A lot of people obviously get into franchising as much as they make a living from a lifestyle perspective. They wanna spend more time doing whatever they do on them.
P: The number one reason is to be your own boss. I was kind of surprised, but I saw the results of a survey, and that was the number one reason. It wasn’t financially related. It was just a lifestyle, just be your own boss.
B: Yap, exactly. When I’m going through my initial discovery conversation, they want me to put together a list of all possible concepts for them to consider. That is one of the obvious questions that I will ask them. Look, there’s a fully passive ownership structure, which is a very few. Other end of the perspective is owner-operator. Where whatever you’re doing, you’re going to be there doing it all day, every day.
That’s the other end of the spectrum. There’s also very few in that camp. But most of them are in the semi-passive. Take that semi-passive ownership category kind of split it into two parts. They allow a manager to run the business from day one. Or do you have to run the business for some sector your time? Before they’ll allow you to turn it over. And there are pros and cons to both. In a lot of businesses, I see the need to have the owner running the business for the first year so they really understand what they’re getting into.
P: Sure. You know, it’s tough to hire that role under 100K for someone to really manage the separate relationships, right?
B: There’ are a lot of businesses that I kind of break it out when I get into the conversation with a client. We start talking about different concepts is that some business to consumer businesses are very heavy advertising-impacted. And others, there’s no advertising at all of marketing. It’s about getting out in front of who your referral sources are, and who will direct business your way. It’s important for the business owner to be the guy who’s the face of the business. At least for the first year or two to build those relationships. Those referral sources will do the thing for you…
Patrick: For sure. In terms of your franchise consulting practice, you’re the owner. You couldn’t hire someone to do your job with the type of role you’re in.
Bill: I’m going to choose my words carefully on this one. There are very few people who are franchise broker consultants. Who have built a practice that if they decided they wanted to retire or stop practicing.
That have an asset in their business that they can turn around and sell somebody else. 10% or 15% of the people I talked to, might wanna consider becoming a franchise broker based on their background.
But I become very clear to them. You are creating a job and a paycheck for yourself. And the day I stopped picking up the phone, the cash register comes to a screeching halt. Then, unlike most other franchises where you can build following the clientele and you have an asset that you can sell at some point in the future. That’s…
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