Franchising - The Better Path to Business Ownership with Jon Ostenson

0:01Boom! Shake the room, Fire Nation! JLD here and welcome to Entrepreneurs on Fire! Brought to you by the HubSpot podcast network, the audio destination for business professionals with great shows like Success Story Podcast. Today, we'll be breaking down franchising, the better path to business ownership. To drop these value bombs, I brought John Ostenson into EO Fire Studios. John is a top 1 % franchise broker, consultant, investor, and author of the book, Non-Food Franchising. He draws on his experience as a former Inc. 500 franchise president and multi-brand franchisee and serving his clients.

0:35He is a frequent contributor on the franchising for Forbes, Inc., Bloomberg, and the Franchise Journal. In today's foundation, we will talk about what's working right now in the world of franchising. We'll talk about why franchises are stronger options than startups. We'll talk about the investment range and what to do right now, and so much more. And a big thank you for sponsoring today's episode goes to John and our sponsors. Hustle & Flowchart, hosted by Joe Feer, is brought to you by the HubSpot Podcast Network, the audio destination for business professionals. Join Joe as he discusses systems, mindset tweaks, reframes, and strategies to help you build a business that gives you freedom and fuel for your life.

1:11A recent episode on using AI for effortless content creation is a must listen. Listen to Hustle and Flowchart wherever you get your podcasts. Ever thought about giving a TEDx talk? It's one of the most powerful ways to share your message with the world. And four-time TEDx speaker, Taylor Conroy from Thought Leader can help you get there. Visit thought-leader.com slash fire to join Taylor's free training where he teaches you how to land a TEDx talk and spread your message to millions. John, say what's up to Fire Nation and share something that you believe about becoming successful that most people disagree with.

1:48Fire Nation, great to be back with you. Great to be back with you, John. I think this is our eighth episode together. It's just been a great run. Appreciate the partnership. regarding success in business. Many around me believe that you must work towards building a company for a big exit. My strategy is somewhat contrarian to this and that, you know, I'm building toward many smaller, healthy exits. You know, I've got a portfolio strategy that includes both direct ownership and syndications, you know, in real estate and other alternative assets, but also in business ownership, primarily through franchising.

2:18So, you know, this strategy generates ongoing cash flows and it creates the potential for exits across a really diverse group of holdings. So yeah, this is my personal preference versus putting all the eggs in one basket, which you see so many do. So this is something I preach to my clients as well. Well, Fire Nation, we're talking about franchising, the better path to business ownership. But before we get really deep into that, I want to just say, man, since the last time we spoke, which wasn't too long ago, but some cool things have happened. And I want to congratulate you because you made the Inc.

2:505000 list. I mean, this is tremendous, stupendous, fantastic growth for Franbridge. So tell us more. Yeah, thank you, John. No, it's really a testimony to the number of individuals that we've been able to introduce to business ownership, you know, and thus impacting their communities and their families, creating jobs, you know, just absolutely love what I do. And, you know, many of these newly minted business owners are EO Fire listeners. And, you know, first thought about franchising first hit their radar based on one of our previous conversations. Fire Nation, I really hope that you get excited and fired up about the content that's coming your way because on the last episode, we discussed the top opportunities for 2024.

3:30So make sure you check that one out if that's of interest to you. Just go to the search bar on eofire.com, type J-O-N, and John Austinson's show notes page will pop right up. But I want to to go deep right now on the why behind franchising and why it makes sense for so many. So give us your pulse on what you are seeing in the entrepreneurship landscape and how that gets you excited about franchising. Entrepreneurship is alive and well here across North America. When you look at the Google search results for building a business, it's at an all-time high. And yeah, there's still near record levels of cash on the sidelines, looking for a home, looking for a place to find yield.

4:10For instance, we can continue to see a lot of real estate investors move in our direction because with high interest rates and low inventory, there aren't too many deals to be had. And they love the fact that owning a business through franchising provides for other tax advantage vehicles, similar to real estate in some regards. There's also just so many great in-demand opportunities out there across a variety of fields. As you know, we play in a lot of different spheres. And we see clients getting involved in everything from soccer to dumpsters, in-home healthcare to cabinets, restoration to mental health to tiny homes, just to name a view.

4:47And one additional thought, many of our clients come to us having been looking for existing businesses. And we continue to see existing businesses' listings are down, largely because the multiples have been compressed over the past few years as a result of higher interest rates. Buyers can't spend as much, and therefore, people are hanging on to their businesses a little bit longer. So even once they do their due diligence on a business, if they got there first before other buyers, oftentimes they say, hey, it's not what we expected. And they're starting to realize that there's inherent risk to buying a business and an existing business.

5:22Where on paper, it looks great. Everything's in place. You've got the team. You've got the cash flow. You've got the market awareness. But what happens on day two after the deal is done? Whenever you have a change in ownership, it's going to change the culture. You may lose a couple of your key employees that you just paid a premium for, may lose some key customers. So more and more as our clients begin processing fact, you know, there's some risk here and you're paying a multiple for a business. Why don't I instead bring a proven franchise system to the market and introduce it that way? you know we're certainly seeing startups take place out there on the landscape largely in the tech sector but for more traditional business industries which is where we operate you know I found that more and more individuals once they're exposed to franchising often go that path entrepreneurs on fire launched in 2012 and our focus since then has been about interviewing entrepreneurs about their successes their failures and of course a lot of those entrepreneurs are startup entrepreneurs people that said you know what I have an idea I'm going to start a business let's go and they had massive failures they had massive successes and everything in between sometimes it took three or four tries and and all the different things now you've talked a little bit about this already but i want to really dive into what i consider the meat and potatoes and really get specific and then maybe give a couple examples as well as why franchises are not always but often a stronger option than just plain startups i'll start by saying franchising is not right for everyone.

6:48Some people are too entrepreneurial and want to put their thumbprints all over it. But I do believe that for the vast majority out there that say, hey, I'd love some support. I'd love to have a team on the sidelines to go execute. I think franchising is a better path. So I get asked this question a lot. So I've actually put together a top 10 list. So I'll just start out. To be cliche, you start on third base in franchising rather than first base. There's a proven path to profitability. You're not left wondering, will it be profitable? you know there's a path you just have to go execute. Secondly, you know there's product market fit.

7:21You know that's already been established in comparable markets. There's someone that's willing to pay for that service or that product you're providing. Third, you get the proven playbooks. You know franchisors providing these in areas such as marketing and operations. You know proven somewhat turnkey systems. Now it still takes work. I don't want to sugarcoat it. It absolutely takes work to stand up in business but you have the confidence going in knowing that the time that you're putting into the business is going towards working on the right things. Fourth, in addition to a marketing system, you know, that oftentimes includes digital print media.

7:55Most franchisors have experienced team members and preferred vendors that you can step into. And oftentimes they've accumulated large data sets. And so you're able to really have optimized marketing much earlier in the process based on the large data sets versus having to just start from scratch, delivering a higher marketing ROI. Fifth, franchise owners, you know, step into a technology stack. You know, the systems are in place. You don't have to go build it yourself or piece together different solutions. With franchising, you have a mentor or coach on the sidelines. You know, again, to be cliche, you're in business for yourself, but not by yourself.

8:30You've got a built-in operations and support team. Seven, you know, an often overlooked benefit of franchising. is you have the opportunity to exchange best practices with the whole community. There's other owners in their system and other markets, and you're constantly trading best practices from a lead generation standpoint, from a where did you find your top referral partners, where did you find your top employees. There's a lot of innovation that comes up just in this conversation. Franchise owners also benefit, obviously, from collective buying power, whether it be for products, equipment, or services.

9:06this can be a huge value add because you're buying in bulk. Ninth, while it does not completely de-risk the opportunity, having the opportunity to go in really eyes wide open where prior to signing a franchise agreement, you're looking at historical financials within the franchise or FDD. You're talking to other owners in their system, understanding what their ramp up looks like. So you get all these different data points to help you put together that pro forma. And you're really not just working off the back of a napkin, right? You've got some good information going in to help you project where you'll be.

9:37And then finally, you know, let's talk about the exit. End of the day, you're building a business that's going to cash flow, provide you with tax benefits, but you're also looking to sell that asset that you're building. And with franchising, there have been studies that have shown that franchises and like kind industries as non-franchises actually traded at a higher multiple at the end of the day. So there's that resale potential oftentimes to other franchise owners within that system. That's a very common exit as well. So those are just rapid fire, David Letterman style top 10 of how I think about it.

10:08Fire Nation, that was a top 10 list on fire. I hope you're getting excited. And of course, we have some more resources for you that John provides that we'll be getting into later. And we have some awesome stuff coming up around this topic when we get back from thanking our sponsors. Every entrepreneur knows that growing a business is hard. Trying to figure out which software to use, when, and for what purpose can be frustrating. you've got your email marketing system, your payment software, your CRM, your content tools, your email tools, your tools to retool your tools. It's chaos. Wouldn't it be nice if there is a single platform to handle all the tough work of growing a business?

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12:58Taylor has put together a free training that's going to teach you how to land a TEDx talk in as little as 90 days. Join Taylor to learn exactly what TEDx organizers are looking for in their speakers, how to write a talk that goes viral once it goes online, and more. visit thought-leader.com slash fire. Join Taylor for this free training and get your message out of your head, out of your heart, and out into the world where it belongs. That's thought-leader.com slash fire. John, we're back. And one thing I want to talk about next is a story. I mean, you just painted a great picture at the end of the, right before the break.

13:34I mean, that was fantastic. Those 10 steps, those 10 reasons. What's one of your favorite stories of a client that's come to you in the past few years? You know, just kind of think of one that just kind of makes you smile and kind of walk us through what that looked like from them contacting you all the way through to where now they're actually owning and running a franchise. There's so many case studies I can point to. You know, Nathan, who we had on the show, I believe two episodes ago, you know, the largest franchisee of two men in a truck operates a$40 million business across multiple franchise brands and multiple markets.

14:03But since we've had him on, y 'all just defer to another one that's earlier on, but moving in that same direction. My client, Dave in Pennsylvania. And Dave came to us. He was actually a C-level executive that had some success, but it was with a smaller company. But he travels a good bit and didn't have a lot of time to put into a business. He said, hey, I'm comfortable in my ability to recruit and incentivize a manager. And that's exactly what he did. So he bought into a property services business in a great little niche and bought seven territories. And about a year later, he came back and said, hey, I've got a good thing going.

14:36I'm ready for round two. You bought another franchise and I think you bought five or six territories this round and came back to us literally six months after that. He said, hey, John, I think I've kind of figured out the playbook. And at the moment, he's evaluating some additional opportunities that we offer to him. So, yeah, I love seeing, you know, referrals come from clients. I love it when they come back and buy additional territories. I love it when they come back and buy additional brands just because I love that path to, again, creating jobs, impacting their community, changing their lives and living life on their terms.

15:07Fire Nation, I know you love stories as much as I do. And I just love being able to picture that individual right there doing that and going through that process and now where they are now having that exciting, exciting life business. They've surrounded themselves with the right people, with the right processes, with the right systems because of this. Now, a lot of people might be like, well, I've always liked Subway. I feel like I know somebody who owns a couple of Subways. That sounds cool. but you focus solely on non-food franchises. Tell us why that is. I love the food guys. We need them. We support them.

15:42We consume, right? And some of them do very well. But end of the day, in my humble belief, I believe there are easier ways to make money. And most of my clients would resonate with that as well. And some of the reasons behind that would be a lot of the businesses that we work in don't require the same level of capital investment. You know, it's expensive to get into food. You know, oftentimes you have fewer employees that are required in the food space. In food, you have crazy operating hours and very little flexibility around that. There are also more regulations. And, you know, I do think, you know, customer whims change.

16:15You think about Froyo, frozen yogurt a couple of years ago. I mean, you know, you don't see as many of those anymore, right? And it's because customer sentiment has changed. So I don't like trends. I like non-trendy, oftentimes non-sexy business businesses. Think about insulation as an example. That's a$50 billion industry. Most people can't name a brand in insulation. But instead, what matters is the lead generation, the technical expertise, the procurement of product, being able to go into a highly fragmented market, and in this case, bring a white-collar approach to a blue-collar industry. So those are the kind of industries that we really like.

16:49And we see so many different backgrounds. We have everyone from doctors to lawyers to corporate executives to middle management to existing business owners that are stepping out, getting involved in a new industry that they don't have experience in. Obviously, they're transferring some skill sets over, but they're really leaning into that franchisor to be the technical expert. And it's their job to find and retain and incentivize good people. That's probably their biggest responsibility. So you've helped so many people within Fire Nation, step into business ownership, specifically through franchising.

17:22And I think a lot of people that are listening right now are saying, wow, this really sounds interesting. This sounds cool. I have some different passions that if I could have the right system to move into, I'm an executor. And to be honest, I'm one of those people. I'm like, man, my time in the military, it taught me how to be disciplined, how to be focused, how to execute on marching orders. You give me a mission, let's execute. So for those people that are listening that are like that, I know this is appealing to them, but at the end of the day, of course, it comes down to dollar, dollar bills.

17:51So let's talk about the investment range and how people are funding these types of purchases. Yeah, just as a little bit of context, a lot of our clients are stepping into things that are seven figures and above. They're big, big investments. But most of them, I'd say 80 % of them, when you look at the franchise fee plus the startup cost plus a couple months of working capital built in, essentially are all in investment range. You know, oftentimes you're in the, call it$150 ,000 to$300 ,000 ballpark. And so a little more doable for a lot of folks. And, you know, we do have some clients paying in cash.

18:26Most of them, though, like the idea of leverage. And banks love franchises for all the reasons you can imagine. It's just much more predictable. And so, you know, we work with a lot of franchise-friendly lenders that will help our clients get SBA loans. And so maybe they put in 25 % cash and then 75 % they leverage up to an SBA loan. Another common path is retirement rollover plans, what's called a ROBS. Very common in franchising to take an old 401k or IRA, and you can actually set up the business as a C-Corp, purchase the business with your retirement plan, pay yourself a salary, and not be susceptible to the early withdrawals on the tax side.

19:01So oftentimes people use an SBA loan plus a ROBS program. Of course, sometimes they use a portfolio loan or a HELOC or other means. You know, and one question I've gotten from some of the listeners here is, you know, at what stage should you start thinking about stepping out into business ownership? And certainly the more padding you have, you know, gives you a longer runway, makes you a little more comfortable. You know, I'd say at a minimum, probably 150 ,000. And we have a lot of clients that are in that 200 ,000-ish range. Of course, we have a lot. There are seven figures as well. But I'd say if you're not yet at that 150, let's take a little more time and kind of work towards this.

19:35Fire Nation, I hope you can kind of picture yourself having a goal to get to that place. If you're at that place, maybe you're ready for a conversation sooner than later. So if Fire Nation is fired up, let's talk about how they can find the right franchise opportunity right now. Certainly a lot of people will go out there and start Googling around. The challenge is every one of these companies is putting their best foot forward. You're not seeing behind the scenes. And just like any industry, I mean, we have good players and you have some not so good players. There are ones that I want to align with, ones I don't want to put in front of my clients.

20:05So I think it's important to really have an expert guide there. You know, even the top 100 franchise list from this publication or that one, it's typically a PR move where the company is actually paid to be on the list. So it's very challenging to find, you know, good, accurate information. But, you know, it's entirely free to partner with us. We're essentially a real estate agent, but for franchises. And we simply get a referral fee on the back end. So there's entirely no cost to working with us. We get that from, get it from the franchisor. So, and we work with over 600 different franchise brands.

20:37You know, really all those that are in growth mode, looking to expand, to have room to expand throughout North America. In a nutshell, just for perspective, there's about 4 ,000 franchise companies in the U.S. And once you take out food and you take out hotels, which are a different animal as well, So, you know, that cuts out about half the market. Then you apply those that are in growth mode. You apply the filters of, you know, what companies have the best competitive advantages and the right financial model. And the strongest leadership teams have industry experience and franchise experience on the team.

21:08The ones that, you know, we're current owners are seeing the praises of the franchise system. So, you know, once we apply these filters combined with what's available in your market, usually that takes us down considerably. Exactly. At any given time, there's probably 50 or 60 that we feel are the strongest ones out there. And when we apply these additional filters, it takes us down somewhere in that ballpark of 10 or 12. And so I love sharing with clients, hey, you came in open-minded, you didn't know what type of business you're looking for. We help them connect the dots and saying, hey, if I'm in your shoes, given what you've shared with us, here are the top 10 opportunities in your market that are available that we think would be a good fit for you to review.

21:46and then they narrow those down further and we make an introduction on their behalf and then hold their hand all the way through the exploration process. So yeah, it's a great streamlined way, entirely no cost, but to really get some visibility into what those opportunities are and better understand how franchising works. Fire Nation, you're the average of the five people you spend the most time with. You've been hanging out with J-O and J-L-D today, so keep up that heat. And for links to everything we talked about, visit eofire.com. Just type John, J-O-N, in the search bar. The show notes page will pop right up.

22:19And John, give us that call to action for those people that want to take the next step. Yeah, come out to our website, Franbridge Consulting, as you said. And as far as a small next step, download a copy of our book. If you share your email address on our website, we'll reach out to you and share multiple versions, different downloadable versions that you can then consume. A great little book that we put together, about 100 pages, packed a lot of content in. And if you'd like to take the next step, just let my assistant know and we'll set up a call. John, thank you for sharing your truth, your knowledge, your value with Fire Nation.

22:50For that, we salute you, brother, and we'll catch you on the flip side. Hey, Fire Nation, a huge thank you to our sponsors and John for sponsoring today's episode in Fire Nation. Successful entrepreneurs accomplish big goals. That's why I created the Freedom Journal to guide you in accomplishing your number one goal in 100 days. And we're talking step by step. visit thefreedomjournal.com and I'll catch you there or on the flip side. Hustle and Flowchart, hosted by Joe Feer, is brought to you by the HubSpot Podcast Network, the audio destination for business professionals. Join Joe as he discusses systems, mindset tweaks, reframes, and strategies to help you build a business that gives you freedom and fuel for your life.