SNM211: Why is Franchising a big powerful vehicle for success with Giuseppe Grammatico

0:00 The franchise are really we'll put that work up front because at the end of the day, they want you to be successful. You are an extension of representation of their brand. So, the last thing they want is unhappy franchisee. That's just not doing well in that market. Yeah, I'm just so excited to have you here to talk about something that I'm very interested in. I'm very familiar with starting a business from scratch, starting a business from home, the whole online business, but the whole idea of

1:13 franchises, they're fascinating to me. I watch all these television shows like we have one restaurant, they want to turn into a franchise and they don't have those pieces. So, I think the first thing is to really understand what is the difference between a business and a franchise? Great question. So, with a franchise, it's a proven system. It's a system that you can replicate across the country, across continents, different countries across the U S, different states and countries. So, you want a strong system where

1:39 any other owner could follow a basic playbook, a basic system and be successful in that business. I think that's the part that I find most interesting is the need for an instruction manual. So, two years ago, we started our own small business here, with my wife, we took over a hostel and they had no idea how to run a business. When they gave us their numbers, I was like, these aren't good. I said, if every bed was filled every night at a hundred percent capacity, the

2:13 number would be half of what you said. But I also knew we could grow it into something really big, which we did for a while. But the hardest part is like training a manager or having a process. Like simplest processes, like how to clean a bed, how to clean a bedroom, what should be in a room before guests arrived? What's the welcoming procedure. All these small things and at a new restaurant, you often see our independent restaurant in my experience. Sometimes you walk in and they

2:38 don't have a, it's like a family, or they don't have a process for that. And the same in my business. I often as I train a new person, like you have to turn this into process. So, whoever answers the phone and wherever answers email says the same things. So, my feeling is that the two big advantages of a franchising. Number one, it comes with an instruction manual, like every other business. And number two, you get advantage of whatever the brand brings to the table.

3:04 Like whether it's national advertising or brand recommendation. Or those assets where they have a corporate team that's backing you up or providing you with the supplies you need, when you're selling them. Yeah, absolutely. The franchisor tried it out on their own, so they've figured out, okay, what is going back to the hotel? What is the best way to make a bed? What are the best cleaning chemicals, quickest way to get in and out of a room to prepare it for the next guest.

3:28 So, they've figured it out on their dime, with it that's both time and money to figure out the best way they get their research, put it all together and put it in that manual so it is easy to follow. So, when you do invest in a franchise, essentially, you have the right, it's a licensed the right to run that business. You don't own a piece of that corporate business. But you do own the licensed that the business in a box per se, to

3:51 run that business exactly the same. So, it doesn't matter what country you're in, what state you're in. It's all going to look and feel exactly the same. So, lots of benefits. And those benefits, not everyone is franchise material. Someone may be in your audience that is looking to maybe do a startup business, and they want to create everything from the brand, the logo, the processes on their own. They may not want to look at a franchise and may want to just do a startup.

4:16 So, every one that I speak with, we do like to make clear that it's one or the other, but it's best matches what you're looking for. One thing that I've seen is it, sometimes there is like people have one successful store in New York and then they go, we're going to franchise it all over the country. And traffic and things I think about like everyone in your blocks. So, you could have a store that has millions of people walking by every

4:41 month, as opposed to you open up a franchise in, let's say Nashville where everyone drives, no one is walking. So, you have to get people to stop their cars and parking come in and you have this other issue. So, the foot traffic isn't there. It's much different, or you have to get a spotlight where people can see from a freeway exit. So, how do you know when you're going in that this franchise can translate to your region? Like that, to me seems like the biggest question.

5:09 If I replicate exactly what they're doing, will I have the same success? When I'm changing the location, when I'm changing the staff, how can you tell us? Cause sometimes the secret sauce is like the owner is so gregarious and is such a great personality that everyone's coming in for them. And that the business is they're the key man, if you will, I think that's the right term. So, how can you tell when you're looking at a franchise, if it's the right phase.

5:32 Is it worth being the early adopter franchise or it feels like that's really high risk? Maybe it's like the price of the franchise goes up as you risk it. Yeah, early adopters, there's definitely pros and cons to that. But to your point on different markets, it's up to the franchise or to really do a research on the territory. So, before anything else it's not a one size fits all, they'll review your territory depending on the product or the service they'll look at. Okay.

5:58 What's the median income in that area and just say, okay, we have the foot traffic, but we do cater to people making over a hundred thousand dollars. So, that may be five counties versus two counties in a different state. Not every franchisor is created equal. And the franchise owners that have been around a while will actually go in and do their territory research before offering a territory. And with territories, they just may be a prime location. It needs to be in a city.

6:29 It has to have so much foot traffic, so they will limit the number of franchises that they allow. And to your point, the benefit of franchise will have versus any other business bar, none. And their major differentiator is validation. No other startup business will have this. You can talk to franchisees all over the country, all over the world and ask them that the million-dollar question. Knowing what you know now, would you do this all over again? Did you make what was your true startup?

6:56 Estimating a hundred to 200,000. Was it really, in that range, was it much less, was it more so the validation is key. Obviously, you want to contact people in your market as well as outside your market, just to get a really good perspective. But that, that is one of the major advantages to the franchise and just asking them questions. But, going back to your original question, the franchise is really, we'll put that work up front because at the end of the

7:20 day, they want you to be successful. You are an extension of representation of their brand. So, the last thing they want is unhappy franchisee. That's just not doing well in that market. So, you mentioned in there that anything for hundred to $200,000, like I've always thought of franchises is really expensive to get into and that you have to have sitting in your bank a quarter million dollars for even the smallest of franchises. Is there an alternative way to fund

7:45 or is there another way to get into a business without having to have billions of dollars to the bank? Yeah. That is a big misconception, because when people hear franchising, they think of food and the McDonald's the Burger Kings of the world. And yes, it's expensive because essentially you have a really big build-out of the of the store. Franchises range in all amounts. And there's two numbers. There's essentially the franchise fee, which is the initial fee you pay for the license to have that business.

8:19 And then there's your, all other costs that are combined altogether. So, in the franchise agreement, it's an item seven, and it's going to give you a range. It's going to say, given what first year franchisees have invested, you're going to need a hundred to 200,000 and that's going to range. 50,000 billed out 50,000 franchise cost 50,000 marketing, but they'll even go over and beyond and say, and six months estimated living expense because it may take a little bit longer to get up and running.

8:51 They do give you ranges, but as far as what a franchise cost, you can get a franchise for well under a hundred thousand dollars. And depending on the territory, or if it's larger retail location, you can get into the millions. So definitely a big range there, but there's literally a franchise in every industry. I'm not sure about the world, but in the U S alone, there's over 4,000 franchise concepts. So, there's a lot to go through a lot to figure out what's your best fit.

9:19 But going back to funding options, there are dozens of options that you have for funding. We work with funding partners that will take a look at all your financials, your assets, liabilities, net worth. And they'll give you a short list, typically two or three funding options. So, a very common option that's really easy to get is a home equity line of credit. If you have equity in your home, but as far as other options, there are aching converting a certain amount of money,

9:46 if not the whole retirement and 401k. As long as it's not with a current employer and rolling that in creating a C corporation and funding your business that way. So, essentially, you're not taking a loan, but you're using your own money and investing in yourself versus whatever the company stock or mutual fund you had. But you have a small SBA, small business administration loans, portfolio loans you can take on your investments. So, there are just literally dozens of options.

10:17 And it comes down to what you're most comfortable doing and funding partner will do that legwork and research for you for free, and obviously there's a fee if you do move forward. So, I know when you buy a house, you need to have a certain amount that you pay cash. And then the rest is the mortgage. Let's say you go in the SBA, the small business loan direction okay. The total cost in the franchisees area, is a hundred thousand dollars.

10:43 What percentage of that do you need to have in liquid capital to get in the game? Do you need 10%, 20% at 50%? It ranges. And it depends on the number of territories, but we'll say on average, 20 to 30%, they'll loan you the rest. And then that goes towards the downpayment. And just want to make sure you have enough liquidity and living costs to set you up for success. So, hallmark I give to everyone is figure out your monthly expenses, especially if you're leaving your

11:08 job to do this full-time and get your finances in order, put together, maybe just a monthly expenses what you what you spend that on a monthly basis, but typically 20, 30%, unless you're going a, the portfolio we're using your own money, then obviously there's you're using whatever amount is needed. You mentioned that there's a lot of other concepts besides restaurants, I guess I only think of like gas stations and like mini marts and then I think of fast food restaurants.

11:38 And then again, and I know there are some like other types of restaurant concepts as well, but I haven't really thought about it. Are there shops in the mall that are franchises? Because I've always just assumed oh, this isn't every mall, but it's a company store until you just said that. So, can you give an example? What types of things our branch has that people don't even realize are franchises? Yeah, sure. So, I break them up into two categories. You have a service-based where there's

12:00 no physical location, and then you have a brick and border retail location. Primarily people have heard of the restaurants. They have that really big brand recognition, but a lot of people will come to us looking to invest possibly a smaller amount. Don't want the headache of a build-out. The pandemic has scared a lot of people, as far as you can't eat at a restaurant inside of a restaurant here, at least in New Jersey. So, they look at service-based. So, service-based things that

12:27 are doing well are commercial and residential cleaning, disinfecting for COVID and keeping your employees safe in the in the work environment. Another one is business coaching. So, it's B2B. Helping business owners pivot and say, okay, I do offer a service. We're really impacted by the pandemic. How do I pivot? How do I change my business so that we are set up for success? Because this is definitely not a short-term thing. This is going to definitely extend into the, who knows how long into the future.

12:59 So, employment services. They even go into services for compacting trash. There's less trips to the landfill and you're doing some good for the environment and saving, nice percentage on your trash bill. So, there's literally porta-potties haircuts. You name it. There is a franchise pretty much in every single industry and the goal that I have with our candidates is not on the first call to figure out, what's the perfect franchise for you. That's typically the third or final or fourth call, I should say.

13:34 We figure out what does your ideal business look like? If a franchising is the right fit and figure out, what does it look like? When does it operate? What a number of employees, what types of employees are they? Are they minimum wage employee? Or are you just managing one or two general managers, investment level territory, things like that. So, once we get all that and we create a model, then we start looking at franchises that fit your model. People get really excited over a

14:03 franchise, sometimes a restaurant and not to pick on restaurants. But when you dig in, they don't want to be open seven days a week or ideally, or they don't want to deal with minimum wage employees. A lot of inventory and that's the complete opposite of the restaurant they got in. So, you see people that are extremely successful in the restaurants and someone owns the exact same franchise and is unsuccessful simply because it just wasn't a right fit for what they were looking for. So, does sometimes

14:32 people get so excited by the hype of the possible money that you don't pay attention to the actual work, if like that saying that oh, you see someone in their overnight success, as long as you don't count the last 10 years of groundwork. Yes. People get very excited. They don't, it's there's that picture. It's an iceberg. You don't see the bottom of the iceberg. You just see the top of it. And the last few years now that a person's been successful, it takes

14:57 a lot of work franchise or not. It's a lot of work. It's a big investment. There's a risk. Definitely. You're minimizing some of the risks because you do have a franchise or in your back corner that's supporting and helping you. Yeah, you got it. You have to find something that you truly match your lifestyle. If you just want to work Monday to Friday, and you're in a business that are functioning seven days a week, unless you have a really good general manager,

15:19 that's handling that weekend duty for you. You may be in the wrong business. You may want to look at something else. So, I hope that answered your question. Okay. And are there different types of franchise ownership? Is there something other than you put in all the cash you get alone and then you're all in. Is there a different format? Can you do like a team type of a franchise ownership? Yeah. With franchise ownership, you can own your own franchise. So, that's your own store, your own

15:41 territory, maybe a, for example, I'm in New Jersey, so it may be one or two counties in New Jersey and I own a McDonald's or a Dunkin Donuts franchise. Then there is what they call an area developer where you buy a larger territory. So, I may be the whole state and maybe a half the state. And you're basically going to build a new store every year and open up a new store, but you're locking in a territory and you're getting an exchange,

16:08 a discount on the franchise fee. The third, which, I have experienced in this area, but I've seen less and less of this is what's called a master franchisee or master franchiser. And essentially what that is you're buying a territory from the franchise company. Given I'm in New Jersey, I will invest in, by the state of New Jersey from the franchise company and I will sell and find franchisees in that state. So, every person that I find that opens up a franchise in New Jersey, there's

16:38 some type of split and that's going to range of on the original franchise fee. It could be 50, 50 half to me, half to the franchise company. I will find them. I will support them and do any trainings and come out to their stores or locations. And then there's a split on the ongoing royalty. So, essentially, I'm actually buying a piece of that, a territory away from the franchise and splitting the royalty. And is that common? Are there people doing that now?

17:04 Because it seems like that the world is so interconnected that it I don't feel like that would be very common maybe as it was back in the day, it wouldn't be hard to set up the central team across the country. Yeah. That master franchising, I see less and less in the US but more common overseas. So, if it's a US-based franchise, they may come to whatever, it may be. Whatever country, in Europe, Asia, you name it where essentially, you're not getting a city, but you're actually

17:28 taking over the entire country because obviously there's going to be slight different ways of doing business. You want to make sure the logos and everything match up correctly. So, maybe there's a different footprint, such as I know, with a Kentucky fried chicken and some of the other fast food restaurants, they had to change our footprint a little bit. And how the stores look even modifying some of the food that's being sold. Like when you go from McDonald's in the US and in Europe, but yes, it's

17:53 you see that more on the international scale, but what I see mostly are either an individual investor or a group of investors capitalizing on the money, the experience that they have and going in and buying, four or five, even 10 franchises at a time that the developing and utilizing, one bookkeeper to manage all the businesses, maybe a few general managers to handle all the locations. But that seems to be a trend in our industry. What type of person is the right person to

18:24 get into the franchise game? Are there certain key metrics? You need to be this age, you'd have this much money. You need to have this type of feature. What are the things that meant someone? No. Oh, they're definitely not the right fit. Or maybe they are the right thing. Yeah. So, two parts to that specifically, just in general on franchising. You need to be able to follow a system because people will say, yes, you'll ask them questions and then they'll

18:46 say I like a McDonald's, but I'd like to add or use different vendors or they have all these extra ideas. And I say no, that you have to follow their system. You can't, they're very strict, very specific on that system. You don't have to invest in that type of business, but you do need to follow it. So, we normally see it franchisees fail if they just don't follow the system in general. And then the next level is, so if you

19:07 follow the system, you have no problem. You just want a business in a box. Like myself. I wanted a business set up for me that I could just run with day one and generate revenue. Then the next step is where I work with my candidates to figure out, okay, what is the type of franchise that I want? And when we build that model, it's not about, do I want to be in cleaning or employment services or food? That's the least of your concerns.

19:32 Let's figure out what your role is in the business. If you want to be a semi absentee owner, where, you're involved in the business, maybe 10, 15 hours a week, and then you're off doing something else. Do you want to be involved, Monday to Friday, 40 hours a week, figure all that out? But once you figure that out, then we back into, okay. Given what you're looking for, these are some franchises. So, the biggest mistake I see people make is they'll pull up a magazine

19:58 or website and say, all right, these are the hottest franchises. Let me research. And you're doing it I think in the wrong order, I think you should first look at the business that fits what you're looking for, meaning what the business looks like, and then seeing what franchises match that because with 4,000 options you'll spend the rest of your life researching and figuring out what's the best match. And quite frankly, I've seen people, figure out they want to be in this

20:21 business, pick a franchise to find out the territory has recently sold. And now they're back to the drawing board. Take a step back and just figure out, okay, this is my ideal business. And I recently wrote a book and I hope you don't mind me mentioning it on the show, but it's specifically for your audience. So, it's my website. It's a ggthefranchiseguide/servenomaster, and they can get a free copy of my book. It's a very short read and it just talks about franchise. The process.

20:50 So, whether you use someone like myself or want to go on and do the research on your own, it just talks about the steps you should look at. But more importantly, before even getting there, figuring out if business ownership and franchise ownership is even the right fit before you start spending hours of research and talking to companies. Okay. So, the real process is to figure out number one, do I want to follow someone else's rules? Because it's they can be in the boss.

21:13 You do whatever you want. But if you're in a franchise that's not going to work. So that's step number one. Step. Number two is thinking about what goal you want to have. Do you want to be there 40 hours a week, 80 hours a week, 10 hours a week? Totally be able to travel or locked into a location and then you look at what franchise that are variable in my territory's. you don't start chasing things that you can't even get unless you have to move.

21:36 So, that's the exact opposite process. I think most people would have thought about for approaching it. So, this is really good. And this is really good advice. And thank you so much. And everyone we'll also put the link in the show notes at the right below the video or the audio version. If you're watching this on the blog and we'll put the link to Giuseppe's book, what you guys are going to love franchise freedom. It's really good. Cause it's definitely opened up my eyes.

21:56 I've never thought that a franchise would be possible for me. There are so many areas where you could do it. I never thought about doing port-a-potty. Doesn't do anything about that. I would love, and that's like my dream business, because people are always using them. And it's really simple. You just have to find port-a-potties ones to keep them clean. Get a truck to clean them out. And then that's a really simple thing. I think ball festivals and construction sites, that's like an amazing business.

22:22 I didn't realize how it was a franchise. I figured it was just one guy that came to the whole United States. So, I learned something new today. Thank you so much for your time, Giuseppe. Thank you so much for spending time with us. This has been an amazing episode guys. Make sure to grab his book Franchise Freedom. Just click the link below and we'll see you guys next week. Awesome. Thanks Jonathan.