Franchising: One of the Best Innovations Since the LLC with Robert Huntington: An EOFire Classic from 2022

0:02Who's ready to rock today, Fire Nation. JLD here and welcome to Entrepreneurs on Fire brought to you by High Level, the all-in-one sales and marketing platform. On today's classic episode, we'll be breaking down one of the best innovations since the LLC. To drop these value bombs, I brought Robert Huntington into EO Fire Studios. Robert is the CEO of Metric Collective. And today we will be talking about once you've proven you execute a model, you start innovating that model. And we talk about good union economics and being in business for yourself, not by yourself, and oh, so much more. And the big thing of sponsoring today's episode goes to Robert and our sponsors.

0:39Are you ready for the ultimate all-in-one platform for entrepreneurs, marketers, coaches, and agencies? Build funnels, automate follow-ups, manage clients, and even white-label your own software. Say hello to our featured partner, High Level, and visit highlevelfire.com to start your free trial today. Robert, say what's up to Fire Nation and share something that you believe about becoming successful that most people disagree with. Hey, John. Thank you for having me. Hello, Fire Nation. So I've been thinking about this question in advance and struggled with coming up with something that I think is something I believe that most don't.

1:26Here's my shot at it. So I think very few people are actually successful. It hinges on the definition of successful, but like those who are satisfied, they have a sense of well-being rather than just like a scorecard of a huge net worth or impact. And I think going from it that route, I think the truly successful are those who execute against whatever intrinsically motivates them, whatever that could be. Like if it's build a huge net worth and that's what really motivates you, then great. And I think that person is successful. But I think the key to true success comes from figuring out what your intrinsic motivators are, like whether you're a person who wants to be unique, whether you're a person who wants to be in control, whether you're a person who wants to achieve mastery.

2:13And the last one is what motivates me. I love being able to achieve mastery in something and figuring it out no matter how long it takes. But I've had a bunch of times in my life where I've seen someone do something and I'm like, wow, I want to figure out how to do that. And then, you know, three painful years later, I can do that. Well, Fire Nation, as I mentioned in the introduction, we're talking about one of the best innovations since the LLC, the Limited Liability Corporation. And that, at least in Robert's opinion, is franchising. So before we go any further, let's start off with a bombshell of a question.

2:53What the heck is franchising? Franchising is a business model that enables the creation of significant wealth by aligning incentives in a really thoughtful way. So at its core, it is someone has come up with a great way to make a burger and fries, and they know how to do it. They know how to ship it, and they want to bring it to other people. Their choices are either take on a ton of money and expand corporately or sell that model, the playbook, the how they do what they do to someone else in exchange for royalty. And what that does is it enables expansion rapidly. Franchising is beautiful for a number of reasons.

3:39One of them is it allows for really rapid scaling in an asset-light model. You're using other people's money to grow throughout the country. And those people benefit from it because they see the upside. And then on the corporate level, you're cutting out a whole layer of middle management because you have local owners who have skin in the game and are really incented to make sure that they're delivering an outstanding product or service to their customers. One of maybe the easiest ways to think of franchising is a line from the IFA, the International Franchise Association, which is with franchising, you're in business for yourself, not by yourself.

4:18You're basically buying someone's playbook to go implement a given model in a given industry. And that's one thing, Fire Nation, that I get over and over again is, John, I have the motivation. I have the drive. I just don't have the idea. I don't know the steps to take. I don't have a model in my head that I can follow, but I can follow somebody else's model or I can follow a model if I had one because I'm willing to work hard and bust my butt. Because my listeners, Robert, they are entrepreneurs. They are small business owners. So let's talk to them right now. Should people that are listening right now who have that mindset of being an entrepreneur, a small business owner, but they don't quite have that light bulb on their own, that programmer, that process on their own, should they buy a franchise?

5:07It's a hard question. And the answer is for sure, not always. Like some people are not going to want to buy a franchise because when you buy a franchise, you are buying a playbook. And the key to the success of that playbook is executing against it. And if you get someone who's too entrepreneurial who comes into a franchise, they're like, I want to do it this way and I'd want to innovate here. And it's like, great, but that's not what you bought. what you bought as a system, a way of doing things that we know will work. There's a tension there, like some of the best innovations in a given franchise system come from franchisees.

5:43And some of them are new, but most of it's like once you've already proved that you know how to execute on the model, that's when you can start innovating on the model. Like the Big Mac, for example, is an innovation from a franchisee. But you need the core following the system before you start trying to reinvent the wheel. But if you're an entrepreneur who is motivated to build a really significant business and scale and use someone else's playbook to do so, then it's a wildly entrepreneurial activity and can create some significant wealth and can be a ton of fun. So you have to really look in the mirror and say, am I going to be okay with following someone else's playbook or am I going to buck at every left turn?

6:24And if you're going to buck at every left turn, run far, far away. Now, if our listeners are like, you know what, this could be for me, I'm looking to take the next steps, what are the best ways to find the right franchise for each individual human? So I get this question a lot, and there's a few different lenses to look at for this. The single most important lens is, is it a good business? Like, does it check the box for business sense items? Like, is the return profile going to be there? Say it costs you$300 ,000,$350 ,000 to open a box. Is your payback period going to be two, three, four years?

7:07What sort of net profit are you going to be able to see once you get over, once you get past break even? And is that enough that you are able to have a two, three, four year payback period? And then there's other critical stuff like, is this an industry that's growing? Like when my partners and I invest in franchisors and we service the whole value chain of the franchise industry, one of the pieces that we do is we make equity investments into franchisors. And we actually are franchisees ourselves as well. And the lenses that we look at before we invest are, is the industry growing? Like, does it have a 10 % growth rate?

7:43Because rising tide lifts all ships. And then is this something that's going to be around in the future? Is there a moat around this? Or is Amazon going to disintermediate this and somehow, like, we don't want to go the way of Polaroid. So the fundamentals, are the fundamentals there? Do you have the returns? Is the business protected by some sort of moat? Does it deliver real value to customers? Is it something that customers will want or need, whether it's B2B, B2C? And then last but not least is the franchisor. Is the franchisor someone you want to be partnered with? Because you're going to sign a 10-year agreement, and in most cases, in most good franchise systems, people renew those 10-year agreements 95 % plus of the time.

8:28So you're getting into bed with someone who you're going to have a long-term partnership with. So you want to make sure you can trust that person, and you also want to make sure and trust on two dimensions. Trust like they're not bad human beings who steal or whatever. And then trust on the other dimension like, are they competent? Are they going to be able to support and innovate as things change? Related to that second bucket of trust is the model might be good, but are they innovating on the model? Are they making it better? Are they providing, most importantly, the operational and marketing support you need?

8:58There's other nice types of support to get? Like, is the tech sexy and dialed in? Is the financial analysis great? Like, and those are important, but the two key most important ones are, are they going to be able to help you with ops? And is the marketing going to be crisp and effective and get the phone to ring? And also, I just want to reiterate, is this something that you're excited about? I mean, this is a product, a service, if it's going to be into food, is this food that you actually like eating? And is this like up your alley in different ways like that? Like, is this something I want to reiterate because this is going to be your life.

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12:37Fire Nation, I know what it's like to scramble at tax time, but with Gelt in your corner, you've got a plan, execution, and a partner focused on minimizing your taxes and maximizing your growth. Get a personalized consultation and 10 % off your first year when you mention entrepreneurs on fire. Visit joingelt.com slash EOF to get started today. That's join G-E-L-T dot com slash E-O-F. So Robert, we're back and a lot of our listeners might be like, well, listen, a franchise maybe isn't for me right now because I already have an existing business. I like my existing business. My existing business is currently successful.

13:17What if they wanted or wanted to know if it was even possible to turn their existing business into a franchise? What would you say? This is a thing that I spend a lot of my time on every week, speaking with entrepreneurs who are interested in turning their business into a franchise. and the key thing is kind of what we were talking about before. Like, does it check those boxes? Are the unit economics, the fundamentals there? Is it a differentiated thing that customers need? Is it going to be disintermediated or otherwise obviated in the near future? Like, is it going to go the way of Polaroid or Betamax or BlackBerry?

13:59And if none of those things, if there's a real demand for it and the unit economics are there, then it is definitely franchisable or worth looking at turning into a franchise. There's also a personal component to it of starting a franchise is not easy. You're going from you're in charge of everything to you're taking on a number of partners who are franchisees who are trusting you with a large chunk of their net worth and trusting that you'll be able to support them and help grow their own businesses. But if you do have good unit economics, if you do have something customers need, if the market is growing, then franchising can be a really attractive route.

14:42So if our listeners decide to go down that route, what makes for a great franchisor? I mean, the person that is really excited and passionate about their business, that's like an obvious thing, but what's going to make them a great franchisor? What's going to make their franchises successful? Like you, again, spend a lot of time every day, week and month going over whether businesses and people make sense to become franchisors and to turn their business into a franchise. Tell us everything that you've learned. And actually I'll throw in here, give us one example after you hit my first part of the question of somebody who you've mentored or coached or talked to that has made a great franchisor and why?

15:28There are two real big dimensions that I like looking at, which I shamelessly stole from Y Combinator, which are earnestness and formidableness. So is the person earnest? Like, are they sincere? Like, do they get enthusiastic about whatever it is that they're doing? And I think that's a proxy for tons of other stuff. One, probably proxy for not cool in high school because I don't think Ernest plays well in high school. Two, proxy for like really excited about what it is you have, like whether it's a pet concept or delivering coffee into offices that makes for just a better office experience that people love.

16:09So and then formidable, like can you execute? Are you a person who can get stuff done that when like that people can count on? Because there's going to be hurdle after hurdle after hurdle that seem insurmountable. and you have to be able to overcome all of those. So if you're earnest and you're sincere, you care and you're a formidable person. And I bake into that, like I think inherent in those two ideas, are you kind, hardworking and smart? Like you need those things. So if you've got all that stuff, then the other piece is cognitive flexibility, like the ability to hear what other people are saying, not take it defensively and integrate it into your model.

16:55Because a lot of the times, a new entrepreneur will start a franchise and think they have the perfect concept as is. And what we find is it's great. The reason we're talking to them is it's great. But it's not all the way there. There's some stuff around the edges that needs to be changed to take it to the next level. An example of that is we partnered with Petwell Clinic, which is a walk-in wellness concept for dogs and cats. The founder of it, Dr. Sam, brilliant guy. His values are right up on the wall, right up among them is kindness, community, openness, like just a guy you want to partner with.

17:33Physics major, undergrad, he's a vet, computer programmer. And so folks like that are amazing. He'd been trying to franchise for many years and hadn't succeeded. And we partnered. and through a number of months of discussion, figured out some tweaks to the model and to whom specifically we target selling the model. And we were able to blow it up and turn it into what's now tracking to be a really big success. Like they had no units sold over like three years. We partnered with them less than 18 months ago. And now there's 114 units sold to world-class franchisees. That's another key part of the equation.

18:11Like you can have a great concept, but if you don't have great franchisees, then like anything, it's the people who make the business. But it's really that flexibility and being willing to listen and hear advice and recognize like maybe I don't want all of that advice, but find the kernels in there that make sense, that can help refine a given business model and take it to the next level. And he's an example of that, of someone who really exhibited nice cognitive flexibility in refining the model and continues to do so. So Robert, you've given us a great understanding about what is a franchise.

18:45Should our listeners buy a franchise in the certain place they're at in life? You know, how to turn your existing business into a franchise or the fact that it's even possible to do so. Great to know. And also what makes a great franchisor. What's the one thing you really want to make sure Fire Nation gets as we start to wrap this interview up? The one key takeaway of everything that we've shared. I think the IFA line distills it very nicely. Like franchising, you're in business for yourself, not by yourself. It's a beautiful model that aligns incentives in a better way than I've seen anywhere.

19:23And as a management consultant for Fortune 500 companies, I saw tons of them. I've seen tons of franchisors. I kind of grew up in franchising. So it really is a powerful model. And I think one that is not on many people's radars, even though it's like a nearly$800 billion industry. It somehow is not on the radar of either folks. Like when I was a consultant or in business school, like none of my friends knew anything about franchising. Increasingly today, like when I talk to private equity friends and say I'm in franchising, their eyes light up because people are starting to pay attention to the numbers.

20:01Like the returns that you can realize in franchising are incredible. So I guess the one big takeaway is if you've never looked at franchising, give it a look. Like there's all sorts of cool stuff and it's a big, broad industry where it's not just burger canning and McDonald's. Like it's everything from karate to hotels to autos to, you know, pretty much every industry has a franchise component to it. Do you have a call to action, a way that our listeners can connect with you before we say goodbye? Any listeners who are interested in talking franchising with me, they can hop on the Metric Collective website and fill out our lead form.

20:37whether you are a person who has a cool concept that you want to see if it can turn into a franchise or you're interested in learning about what the best franchises out there are to become a franchisee of, we'd love to chat with you. And what's that URL? metriccollective.com Fire Nation, you're the average. Of the five people you spend the most time with, you've been hanging out with RH and JLD today, so keep up the heat. And head over to eofire.com, type Robert in the search bar and his show notes page will pop right up. So Robert, I just want to say thank you for sharing your truth, your knowledge, your value with Fire Nation today.

21:13For that, we salute you and we'll catch you on the flip side. Thank you very much, John. Hey, Fire Nation. Today's value bomb content was brought to you by Robert. And Fire Nation, are you ready to rock your very own podcast? If so, check out our free podcasting course where I will teach you how to create and launch your podcast for, you guessed it, free. freepodcastcourse.com. I'll catch you there or I'll catch you on the flip side. Are you ready for the ultimate all-in-one platform for entrepreneurs, marketers, coaches, and agencies? Build funnels, automate follow-ups, manage clients, and even white label your own software.

21:51Say hello to our featured partner, High Level, and visit highlevelfire.com to start your free trial today.

22:04Thank you.