202. Franchising vs Starting Your Own Business: What’s the Better Path?

0:00At 18 years old, most college students are figuring out which classes to skip on Fridays. But Alex Smearsnak was busy negotiating a buyout of a student-run laundry business. With just$4 ,000 to his name and a scrappy earn-out plan, he didn't just keep the business afloat. He scaled it from$30 ,000 to$300 ,000 in revenue in under a year. His secret? A booth at student orientation that made parents think that the service was part of the university. That single move revealed a deeper truth. Entrepreneurship isn't about having the most resources. It's about having the angle no one else does. Fast forward today and Alex is tackling something even bigger, the dark unbelly of franchising, when brokers siphon tens of thousands from entrepreneurs trying to buy into the American dream.

0:44This is your host, Ryan Atkinson, and you're listening to Self Flip Podcast, where we uncover the secrets of building and running successful businesses. I am so excited to welcome Alex to the podcast today. He is the CEO of Franzi, and we're going to talk about everything from getting started, franchising, and what they are tackling over there. So Alex, Thank you so, so much for being here. Yeah, thank you for having me. Excited to dig in, excited to talk about entrepreneurship, franchising, and everything in between. It's going to be so good. But let's rewind back the clock to Alex in college.

1:11You already had the luscious hair right now. I can't imagine what it was when you're 18. But most kids, like I said, they go to college to get a job. You did something completely different. You bought a business. I mean, talk to us. Is this something that you had on your, I'm 18 years old, I'm going to go buy a business? Or where did this spirit come from? No, not at all. Well, I honestly, at that age was torn between going pre-med or doing finance. I had no idea what I wanted to do. I think like most, you know, 17, 18 year olds, but my dad, you know, I grew up watching him do sales. And I remember he would work his butt off fall through spring.

1:41And then in the summer would golf five times a week. And I was like, how are you doing this? And he always taught me, he's like, there's three kinds of careers you can have. You can either work for somebody else. You can work for yourself, which is what he was doing. A hundred percent commission, sales, et cetera. or you can have people working for you. And he's like, you want to be in one of the latter two buckets. You either want to work for yourself or have people working for you. So that was just always in my head. And when I got to Wake Forest where I went undergrad, I worked for the student run laundry and dry cleaning pickup and delivery business.

2:10And those guys were seniors. And I was like, I want to buy this thing from you guys. I want to learn how to run a business. Let's do it. And I had three or four grants to my name. They were selling it for 30. And so I had to get clever and figure out bringing on other partners, figuring out what a discounted cashflow analysis was, what an earn out was. I knew none of these things. I just set out and found people that did. And, you know, I have the humility to go ask for help. And, you know, I know what I don't know. And so between the professors that helped me, other mentors, we ended up buying the business at the end of my freshman year and had a blast running it throughout our college career.

2:44Learned a ton, made some good money along the way. And it was, that was the entry point into full-blown entrepreneurship. Yeah, I mean, at 18 years old, to one, start a company, but I feel like to even buy a company, like you have to get really creative and like that is just like a testament to that pre-read and finance mind there. Talk to us more about like this laundry business though. And specifically talk to us about the orientation booth because that was a really big driver for us to get to$300 ,000 in revenue in under a year. So talk to us more about that. Just out of curiosity, people love these marketing stories.

3:13So yeah, please share. Yeah, absolutely. So the guys that we bought it from, it started out as a classroom project. The professor gave every group of students, I think it was like 200 bucks over the course of a semester. a concept of business, IDA, ticket to market, et cetera. The first group came up and they were like, we sold hot dogs on the quad and they did $200 in revenue and everyone clapped. The second group came up. It was, oh, we sold Greek life, sorority t-shirts, et cetera. They did$600 and everyone was, oh, great, good job. The third group was like, we did laundry in the basement and it's because it's free.

3:42It's, quote unquote, it's free. It's included in room and board. And they did like 6 ,000 in revenue and everyone's like, holy shit, they should keep doing this. and expand it to other colleges, grow it at the university. And so when we bought it from them, they had a decent sized business, but they weren't super plugged into the university. So we immediately went to Wake and said, hey, this should be a checkbox option for incoming freshmen and their parents. It's a huge differentiator. Plus, you can also use us as like poster children and be like, look what our students are doing. They're entrepreneurial.

4:12And you should give us a booth at orientation so we can get in front of these individuals and these families. And so they gave us a booth and they did more than we expected. it. We thought they'd put us in the corner somewhere. For some reason, I don't know if it was an accident or by chance, but this is our stroke of luck during our entrepreneurial journey. And it was get your meal plan, get your parking pass, get your room key, and then like our booth. And it was like the like key things you have to do. And so I think parents came through like, oh, we just like have to sign up for this. And their wallets are so open at that point because they're paying for food and parking and books and all this stuff that we just felt like another extension, you know, we would explain to people, Hey, there's washers and dryers in the basement.

4:52This is so little Timmy or Susan, you know, can matriculate into college without the stress, but that single-handedly basically 10 X the business from where it was when we bought it purely because of that partnership. That's a great story there. And let's do stay tuned because we are going to talk about franchising here shortly, but an important part of your story, Alex, is you landed a job, a prestigious job at EY after school. So you do this laundry business in college, you go to EY, but you left after just 18 months. Talk to us. I mean, that's a year and a half. What made you want to leave after a relatively short time period?

5:24I was hooked. And I think anyone that gets into entrepreneurship or business ownership can relate to this. It's like a drug. It's super fulfilling. It's energizing. It's challenging. It's like all these things that you would want out of life wrapped into one thing. And that the sense of purpose and fulfillment that you have along the way, as stressful as it can be, there's nothing else like it and so getting a little taste of that in college on a smaller scale is just like oh my gosh there's a whole other world out there that i didn't know existed because i think so many of us are conditioned to get good grades in high school so that you get into a you know good school or go to college go to college get good grades there so you get your fortune 500 or your corporate job and it's like there's so many other paths you can go into music you can be an entrepreneur in so many different arenas and categories and there's just another way.

6:09And so I was hooked at that point. The big thing though, that caused me to leave EY, I think earlier than I anticipated. And I went there partially because I felt like I kind of owed it to my parents and society of like, this is what I'm supposed to go do. And it would be good to get some corporate experience and learn some of those things. But the thing that really flipped me to leave earlier was I've always been like a systems thinker and like, I know how to break down the rules of the game and engagement. So in college, I knew how do I do the least amount of work but to get the best grades possible because anything beyond that there's no point right like why would i work any harder if i don't have to and so i go to ey and they're like here's your five you know star rubric and they have five star ratings four three two and one three was like you're doing what we wanted you to do it's actually pretty good three is still good if you're at a three they're like yep perfect you're gonna get a raise still etc four was like top 10 or top 15 and a five was like the top three percent it was like holy crap you're operating at three leagues above your level, your top shelf.

7:10So I like look at the rubric and I'm like, all right, how do I get a five with doing the least amount of work possible? I love that. And my roommate at the time, so I'd bought a condo with the money I made from the college laundry business. So I had roommates right out of college. One of them worked at EY with me. And I remember at our first review, so we're one year in, I had played the game. I had figured out I need to be involved in these extracurricular things, help with campus recruiting make sure you're buddy buddy with some partners and you have like a mentorship track and then you're also doing a good job in your core engagements and consulting projects that you're on but my utilization like in consulting utilization is like how many hours basically a week are you working and mine was like right at like 41 hours a week like i was like right at the bare minimum and i did the extracurricular stuff so i come around for the one year review and i got a five I got the top 3%.

8:03And I'm like, holy crap, I did it with 41 hours, which is crazy. And my roommate, who I think worked much harder than I did, I think is smarter than I am, did better in college than I did. He was working 70 to 80 hours a week utilization. And he got a three. And I remember seeing that and experiencing that and being like, this whole setup doesn't work for me. I don't mind working, but I don't like a system where this person worked harder than I did was smarter than I did, but he got almost penalized or didn't get rewarded as much as I did just because I played the game. And I was like, I don't want this to be about playing the game.

8:39I want my reward to be directly correlated to the work I put in. And I think the only places in the world you can do that are business ownership, entrepreneurship, or some sort of sales role. Most people spend months, sometimes years, just thinking about starting a business. But what if you could do it in just 10 days? That's exactly what the 10-day business launch plan is designed for. It's a step-by-step roadmap that takes you from idea to real operational business in just 10 days. Click the link in the description below and get ready with your business. I want to ask because pre-med finance, you're one of those tracks.

9:14You go to UI, you get the five-star rating. I mean, your parents had have been super happy with you, but after 18 months, I mean, what were they saying when you're like, hey, parents, I'm going to go leave and go do my own thing with like business like ownership at that point in my life it was probably one of the hardest you know conversations i had to have they were proud of what i did in college and the laundry thing but i think they thought it was like oh that's like a cute resume builder and you know i'm sure that was like a fun little thing you did you know and then we're we're on a family trip and i remember we had been passively working on to you laundry the kind of next iteration of the laundry business and i had known at that point i already made up my mind i'm quitting my job and i'm gonna go do this, but I hadn't told them yet.

9:53I'd had my partner, my co-founder moved down to Charlotte. Like we were working on it already. And I still kept my UI job kind of like to pay the bills. And like, I was doing both. I had my feet in both. And I remember telling them on this family trip, like, Hey, I'm, I'm probably gonna quit my job at EY and go do this full time. And I'm not going to pay myself anything. It's going to be scary and a crazy rollercoaster. I don't know. I think part of me was expecting for them to be like, Oh yeah, you got to do it. Now's the best time in your life you have no kids or other like major responsibilities go for it instead i was like are you sure you should do that we don't know that feels risky you know you got this four-year degree you know ey is a good brand company to work for why don't you wait until you have 100 customers and i was like you're pretty disappointed i'm 22 or 23 at the time i was just hoping for them to immediately which i get in hindsight like i have my first kid now like i couldn't imagine being like, yeah, go do this super risky, crazy thing after you have a good thing going right now.

10:49So I get it. Like they just, they love me. They care about me and they were looking out for me. But in the moment I felt like, oh, come on, mom and dad, why don't you support my dreams? And I remember telling them though, even at that time, having the wherewithal when they said, why don't you wait till you have a hundred customers? I said, cause once I get to a hundred, the next thing is going to be, well, why don't you wait till you have 500? Why don't you wait till this happens? And that's what people get into, whether they're 20 or they're 30 or 40 or 50, there's always these mental excuses of, well, I'll just do it when this happens.

11:18And the truth is there is never a good time to start a business. You know, the best time to do it was a year ago. The next best time is today. I knew that I felt like we just have to get started. And the more we start working on it, the more iterations, more discipline builds, more consistency builds, and you just got to get after it. And so I told them, sorry, I appreciate you guys and everything you've done, but I got to go do this. You went and did it. And we're going to talk about it here in a moment. I'll end my two cents there. I know when I was starting my own company and like, I was like, okay, like I'm getting ready to take the leap, but my parents are both like, they're both entrepreneurs, but at the heart, they're so risk adverse.

11:50They're like, they don't want their 24 year old boy to go like start his own company, like stay in the corporate world. One thing that really helped me and I had to advise other entrepreneurs listening is like, make a checklist of like, okay, this variable needs to be met before I quit my job. This is the next one. Once these variables are met, like that's when I'm skinning the game and that's where I'm going both. That was really helpful for me, but I want to stay focused on you, Alex, here, and then talk about franchising. Give us the spark notes a little bit more about 2U franchising. Give us the spark notes of it because I really want to dive into the industry's flaws of franchising and how you guys are solving that.

12:20So give us the spark notes of how you franchised it. Yep, absolutely. So we got back into the laundry game because we saw these Uber for X businesses pop up. So WAG, Rover, Instacart shipped, and we thought someone's going to do this for laundry and dry cleaning. So we launched 2U in January of 2016 under that hypothesis, Uber for laundry and dry cleaning. Fast forward eight or nine years, we had raised 33 million in venture capital over that period. We grew to 15 million plus in annual revenue. We started vertically integrating and building physical laundromats through a partnership with Electrolux out of need for better unit economics, but also quality control over the product.

12:56And that's where we got into franchising was we realized, hey, this model is the right one, but laundromats aren't cheap. They're a million dollars plus to build with all the equipment. and we needed to build hundreds of them because we had national brand ambition. And so we thought this is going to take 30 years or we have to raise like$100 million in debt or equity and that feels impossible or hard or also a very long thing to do. So we started franchising the brick and mortar part of that business in 2021 through a subsidiary called Laundrolab and think of it as like an elevated laundromat franchise that we then layered pickup and delivery volume on top of.

13:32So the analogy I use is like think of a McDonald's or any quick service restaurant franchise. They didn't have delivery because it wasn't their core business. But soon as Postmates or DoorDash came around, boom, it's 30 % of most of those retail or those quick service restaurant franchises. That's 30 % of their revenue now. We just happen to own both. We own the delivery mechanism plus the retail component. So that's the quick spark notes on the laundry piece. through Launch Lab and franchising, we got a crash course on what an FDD, a franchise disclosure document is, and how to position the item 19 and item seven and train your franchises and sell your concept to high net worth individuals, prospective franchisees.

14:11And that's where the light bulb went off again of like, this is very old school, very broker driven. There's not a lot of regulation. There's not a lot of alignment. And there's gotta be a better way for people to discover the right fit brand for them to get financing, to find the right franchise CPA. And then for those that own existing businesses, for them to sell them back and to have liquidity, there just wasn't a solution that captured this marketplace for buying and selling franchise businesses. So that's what we're building at Franzi. Yeah, I absolutely love that concept. And I mean, listeners, I mean, you guys are loyal UpFlip listeners.

14:46You know, we have a lot of franchises on the podcast, which is great. But of course, there are like the dark stories to it. We are going to hit on Franzi in the marketplace that you are building just to enlighten listeners, of course, there. But for an actual like tip for someone that's listening that is considering franchising, like what's like an obstacle or challenge like they should always like a beginner franchisee typically overlooks? I know that's a huge question there, but just kind of get the ball rolling on that then. Yeah, the first one is kind of like a more meta answer. It's like just getting over yourself and getting out of your own way, like creating all these fears of like, oh, I can't do it or it's too hard or I have kids or whatever it is.

15:21It's like it's this idea of just getting started again. The more practical, helpful answer is I think people don't realize there's 4 ,000 franchise brands out there. And so any broker you go work with or Google search you do probably isn't going to capture the universe of brands. And so my advice is to do your diligence, have a healthy dose of skepticism. It's like buying a house. You got to make sure you have your criteria of what your risk tolerance is, what your financial capability is don't bite off more than you can chew. Do something that your operational experience will benefit. If you're naturally good at sales, find a business that will do well with you in the sales seat.

15:59And then lastly, what are your goals and interests? And everyone's got a different answer. It's not just, oh, show me the most profitable one that I'll make the most money on. That's actually not, I don't think the right way to approach it because money is one thing, but happiness and being fulfilled and excited about the work you're doing is that's to me real wealth, especially if you're going to work on a business for five to 10 years. What then is the right way to approach it? Is it thinking about happiness, lifestyle? Because I was talking to a friend recently and he's just getting started with a web agency.

16:27And he's like, Ryan, do you work weekends? Do you work 80 hours a week? And I was like, honestly, not really. I'm not building a company to make my own jail cell, my own prison. I wanted that to go work at EY. I'm just kidding. So I'm totally kidding there. So what should people be considering when they're considering like franchising something my big philosophy on life is happiness is the north star metric and i love like our forefathers wrote it the right way it's like life liberty and the pursuit of happiness not like given happiness and so i start there with everyone is what makes you as a unique individual happy some people are money motivated it's like i just want to get rich it's the money money money money money and that's okay i prod a little bit there it's like well what's the underlying reason underneath money is it freedom is it flexibility to spend more time with your kids or with friends do you want to leave a legacy is it just you want to get joy out of your work and to feel challenging and stimulating and fulfilling and so i always start there is like what is your you know why and what makes you happy because some people come to us and they're like i want to buy a franchise that i can do it with you know work on with my kids well there's a franchise where you're like this is morbid but it's like it's called bio one you're cleaning up crime scenes like you're not going to do that with your kid if your goal is like yeah But there's a milkshake factory concept as well.

17:40Like that would be a fun family business to run, but it makes good money. But there's others that will make more money. So if your goal is legacy, you should be thinking about that. If your goal is passive, semi-absentee, you should be looking at a different cohort of brands. If it's purely financial, maybe you have a background in restaurant and that's what you know. Like it really depends on the individual. But I start with what's your why and what's going to actually make you happy. A question that I'll always love to ask people that are in the franchising space, why franchise over start something brand new.

18:09Why do franchising over starting my own milkshake stand or my own crime scene cleanup business? Yeah, so there's all sorts of data that backs this up, but 85 % of franchise businesses are still around succeeding five years into the journey, which is, it's hard. Five years in is a long time and a lot has to go right to even get to that point. So 85 % of franchise businesses make it that far. On the flip side, 50 % of independent businesses fail at the same time zone. So it's like you're almost doubling your chance of success by being in a franchise system. And there's a number of reasons for that.

18:43There's a proven playbook. There's people before you, the corporate franchisor that started and had several coffee shops open or gyms or whatever it was. So they've already tested it in the market. They've built playbooks. They have training. They've got marketing. Even things that are small, like the logo design and the website, like all these things that just add up and eat away at you as a solo little entrepreneur building a concept from scratch that you don't have to do in a franchise system. It's all there for you. So instead of starting on square one, you're on square four or five already.

19:13And when things do get tough, you have this like sounding board of people that go after a group of peers, et cetera. So that to me is the main difference in value add. I mean, starting on, you know, the fifth square or whatnot, everything's all built out for you. Obviously that is super compelling, but like, obviously the question people are going to ask the listeners, I know the last listeners, I'm thinking of you. Well, how much does it cost? And how the heck do I finance this? That is, of course, the question. So you can kind of give us some like broad level overview, like how much does it cost?

19:39Obviously, it depends on the franchise location, probably. But give us that and like some financing options as well for people. Yeah. So I think a big misnomer is when you say franchising, people are like, oh, McDonald's, Subway. And then the next thing is like, I could never do that because it's already sold out or it's a three million dollar restaurant. Like, forget it, not for me. What people don't realize is there's franchises that range from 10 grand to get into, like a concept called Card My Yard, where you put like, Happy Birthday Ryan signs in your yard, it kicks off 20, 30 grand in revenue.

20:06It's a supplemental side hustle kind of income, all the way up to$5 million concepts where you're building a swim school, you've got eight pools, and it's a much more expensive buildup. So my thing is, there really is a franchise concept for everyone, if you want to go do this. If your dream is to be a business owner, an entrepreneur, but you don't know where to start, franchising likely has something for you. Again, there's 4 ,000 brands ranging from 10 to 5 million. And so the cost really does vary, but the average I'd say is like 250 grand to half a million. And the great thing about the United States is it's one of the best places in the world to start a business, to be entrepreneurial.

20:41We have this beautiful thing called the SBA and the SBA will loan money for first time business owners or experienced business owners that are incredibly wealthy. It doesn't matter what level of income for the most part, you can go borrow up to 80 % of the franchise cost up to a certain amount to invest in any number of these businesses. And that's true for non-franchise businesses as well. The other thing that people don't realize is out there is there's a program called the Rob's Rollover. And it's where you can actually use retirement assets, tax-free, no penalty to invest in your own business.

21:13So the government figures, hey, if we are going to allow you to have retirement assets, tax advantages for corporations and stocks, why wouldn't we let you invest in yourself? So Rob's Rollover is another program people can access to finance and fund their own business. So my point with all this is if there's a will and a desire to do this, there's a way for sure, whether it's the right brand coming up with financing, getting coaching, there's brokers, there's our platform, there's other people, other business owners out there that will help you and give you advice and guidance. You just have to want it bad enough and have the initiative to go and do it.

21:46I love it. One more question before we get into your platform, because I'm really excited to like peel this back to like the resources you are giving to the listeners. who is franchising for is it for that 24 year old hustler is it for the 30 year old that wants side income the 45 year old successful businessman in your eyes like who is franchising best for then yep i'll give you three kind of broad like ideal personas and there's kind of like some subcategories but the first one is your corporate warrior they've been in the nine to five their whole life they're maybe in their late 30s to mid 50s they're sick of working for the man and they've got enough money saved up now where they can like go take that risk go you know go bet on themselves essentially they just don't know where to start they don't have some original tech idea they're not going to go raise a bunch of venture capital they don't want to start from scratch franchising is the perfect fit the second group is your like side hustle you know folks that you mentioned those could be like your early 20s to you know even 50s again where they're invested in short-term rentals they invested in crypto and meme stocks they were doing drop shipping when that was cool.

22:48They're looking for this as like another revenue stream and another way to diversify their income. The last group is your existing sophisticated business owner entrepreneur type. They already own a car wash or a donut shop and they're just looking for the next concept to invest in. They'll look at franchising as a, hey, I've got three chicken concepts. I want to add a burger one now, or I want to add a sandwich one now because I already have the systems and team in place to do it. And they'll plug and play and just add more and more locations. And then real quickly, the subsets are things like military is phenomenal for franchising, you know, because they have tons of benefits where they're getting discounted franchise fees.

23:23They have access to veteran resources and naturally their disposition and experience is so good for franchising because there's a playbook and rules to follow, but like any business, there's going to be chaos and things you have to deviate from and adapt to. And military folks are wired to be able to handle that like structured chaos very well. There's a will, there's a way. That's really what it comes down to, especially when it comes down to entrepreneurship, but franchising as well here. So then, of course, there's amazing resources out there to actually get started with franchising. And one of them, we have the CEO and founder, Franzion.

23:54So let's talk about that. Pull up your homepage, find your perfect franchise with Franzi. And again, guys, this is not an ad. It's not a paid sponsorship. This is truly a great resource for you to have. So yeah, tell us a little bit more about Franzi and what you guys are providing. Yeah. So to me, think of Franzi as the Zillow for buying and selling franchise businesses. Before Zillow, what did people do? They were like looking at ads in like a newspaper or they were having to find a broker. Now with Zillow, at your fingertips, you can look at thousands of houses, filter by square foot, investment or cost range, how good the school district is.