Episode 145: Demystifying Franchises: Expert Advice for Potential Buyers

Mike O'Neill: Welcome back to Get Unstuck and OnTarget. I'm Mike O'Neill. Whether we at Bench Builders are working with supervisors to improve their people skills, or it's me coaching the CEO one on one, getting leaders and companies unstuck is at the heart of everything we do. And that's exactly what this podcast is all about.

Each week, we invite incredible guests who share their hard won experiences of getting themselves or others unstuck back on target and moving forward, and I hope it gets you unstuck and on target as well. Joining me is Jerry Bird. Jerry is the Senior Franchise Consultant with FranNet. And I've invited him to come on the podcast in large part because as a business owner, people kind of ask, Mike, how did you get into this?

And Jerry gave me some background information I thought was very helpful. Either you had to start a business from scratch. You could buy an existing business or you can purchase a franchise and it's that third option that I would like to learn more about in this conversation with Jerry. Jerry.

Jerry Bird: Welcome.

Well, thank you. I'm glad to be here. I really appreciate you having me on today.

Mike O'Neill: Jerry, one thing that we had an opportunity when we spoke prior to setting the date to record this podcast, you have a really interesting background that kind of led you to what you are doing now. One of the things I remember is a long tenure with Kmart.

And you were with Kmart for how many years? 34 years. And in 34 years, I think you shared with me that required quite a bit of moving, did it not?

Jerry Bird: Yeah, we moved 22 times in 34 years. I'm old. So when I started it was actually called the SS Kresge company which was a dime store out of Detroit, Michigan.

And but the Kmart had already been developed a little bit, but it was not the driving force at that point in time. So, it morphed into the Kmart Corporation, but we, we helped the company grow. We opened tons of stores and it was just a lot of fun for me and my family to move around. We lived in some great cities around the country and glad to be back in Tennessee though.

Mike O'Neill: Well, you're actually a kind of a neighbor of mine. You're across the state line from me. I did not realize, but I was reading some of the material you supplied that there are over 3, 200 franchise companies out there in 90 different industries. I had no idea there were that many.

Jerry Bird: Yeah, most people really don't know that.

They mostly think fast food and retail. That's what most people kind of envision. So as we go forward with a client, we help them understand this wide spectrum of what's out there, what the options are, what the opportunities are. So it's really eye opening for a lot of people to really see a lot of people that end up buying a franchise.

Didn't even know that existed at the time when they first started looking. So it was, it's a lot of fun for me to help them kind of on that adventure.

Mike O'Neill: You know, one thing I did not know until you kind of share with me a little bit about how FranNet works. And that is it seems to me that there is kind of a, a real heavy.

Kind of an educational component on, on the front end. Is that a fair way to describe it?

Jerry Bird: Sure. We, we really believe in education and information upfront. We spend an awful lot of time gathering information about the client, talking with them, consulting with them learning about their goals, not only personal, but business learn about their families and family lives and what's going on there what their interests are.

So we, we spend an awful lot of time. On the front end to be able to get to a point where we can help them develop a business model that really gives us the opportunity to go out and look at all these franchises and say what is a good fit? So a good way to say it is we're kind of like eHarmony of franchising.

We kind of bring people together with what makes sense for them based upon what their real goals and initiatives are.

Mike O'Neill: You know, when people begin looking at what do I want to do? Do I want to start a business from scratch? Do I want to buy an existing business or perhaps purchase a franchise? There are pros and cons of each.

But purchasing a franchise, what is perhaps the biggest advantage to someone to consider buying a franchise?

Jerry Bird: Well, you you really are. If you're looking at a franchise, you really are looking to partner with a company that really already has the recipe. They know what to do. They know when to do it, how to do it, why to do it.

And so you're not having to kind of create your own thing and make a lot of mistakes. There's a formula to follow that really gives you that recipe to success. And it helps you, you know. Kind of alleviate all the issues that might come up when you're, when you're looking at starting your own business versus buying a franchise.

Mike O'Neill: Jerry, one of the things you sent to me that I found is very informative is that which you probably share with potential clients or clients. And that is kind of that process of just kind of considering. And one of the things that I picked up on is when you're talking about what's the best fit. One of the first things I kind of picked on is there's a temperament to being a franchise owner, you, you really probably need to have a sense of drive. Do you not to be successful?

Jerry Bird: Well, I think in any business ownership, you have to have that drive, which is, I think is there. But also you have to know that you are partnering with somebody. You're not out there all by yourself doing what you want to do.

There's there's, there's rules, there's regulations, there's things that they, you know, want you to do. But if you look back on it and you look at the success factors, they're bringing you what it takes to be successful. So if you, if you really think about it what's a better partnership than somebody that already knows how to do it?

So it's, it's a great relationship as far as that's concerned.

Mike O'Neill: I may not understand this correctly, so please. Make sure I got this right, but my understanding is your organization friend that you are the kind of the e harmony, but you're the clients, if you would, is the people come to you and ask for your help is you provide this guidance, this investment up front to kind of see, is this the right move for them?

All that's done up front, but they don't pay you. Is it the franchisees who, or franchisors, I guess, who would be paying your services

Jerry Bird: fees?

Yeah, the franchisors pay us if we bring them a client that number one is, is well qualified, which they love. They really like our clients because we've already done a lot.

Free to go to go to business meeting work stuff, so to speak, but we bring them there. So they really love them. But if, in fact, we do a placement with somebody, we're compensated a little back end, kind of like a, an executive search firm, I guess, is a good way to describe it. Where, where we get reimbursed from the franchise or there's there's no fees to the clients at all in our process.

Mike O'Neill: I know there's a lot of steps that go into this matching process, but in your experience, things, have you found that, that surfaces that basically says, I don't, I don't, you would say, I don't think you would be a good person to consider buying a franchise. What do you find is most common that results in that recommendation?

Jerry Bird: Well, it's funny you ask that because basically I just did a kind of a two year look back to see what, what happened in the last couple of years. And basically 57 percent of the people that I started working with pretty much told them at some point, I didn't really think that they were at the right point to own a business.

So we're very upfront about that. If, if there's a financial situation or a personal situation, whether it be a divorce or a new job or whatever. Maybe it's just not quite the right time. Maybe they still want to own the business, but we, we say, Hey, Hey, you know, we're not in a hurry and you maybe shouldn't be either.

Let's kind of let some of these things play out. And then come back and take a look at this in six months or eight months or a year or two years or whatever. I recently just placed a fellow over in Alabama that I actually started working with him 12 years ago. And he went through several corporate jobs thinking that, you know, he wanted to own a business, but he got a good job.

And then he lost that job and he wanted to own a business and he got another job. So finally he just said, I'm ready now. I'm ready. So it all worked out pretty good.

Mike O'Neill: You know, personally, I went probably the way that maybe is most ill advised. I left a corporate HR role and I didn't consider buying a business.

I didn't consider a franchise. I, I built bench builders kind of from scratch and people ask what's involved. And there really is a lot involved in starting a business. And I love that expression, kind of that, that secret sauce, the recipe, if you would, that these franchises, they find that kind of works.

The example you just gave, Jerry, is you started this conversation 12 years ago, and things were not right. But 12 years later, maybe the time is right. What is it about people who are driven to franchise, owning a franchise? What is it about that? What's the appeal if you were to describe it in a sentence or so?

Jerry Bird: I think the appeal is, is number one, that they have that entrepreneurial ship to want to own the business of some sort. And they don't know what it is or why so if they come to us and we help them think through the all the pre planning and the business models, et cetera, that we help them build they're able then to really take a hard look.

But like I said, they're, they're partnering with, with structured companies out there that have a success record, a track record and a history. That shows them the potential is there if they'll just do, you know, their part and running that business. And so that's what we're really interested in is helping them get to that point where they can make that good decision about, is this the right fit for me?

So we haven't talked to a ton of franchisees. We haven't talked to a ton of professional Planners and funding people and legal people to get so they're comfortable with what they're doing versus just jumping out and saying, you know, I think I'll buy a business and here I go. They've kind of done a lot of homework and it works out really good.

Mike O'Neill: What would you say is one of the biggest misconceptions that people have about franchising?

Jerry Bird: Probably that again because they most of them think fast food and retail is expensive. So they're looking at McDonald's. They're looking at, you know, stores with, with real estate, that build out cost, et cetera.

But there's so many things out there that changed that whole dynamic. You know, there's, there's things out there that are under 50, 000 they can get into. There's things for a hundred thousand, 200, 000. It's not that million plus that you got to have to open up a McDonald's. So everybody thinks. I got to have a lot of money to do that.

And that's, that's not necessarily the case you do have to be in a good situation where you're financially capable of, you know, opening the business, having a little bit of working capital to get the business going. But once you get past that, then it's, it's to a break even point. You know, it's kind of, then the race is on and you're, and you're pretty successful.

Mike O'Neill: So. You know, Jerry, you shared that you just look back over the last couple of years and you found I think it was nearly 60 percent of the folks that you begin working with. Ultimately, your recommendation is this is not the right thing at the right time for you. Does that number surprise you after you went back and looked at it?

Jerry Bird: It surprises me. Before I started doing this over 14 years ago but it doesn't surprise me now because I think there's just a lot of people out there that really do want to own a business. But I think it's my place to be upfront with them and say, Hey, you know, you've got great qualifications, but it's just not the right time.

And here's what I'm thinking. Sometimes they listen to me, sometimes they don't, but that's okay. But I really do think that, you know, if they, if they do listen to me and we stay like I did with that guy for 12 years. It worked out great. So, you know, I think being upfront, being honest which is something that I always do.

I have a bird promise that I work with my clients on. And basically what I tell them is I'll never, ever, ever show you something that I don't personally believe in. And I'll never show you something that I don't think is a good fit for you. So we just don't start throwing things at the wall and saying, here's 15 things to take a look at.

We've done a lot of due diligence, a lot of research, and said, here are some ones that really make a lot of sense for you to look at. And it's up to you to decide yes or no. And knows okay, if you don't like it for some reason, at least you, you'll know the reason versus just having a gut feeling about, I just don't like that.

I don't want to do that, but you don't know why. So it's really important for me to make sure they understand that.

Mike O'Neill: Jerry, I think you said that you've been doing this for about 14 years and cited there's 3200 franchise companies out there. Where's that number? Has that number increased in your 14 years?

Jerry Bird: Yeah, actually, it's a little higher than that now. It's just probably somewhere between, depending on how you factor it, it's probably 3600 to 4000 franchises now. In those 90 sectors still, the sectors don't change, but the franchises do. A new franchise, this is kind of an interesting fact, I think, a new franchise of some sort, fashion, or whatever, opens about every seven minutes.

So that's a, that's a lot of things out there that are opening up all the time across the country that you know, we, we need to kind of keep an eye on. So a lot of people, a lot of times will say, you know, what's the hot franchise? That's the first question. What's that? What's the hot franchise? And I'm very honest with them.

I said, Hey, you know, I don't even go there because I don't know you yet. I don't know what your goals are, what your personality is, what your core competencies are, your skill set. So it's really important to discover all that stuff. And then I can show you things that are a good fit versus being the hot franchise.

If that makes sense, I hope it does.

Mike O'Neill: It does make sense. Now, am I correct in saying that you too have been a franchise holder?

Jerry Bird: That's exactly right. Well, actually, Franette's a franchise, which is I'm currently under but also, I also was in my umbrella responsibilities at Kmart. I was the largest franchisee of Little Caesar pizza stations.

We had 1100 Little Caesars in our stores and I was responsible for all that with, with the Little Caesars Corporation. So that was a lot of fun. A lot of fun selling pizzas. Yeah, that's a lot of pizzas.

Mike O'Neill: Yeah, or pizza pizza. I should say

Jerry Bird: pizza pizza. Yeah, there you go.

Mike O'Neill: As we've been talking and you have these kind of conversations with folks kind of all the time.

I asked you what is the kind of biggest misconception? What do you think people really need to know about franchising that they just they're in the dark about? They just had no idea

Jerry Bird: about. I think to have an open mind to say, you know, I really don't understand even what I want to do or whatever, but let me help them come to the table to have that educational piece that informational piece, and then they can learn.

We take it one step at a time. We don't go real fast. We can go as fast as they want to, but it's really important to me to make sure that I'm doing a good job of. Upfront teaching them about what they should be looking at. And then once we come up and build a business model, which is unique to each person, it really captures on a one page document, the core competencies, the skill sets, the business goals, the personal goals, and we're able then to kind of narrow it down to be able to say, here's some, here's some companies that are already successful.

So, again, all you got to do is take a look at them. If it makes sense for you, they've got the recipe for success. They've got four or five hundred franchises out there that are doing well. You can talk to all the franchisees that you want to they can validate you know, what they did, what they went through.

Everybody kind of at some point in time during the process will go through that fear factor where all of a sudden they're saying, gosh, this is exciting, but I just, I'm scared to death. And so I help them try to think through that piece. So with the educational piece, I think we can get them through the fear piece of it.

And then they're able to kind of see the, the, what's really available to them to, to, to, to be out there to help them. I think so. That's what I think.

Mike O'Neill: Jerry, I might ask this awkwardly, but let me make a stab at it. A person wants to be a business owner. They want to take advantage of a proven formula for success by considering buying a franchise.

Some franchisors are much more, I would think, heavy handed in how they expect you must do things a certain way. Versus others is, is there kind of a way that you can describe the degree of heavy handedness that a franchise or might have?

Jerry Bird: Sure, sure. There's actually stages of franchising. There's, and we kind of break it down into five stages or five steps.

And basically there you have number one is the brand new franchise is, is, is really so entrepreneurial they're pretty open to letting you do kind of what you want to do, as long as it is not crazy, and they learn, they build, and it kind of goes up to step two, step three then when you get to like step five, a good example of that might be McDonald's, which, you know, is, is very mature very regimented in what they do, and I mean, they tell you kind of when to turn the lights on, when to turn the grease on, when to turn the grease off, and that kind of stuff.

So, so I think if you again, go back to what your core competencies are, what your skill sets bring, what you're comfortable with, you're going to fit. In one of those stages whether it be 1, 2, 3 or 2, 3, 4 or 3, 4, 5, and then we're able again to kind of customize what we're looking at for you know, a lot of good reasons for the client.

Mike O'Neill: Yeah, how do you assess that? That seems like that would be a kind of a subjective measure. How do you assess a potential franchisee's suitability as to where they might would fit in the maturity of the franchisor?

Jerry Bird: We again, we go back. We get into a lot of education information, but we have a process. We have a it's called an entrepreneurial assessment that we have our clients take to start with.

And it really it's been around for about 25 or 30 years. It really helps capture just a lot of in information. It's kind of like picking their brain internally and digitally. And then once we get that, and then we have consultations whether it be through Zoom or whether it be on the telephone or in person, we, we, we, we dig deeper and we, we learn about you know, what is it they really like to do, what do they like to do when they're not working.

There's just a lot of things we put together. And then we're able then to build, like I said, that business model that's kind of a one page synopsis of, you know, what, who are they? Who, who is this person? Who is this couple? What's, what's important to them. And then once we've got that done, then we're able to go out and look, say, okay, they sure don't want to start up a franchise, even though the franchise is a startup sometimes, so maybe they're not comfortable with a startup.

Maybe they're not comfortable kind of being the trailblazer. But some people are, some people say, I don't want to own the world. Some people say, I just want to, I just want to get something that's real stable and steady. So all that kind of comes into play when we're building that business model, and that's usually kind of the driving factor of force that we have that helps us again to look at what's out there that makes sense.

And there's a, and I shouldn't say it quite this way, but there's probably the good, the bad, and the ugly out there in franchising. And we make sure we don't go to the good, the bad, and the ugly. We just stay with the good. So we narrow that list down too. So what we're showing them is, is, is a good opportunity with a successful franchise that has a great track record.

And like I say with the bird promise about I'll never show you something that I don't personally believe in and I'll never show you something and I think it's a good fit. I think it really gives them safety in that fact, knowing that I'm not just throwing things at the wall saying, Here's something to take a look at because I want you to buy it.

And that's not what I'm here for at all. I'm here to try to help 'em find something and that's my goal is to try to help 'em.

Mike O'Neill: You know, we have said there, there may be up to 4,000 choices. It would seem to me that's potentially overwhelming. I can see why partnering with, with you, Jerry, would be a very much of a, of a value.

You mentioned. The word couple a moment ago, and I want to follow up with that. I was kind of describing this as an owner. But when you have a couple, let's just say it's a husband wife team. In what ways does that change the dynamics, if at all?

Jerry Bird: Well, they when you deal, I deal with a lot of couples but I really, if it is a couple, if it's a family, I really do want everybody involved in this decision making process, not just somebody saying, I want to buy a business and the wife saying, you're crazy.

You know, or the husband saying you're nuts or whatever. So I, I really want them all involved if it is a couple at least understand what we're doing, why we're doing it, how we're doing it. And you know, what we're expecting that, you know, gain out of this thing. So, but they are different. So we actually have them take independent entrepreneurial profiles.

And then we try to say, okay. Here's your strengths. Here's your weaknesses. Here's what we think about you on the counterpart to your spouse. Here's, here's your strengths, your weaknesses. So, you know, we want to make sure, especially if you're both gonna be running, running the job, you know, we're going to make sure that we're looking at things that everybody's gonna be comfortable with.

Mike O'Neill: I know this is somewhat formulaic over 25 years. This has been fine tuned and I'm just just what you described. It makes such good sense. Each spouse does the assessment and then you marry that together because that is critically important to their future successes that they are on the same page about what you're going to be doing going forward.

Jerry Bird: Yeah, it really is. And usually they're still going to be the leader in the group and the, and the, and the. follower, but still you don't know who that is until you dig into it and find out, you know, who, who's the, who's the person that's going to be making the decisions and who's the person that's going to be the kind of the, the head honcho, I guess.

Mike O'Neill: This may be a question that's going to be hard to answer, but starting a business is hard. Yes. Many businesses fail in the first year. But when you're talking about franchising, does that, Are your odds of success improved over other options?

Jerry Bird: Oh very much so. It's and I don't have the figures right in front of me, but the SBA, which we deal a lot with the SBA and the SBCs and the SCORE offices, which are umbrellas under the SBA, it franchises are by far, much more successful than, than, than in startups and or buying a business.

So if you look at the the franchise 10 years down the road like 90 percent of them are still in business and functioning. If you look at a startup, 90 percent are basically failing. So there's, you know, it's quite a difference there. So, we we really do think it, again, it just, it brings to the table success.

So, you know, you're looking at success. And so if you buy into that success and then you follow that recipe that we talked about you know, you should be able to you know, mirror what other people are doing out there in the, in the entrepreneurial business world.

Mike O'Neill: Yeah, you've had experience in the working for large corporations.

You have been a franchise holder. You've been working with friend at now for 14 years. Can you reflect on an example where either perhaps you or a client got stuck? And when did that happen? What did it take to get unstuck? Well.

Jerry Bird: I've dealt with a lot of people and had a lot of stuck people, but we have worked hard to get them unstuck.

But I guess recently a good example, just in the last 2 months, I had a guy call me up and basically he said, I've been trying to get in business for 2 years. And I just, I have these good ideas and I go to my banker or I go to the place in town and I just cannot get a loan. I can't get the money. He says I'm financially In pretty good shape, but I need to probably get a loan to be able to do something.

And so he, he, he was just kind of stuck in the fact that he didn't think he could afford to own a business. So again, I kind of showed him, you know, number one, there's a lot out there to look at, you know, price wise and structure wise and a lot of different things, but I was able to. Connect him with a lot of our funding partners who deal with thousands of banks across the country versus just the local bank in, say, Johnson City, Tennessee or whatever.

So, they're able to help our clients look at, number one, what is it they need? What are their financial situations? What can they afford? And then they can go out to look at different banks and get the funding a lot better. So he was able to, once we went through the process that we took him through, we included the funding piece along with it.

And he was able then to not only find something that he was very comfortable with the business wise, but the funding piece was also pre, pre guaranteed. Basically, it's kind of like a pre approval on on the home mortgage or whatever that he got an SBA loan pre approved up to X number of dollars.

So he was very comfortable as he was going through the research process because he knew the money was there if he found what he wanted it at the right price.

Mike O'Neill: So. You've mentioned the SBA several times. I know that I personally have worked with some local SBAs trying to help those business owners.

Because of that, for those who are not familiar with the Small Business Administration, can you kind of give our listeners a kind of understanding, what can an SBA do that people may not realize?

Jerry Bird: Well, I mean the SBA really doesn't lend the money. That's number one. They're just an organizational structure, that Helps people with the process, etc They still go through banks and in different lending organizations, but basically if you if you are looking at an SBA loan or you're looking at the The SBA in general they have the SBDCs underneath their portfolio.

They have the score offices under their portfolio and they have a lot of mentorship there again, along with a lot of relationships and referrals, partners locally. So the SBA kind of guarantees to the bank that they're going to. Guarantee that loan if if the right criteria is there if they're right if all the bells and whistles are matched up, right?

The sba will sometimes guarantee up to 90 percent of that loan So that makes that bank feel a lot more comfortable with lending money if they're no They know they're guaranteed at least 90 percent of that loan back. So, Again, so they're very comfortable. The SBA also digs into the franchise piece of it.

The the International Franchise Association helps them see which franchises are successful, which are not, which, which have a lot of issues. Again, and we stay away from those. So I don't really want to dwell on the good, the bad, and the ugly. I don't want to dwell on the bad and the ugly part because I'd like to talk about the good part.

But the SBA is. It's just one piece of the puzzle. There's a lot of different ways to fund a business whether it be, you know, cash and personal money, fam, friends and family rolling over your 401k the Rob's program, where you're able to take your 401k and take it tax, tax free and penalty free, you just roll it over into a new corporation where you're basically then using your own money.

Out of your 401k or your IRA to fund your business. So that's a great way to do a business and you don't owe anybody because you're doing it. You did it yourself. I got you.

Mike O'Neill: You know, Jay, we've covered a lot in this conversation. What do you want our listeners to have as takeaways?

Jerry Bird: I think just if you're thinking about entrepreneurship or business ownership, there's just an awful lot out there to think about and do your research, do your due diligence and ask questions.

Good questions partnering with people that can help you not just push you, but help you along the way. I think that is important to me, and I think it should be important to them, too. You don't want to deal with some folks that maybe are just wanting to sell you something, because that's, I think that's the wrong idea.

The idea is to help you determine what's a good fit or a good opportunity, and then you decide is it good or bad.

Mike O'Neill: Yeah, I think that comes through loud and clear with you. You're just so genuine. And the fact that you advise nearly 60 percent of the people who come to you, this is not the right thing for you.

Is it is a kind of a credit to you and how you choose to do business. If folks want to connect with you, what's the best way for them to do so?

Jerry Bird: Well, you can email me. jbird@frannet.Com. F R A N N E T two n's. Or call me at 423 432 4200. And I'll be glad to talk to anybody to help them.

Again, I, I very upfront with what we do, why we do it, how we do it. But I, I do want to help people. That's I've retired four times and basically none of them stuck. If you just kind of goes right to your show I was stuck and then I got unstuck and usually about a day. So we, I really do want to help people you know, help them find something if that's what they want to do.

So come here for them.

Mike O'Neill: Jerry, we're going to put your contact information in the show notes. This is episode 145 and this is the first time that I've had a conversation with a guest about, about franchising and how does it work? It's long overdue. Thanks for lending your expertise today.

Jerry Bird: Oh, you bet. My pleasure.

I'm here to help anybody I can.

Mike O'Neill: Well, that's clear. I also want to thank our listeners for joining us today. For even more insights about getting unstuck and moving your business forward, I invite you to subscribe to the Bottom Line newsletter. You can do that by going to bench-builders.com. You know, I have found that the clients that we work with, they usually had one of two problems.

Either they were frustrated because they were losing employees they wanted to keep, or their leaders We're stuck in the weeds of the day to day and they were failing to execute on their long term strategy. So if you're listening and high turnover or poor execution, if it's slowing your growth, let's talk.

Head over to bench-builders.com to schedule a call. So I want to thank you again for joining us and I hope you have picked up on some quick wins from Jerry. They'll help you get unstuck and on target.