The Franchise Playbook: Insider Tips for First-Time Buyers

0:09Hello and welcome to another episode of the duct tape marketing podcast. This is John Jantz And my guest today is Alex Smirechniak. Nailed that, didn't I? He's a serial entrepreneur and the co-founder and CEO of Franzi, a platform revolutionizing franchise discovery and acquisition. They empower aspiring entrepreneurs with transparency, support, and the tools to find the right franchise opportunity. He's also the co-founder and former CEO of 2U Laundry and Laundro Lab, where he helped build and scale a successful venture-backed laundry delivery service, and its franchise arm as well. So he continues to serve on both boards of those companies.

0:49So Alex, welcome to the Duct Tape Marketing Podcast. Thanks, John. I'm excited to be on with you today and look forward to talking all things franchising and how people can get into the wonderful, wacky world of it. Yeah, you know, it's interesting. Franchises, I think a lot of people think McDonald's, White Castles, some of the really early food franchises. But in looking at the model, it's probably been around since the Middle Ages, when some king would say, okay, you over there, you get to collect taxes in this region, and you submit some of it back to me, and you get an exclusive on that region.

1:28Again, half kidding, half not kidding, but I mean, it's really a model that's been around forever for the ages, hasn't it? It has been around forever and it's more pervasive in I think our everyday lives than most people realize. To your point, they think McDonald's, Subway. You don't think about the moving company that helped you move is probably a franchise or the painting company. It is 8 % of our country's GDP is produced from the franchise industry. And it spans food, hotels, home services, fitness, coffee. I mean, entertainment, you name it, there's probably a franchise model. Yeah, I was going to say, the model's become so successful that there's probably not a service where somebody hasn't at least tried, you know, to get it going, right?

2:14I mean, because I think a lot of people, you know, see the successful model. And so let's go there for a minute. You know, is there an inherent advantage, theoretically, to a franchise as opposed to somebody just kind of figuring it out on their own? Yeah, so actually, I've done a lot of research on franchising as a whole. And two metrics that have jumped out to me before is that the two-year success rate of a franchise business is about 92 % for the two-year success rate for franchising, 85 % for the five-year success rate. That is opposed to 76 % for the two-year success rate for just an independent business, and a whopping 50 % success rate after five years.

2:56So if you look at the two numbers I just shared, 85 % success for franchise businesses after five years, 50 % for independent businesses after five years. That's the answer right there. A lot of people get into franchising because it's de-risk. It gives people, I don't want to say a safety net, but you're working with a community of other people around you that are also building their businesses with you. And then a corporate parent that has proven the model, has marketing resources, has training resources, has tech resources, et cetera, to isolate you to an extent and be valuable. So when the concept or the model itself was really blowing up, probably in the 70s or 80s or so, there were a lot of issues that had the FTC step in.

3:38A lot of people were setting up Ponsai schemes. They were taking$100 ,000 from somebody and then the people, no support or nothing what was promised. How would you say the state of regulating that industry has evolved? And is it safer certainly than it was 50 years ago? Well, there's two sides to that coin. On the regulation around the brand themselves to prevent snake oil salesmen from saying, hey, this is the get rich quick in this whatever concept. The regulation has done a good job there. So every brand has to have what's called an FDD. It's called a franchise disclosure document. And it is a 100 to 200 page onerous legal document that covers bankruptcy, litigation, team experience, investment costs, audited financials.

4:27I mean, it has everything in it and every brand is required to have that. So when we got into franchising, I was happy to find that. The other side of that coin where there still needs to be more regulation is how franchises are sold and bought today. And so a lot of people can go to a McDonald's and fill out the contact form. They can find something from a neighbor who might be a franchising a concept, word of mouth. A lot of people work through business brokers, franchise brokers. And this part is still very much the Wild West. Meaning, if you think about buying a house, your real estate agent had to get licensure.

5:02They had to go through training and courses. And they also disclosed to you what their commission is going to be. There is zero of that for business brokers, not just in franchising. Any business broker doesn't need to be licensed. You and I could go be business brokers today. And we also don't have to disclose what percent fee we're taking and how we're making money. So there's also this kind of misalignment to a degree that's happening there. But that's changing. Regulation is coming there as well that I think will protect your average consumer and business buyer here in the near future. What would you say?

5:32You started a couple other businesses you franchised or at least participated in franchising those other. Did you learn a lot along the way that you've now brought to Franzi? Yeah, honestly, if I hadn't had the experience previously building a franchise or essentially being my own franchisee running multiple laundromats, I wouldn't have even had the idea for Franzi. It was getting into the franchise world that made me realize, hey, there's a big gap here and there's not a lot of alignment between the brand, brokers, prospects, etc. There's not a good database or set of tools for people to find the right concept for themselves.

6:09And so part of the reason I transitioned out of my last business was to be able to go start this one. It was just a huge gap. It's kind of like what Zillow did for the real estate market. before you had to go through a real estate agent. There wasn't a way to shop online or look at your dream home or your vacation home. And with Franzi, we're trying to do exactly that. Be the Zillow for franchising where you can go on your computer at work or go on your computer late at night and say, I'm in Atlanta, I've got 100K to invest. What can I afford? Here's my operational experience. Here are my goals for my family and myself.

6:43What are the top five or 10 brands recommended for me based on this information? And that's exactly what we've built with Franzi You go in, you enter that information, and we recommend brands for you. You can deny them or approve them and go further down the conversation with them. And then we facilitate that introduction along with a number of other tools that first time or any business buyer needs. Entity formation, lending, finding the right CPA, et cetera. We help with all those pieces as well. Would you say that there is, and maybe you don't have enough experience to answer this question, But would you say there's a distinct, different profile of a buyer of a franchise as opposed to somebody who's just going to go out there and start a business?

7:25The answer, and it's kind of a cop-out answer, but it depends. I just talked to a number of entrepreneurship through acquisition folks. It's a big trend right now where people are either getting a sponsor to back them to go buy an established business where it's someone retiring that wants to sell. but some of those ETA folks are looking at buying up, you know, the family that owns five Jimmy Johns and wants to sell. So, you know, it's, it's, you know, so you had an ETA person, they're looking at both independent businesses and franchises as a potential solution. You also have within franchising, the large private equity groups that own 50 Jimmy Johns and 20 McDonald's and they're massive, but you also have the vice president of a bank who's in his forties and hates his job and wants to leave and go be his own boss.

8:09And he also becomes a McDonald's franchisee. And so your ideal customer profiles, your ICPs vary pretty widely, but they fall pretty solidly into three buckets. It's your private equity groups. It's your nine to five veteran that wants to get out, or it's your family that's built up a nice business and they're adding their sixth, seventh, eighth location. I guess the part of that question was, you know, somebody learns how to be a plumber and they start a plumbing business. A lot of franchisees owners, I mean, they don't know a thing about the actual business. Like they've never run a restaurant, right?

8:48You know, they've never run a gym, but they like the idea of not really needing to know that because the system's figured out. I mean, is that a fair statement? Yeah, I think franchising is a a lot more accessible. It goes back to the success rates I mentioned earlier. There's a reason it's almost double. The success rate is almost double for those getting into franchises versus going at it alone. You have training wheels essentially in franchising, but eventually when you start going from one unit to two, to two to five, five to 10, training wheels are off and you're booking it downhill. You got some momentum behind you and you know what you're doing at that point, but you had to cut your teeth at some point, just like anything.

9:26You got to learn this first year or two and get yourself in the business. Talk a little bit about, and again, maybe you haven't owned enough franchises to have this opinion, but talk a little bit about the profitability or the ability to really make money in a franchise. One of the knocks you sometimes hear, whether it's true or not, is that there are people owning a couple of Subways and not making as much as they would in a regular job. For example, is that a true statement? You really need to actually be able to scale this thing to a certain point? or is that more the nature of picking the right franchise?

10:01Yeah, so I think it depends on a number of things. Your individual goal, if it's a retail business, the location you decide on and the market around it, how competitive is it? How much of a need is this? A lot of it depends on the operator. You could have the best business in the world, but if you're not there at all, you only show up once a month and you're not checking in on things, it's going to be run poorly. So like any other business, the franchise still requires thoughtfulness around the location. thought you know being a good operator etc to be more pointed there is a franchise for just about every constant you know for every kind of goal and need there's one that basically buy yourself a job get a bucket and a mop a lot of people don't realize you yes is a franchise where you own you know you franchise the route but you are the delivery driver some people like that because they're buying themselves a job but they also have the freedom and the flexibility of being an owner, even though they might only be profiting 40 to 100K a year, that's fine.

10:58They just like that they report to themselves, essentially. Plus, they don't have to depend on dozens of teenagers actually running the store, right? So you've got things from the delivery driver to a commercial cleaning business, all the way up to you're building a$4 million Sky Zone indoor trampoline park and the EBITDA and the profit is substantially higher, half a million plus. What's so great about franchising is it's so accessible and there's something at each end of the spectrum and each range, each risk tolerance, each goal. Are there some hot categories right now? Yeah, so home services is really big right now because it's really accessible.

11:43You don't need to build this multi-million dollar location. You also don't have to be as right about the location because you have this huge territory And so if you're doing gutter cleaning or window cleaning, or there was an interesting one I saw the other day, it's Christmas decorations are the franchise for. And so you have some of these things that are more accessible, less upfront costs and investment, but still can generate pretty substantial revenues and profit to the point where it could replace a lot of people's annual salaries. And now, again, it's your thing. It's your business. You have more flexibility and freedom and more fulfilling.

12:19Yeah, it's interesting. too in home services, you know, used to be you'd call a remodeler or a handyman and they'd come out and look at what you needed. But now it's like, oh, my garage door, I need that fixed. You know, here's somebody that puts in 75 garage doors, you know, every week, you know, I'm going to call them. And so it's good. You see that, especially the home services getting really, really niche, don't you? Yeah, that's one of my favorite ones. You actually just mentioned is there's a concept called the garage Kings. Damon, Damon, John, the guy from Shark Tank actually used them unintentionally and did his own Instagram reel of it because he just was so blown away by the quality of the service.

12:53But to your point, it's because Garage Kings only does garage. They epoxy the floors, they put up shelving and storage, and it's a phenomenal business. You don't need a ton of equipment and the average territory does over a million dollars a year in revenue and it's a franchise. Hey, if you're a dreamer, a go-getter, or someone looking to own a business, listen up. Fransy is the ultimate platform to make franchise ownership accessible and achievable for everyone, from corporate escapees to side hustle seekers and investors. Franzy does more than just list franchises. It's equipped with the Franzy Fit Score, an AI-powered matching tool that finds the best brands for you based on your financials, experience, risk tolerance, and goals.

13:36You can also get pre-qualified to see exactly what you can afford, check brand availability in your area, and discover the hottest new concepts hitting the market. And if you need guidance, Franzi's team of expert coaches is there to help you navigate the world of franchising and find the right opportunities for you. So whether you're just starting or looking to expand, Franzi's got everything you need. Head over to Franzi.com, that's F-R-A-N-Z-Y.com today and start your journey to business ownership. Yeah. Talk a little bit about kind of your your approach and what what you know, if somebody is out there looking, thinking, I want to I want to do this.

14:19You know, what what role do you fill for that person? That's kind of because just as we've talked about, I mean, it's you know, the viewers went out there and typed in franchise, you know, it's going to be like, OK, let's start with six billion ideas. So kind of where do you where do you fit in the search? The way that we describe ourselves is for education. So if you're a first-timer franchising 101, what is an FDD? What is a franchise disclosure document? What are the terms I should be familiar with? And then what should I be thinking about as far as affordability, time commitment, what's available?

14:53Those key buckets. We also are a resource for people that are buying their 10th business or that private equity group that I mentioned that might be looking for the right concept to go buy 20 of. So we have tools for each one of those buckets, but let's follow that person through the journey of, I don't know what the hell I'm doing. So we help with the education and getting people comfortable. Once you come to Franzi, we also start to help you get pre-qualified with lenders that we've partnered with. So right away, just like buying a house or buying a car, a lot of these sites tell you that now.

15:25And so it helps refine your search immediately. There's 4 ,000 brands in the United States. Well, once you fill out your prequal, well, now here's a thousand that you can financially afford. All right. What areas are you looking in? All right. Here's 300 that are available. You see where this is going. It goes from 4 ,000 to 1 ,000 to 300. And then we start to ask a lot of questions about what's your, what are your family's goals? What's your risk tolerance? What's your operational experience? And then what are your hobbies and interests so that we actually, you know, we find a business that resonates with you and that you like.

15:53By the time we do all of that, and we're using AI to do this, there's also coaching with franchise experts on our team that you can speak with. By the time you have those conversations and you fill out these surveys, we've got it down to a pretty high degree of confidence that here's this five brand recommendation for you. One of these five brands is going to be a perfect fit. And if it's not, we've got another couple hundred that we've narrowed it down to that we can continue to feed and teach our model to make sure this is the absolute best business for John from those four factors I mentioned.

16:25It satisfies his risk tolerance. We know he can afford it. We know it's available in his area and it fits his goals and his interests. I'm curious, what's the, and it probably varies a little bit, but what's the process from, okay, you've given me those five brands to like somebody actually starting a business once they decide. I mean, is that a year long process? It depends on the type of business. So with Franzi as an example, let's say we get to the five and you're excited about three of them. So we'll introduce you to those three. We have relationships with all these brands. You start to go through their process and build a rapport with them.

17:00They're interviewing you to make sure you'd be a good franchisee as part of their system and vice versa. You're interviewing them to make sure that this is a 10-year commitment you want to make and an investment of time and money that you want to make. And so let's say you've narrowed it down to one, you love it, you're married to this idea, you want to become a franchisee and they feel the same way. You sign a franchise agreement. Well, sorry, let me back up a second. As soon as you start matching with a brand and you have that first conversation, the average sales cycle is 90 to 120 days. There's a lot of calls back and forth.

17:31You eventually fly to the headquarters to see a day in the life and meet the team. That's 60 to 90 days. From there, if it's a retail business, you can definitely expect 12-ish months because you have to find a site, do build out. There's a lot more to a retail business. If it's a home services business, which is why they're so hot right now, So you can get a truck, get it wrapped, get a truck and do some training and you're locked and loaded in two months. Let's go. Yeah, yeah, yeah. As and I'm sure you've seen all these and so you advise some people, but I'm guessing you probably only work with reputable folks.

18:04But are there some red flags that somebody should that you would tell people, hey, if they're telling you this? Yeah. Anyone that's promising you're going to get rich, be very wary of that. Because again, at the end of the day, you're running a business. It's still your business and no one can guarantee that you're going to be successful, even yourself. I mean, you have to get the right side. You got to be a good operator. All the things we mentioned. So look for people promising things. You got to be careful of that. Look for stores closing. And so we have tons of data over the last five years on Franzi.

18:32So if you see a trend of, well, hey, they opened 300 stores and then 50 shut down and they only opened a net new 10 over that. What's going on here? You know, that's a question you should be asking. Any litigation. The obvious one is litigation or bankruptcy. And then checking the item 19 is critical. That's where the audited financials are in the FDD. If a business is doing well, they're going to want to brag about it, right? They're going to want to show the financials and look at our stores make a ton of money and so could you. If they're hiding it or they're doing weird adjustments and, oh, adjusted EBITDA and adjusted revenue and goofy things like that that's a flag to at least press on and double click on so how does the process um with you i mean is is it is it fairly much an online tool i know you have a couple like the fit score and the connect tool or is that all something just go to your website create an account and and you know kind of start doing uh on their own yeah so the the whole goal of franzi is going to make this really accessible to anyone and so you create an account it's free to do it's free for the anyone using our site all the way through we make money if a individual buys a franchise then the franchisor pays us kind of like a real estate agent yeah um but we'll help you through you know finding the right fit which is part of ai powered part of the product we've built we help you with pre-qualification we help you with all the data and the research that you need to make a confident decision.

20:02And then we also do have expert coaches on our team, people that have owned franchise businesses or that were franchisors that will talk you through any hesitations, questions, concerns that you have to get you familiar with everything you need to be successful. The really cool part about what we do is once we introduce you to brands that we've vetted, we become a virtual coach in your corner. So part of the sales process is you have this overview call, a unit economics call, stuff that's kind of intimidating if it's your first time. And even if it's not, it's a lot of work and you want a sounding board.

20:37So we've built all these resources to say, hey, John, you have an overview call coming up. Here's what to expect and some pre-read materials to prepare yourself. And also, here's some curated questions we recommend you ask on that call so that you're making sure you're addressing your risk, hesitations and other things that you expressed to us during this whole onboarding process. And then you can talk to us as a person as well, that whole time, whenever you want a long answer, but soup to nuts, research, coaching, valid qualification and matching you with the right fit brand. Yeah. Well, and I think one of the real advantages, well, obviously you want somebody to move forward because that's how you get paid.

21:14You don't really care which one they move forward with. So you're not really pushing one horse or another, are you? I'm glad you brought that up because it's one of the reasons we started this is a lot of folks that have gone through brokers, other channels don't realize they're being presented only brands that have agreed to pay to play in the background. We have this inventory of thousands. To your point, we're indifferent. Our success fee is a flat dollar amount versus a percent of the commission. As you can imagine, if one brand has an$80 ,000 franchise and one has$40 ,000 and I'm paid a percentage of that, people are inherently going to try to push you to the 80, even though it might not be in your best interest.

21:51So we cut that out of the model entirely and said, we don't care if it's 80 or 40, we get paid X. So we really want to find the right fit for John because ultimately that's going to cause him to buy the second one, the third one, increase his chance of success, tell his friends to check out Franzi, etc. It's in everyone's best interest if we all get aligned. Awesome. Is there somewhere, I appreciate you taking a moment to stop by the Duct Tape Marketing Podcast. Is there somewhere you'd send people to connect with you and learn more? I know we've talked about Franzi, F-R-N-Z-Y.com. anywhere else you want to send people?

22:23No, I think Franzi is the best place to get started. And then if you can, if my complicated last name shows up, connect with me on LinkedIn, I'm happy to answer anyone's franchise related questions or help them in any way that I can, as they think about becoming an entrepreneur, buying a business, or just curious about franchise things in general. And did I get, did I get close on your last name? So you were close on like the actual authentic pronunciation. The Americanized is Smurznack. The Polish version is Smiercznyk, which is closer to what you... I was trying to get that nyack in there, you know.

22:57You know, I have an Austrian name that has a lot of consonants at the end of it. So I'm very sensitive to trying to get people's names right. Well, I appreciate it. You were close. Awesome. Awesome. Well, I appreciate you stopping by the Duct Tape Marketing Podcast. Hopefully we'll run into you one of these days out there on the road. Yep. Thanks again, John.