The 5-Step Test That Can Save You From Buying the Wrong Business | Entrepreneurship | How We Profit | E3 | Part 2

24:53I say it jokingly, but like that's kind of it.

24:56Hala Taha:And the brand. And the brand that you get. And so what you're buying there is they help you find customers and like they're doing that from corporate and they maybe have national partnerships with Regis, the office management business. And so maybe they're feeding you leads and deals and that's the value that you get, but it's only eight grand to get into it. And you can make 30 grand and not do that great. Or you might be really good at this and grind it out. And I've heard of some of these people with huge territories and they're doing you know half a million plus in cash flow it's like it's possible and it gives a person who maxes out a credit card to get in the opportunity but more often than not there's a term in franchising they call them sharecroppers who do this because they are kind of just like all right let's sell 200 of these a month knowing that 100 of them are going to in two months give up and fail and i i don't love that personally but it's still a path where 100 of them are making it and succeeding and are probably very happy it's just you get into that volume like that it starts to feel a little bit like oh you're just like selling as much as you can yeah it feels like a scam or yeah something i don't like it as much and then there's like a fun one that i think is real this is more of a side hustle it's called card my yard and it's you've probably seen it before you drive around a neighborhood and you see these like happy birthday alex or congratulations whatever and that's a franchise you know they sell you the kit of all the letters and stuff and they again help you with local marketing and advertising and then a family will pay you 60 bucks to go card their yard oh cool put that out again we don't try to play god and say hey these are the these are the best 10 you know we have our own opinions what i think is great my co-founder might actually disagree with on some things and say well i like these because it does go back to your individual personality your risk tolerance etc instead of like trying to vet a brand based on is this 10k to get into like card my yard because there really is an audience for that and the right fit for that as well even though it's 10k to get into it all the way up to there's one called uh big blue swim school and then uh slick city it's like indoor slides but it's like this massive like kids birthday like four million to build that out because this is huge complex and so it's not so much like what does this cost to get into or even the economics of the business because some people again it's not about the money they're just like it's a real estate plate for me i just want this thing to break even even because i'm the real estate's going to appreciate in value over the next five years and that's why i'm doing it yeah or it's an opportunity zone thing so there's all these reasons people might do it that aren't always purely bottom line profit for that specific operating business a lot of the times it is so the thing that we really vet for on franzi is is there any like male intent or potentially potential fraud does the the founding team's background check out do they um have experience doing this?

27:39Is there red flags around all these stores that have opened and are now closing? So there's things that we look for that we are starting to surface as potential flags. So if you look at a brand profile, it might flag that, hey, this brand has had 30 % more closures in the last year than they did four years ago. Something's up. Why are they closing? Or is it consolidation that looks like closures? At least ask the brand this when you talk to them if you are interested in this brand still.

28:05Hala Taha:Yeah. So we're surfacing insights like that to de-risk it for people. Do most people get a loan to actually get their franchise? So most people are just putting down like the 20 % of their loan to buy the franchise? Yeah. So that's why we said that 30 to 50K, you can get into concepts for less than that. But if you have 30 to 50 grand in cash, it opens up so many brands you can get into with an SBA loan. If you have 30 grand and that's, you know, 20%, you can buy a business, you know, for 150-ish K and maybe bring another partner in. So 150K options, there's actually a lot of them. So that's why we say at a minimum have 30 to 50K because that gets you into 150 to 250K businesses.

28:47Hala Taha:Yap gang, do you want to look and feel your best this summer? And I don't just mean looking good on the outside. I mean, feeling amazing from the inside all the way down to your cells. Yep, your cells. If you do, I'm going to put you on to a reset that I've been absolutely obsessed with. It's Prolon's five-day fasting mimicking diet. Prolon is a plant-based nutrition program with soups, snacks, and beverages that keep your body in a fasting state while still nourishing you. It is the only nutrition program clinically proven to trigger autophagy, your body's natural cellular cleanup mechanism. And autophagy can support longevity and it can even reverse your biological age.

29:27Hala Taha:For the last couple of years, I've known about it, but I was always scared to actually do a fast because I work out a lot. I didn't want to lose muscle. And honestly, not eating for days sounds way too hard. But then with my birthday coming up, I wanted a reset. I wanted to lose like five pounds. I wanted more energy and to look my best. And that's how I came across Prolon. And everything comes prepackaged, labeled day by day. There's no prep, no planning, no guessing. And I loved it so much that now I'm planning to do it three times a year. With Prolon, I'll be young and profiting forever because with three resets, You can actually reverse your age by 2.5 years, which is just insane.

30:04Hala Taha:That means every year I'll basically be getting younger. If you're ready for your own reset for a limited time, Prolon is offering young and profiting listeners 15 % off site-wide, plus a$40 bonus gift when you subscribe to their five-day program. Just visit prolonlife.com slash profiting. That's P-R-O-L-O-N-L-I-F dot com slash profiting. Prolonlife.com slash profiting. to claim your 15 % off discount and your bonus gift. Prolonlife.com slash profiting.

30:36Hala Taha:Yeah, fam, I built an app in 15 minutes. And before you ask, I didn't suddenly become a software engineer. In fact, I've never written a line of code in my life. But now I'm churning out apps like it's my day job. And that's because I learned how to do it through MindStone. It's an AI transformation company that helps close the gap between having access to AI and actually getting value from it. So this all started when I attended their Breakthrough AI Weekend. I learned how to build apps, and I also learned about their platform Rebel, which basically acts as a second brain, and it actually helps you use AI in a way that completely transforms the way that you do your work.

31:13Hala Taha:It changed my life. I left that weekend thinking that I have to roll out MindStone to my entire team, and we did. So we started with the four-week AI competency program. It's online. You don't need code. It's made for non-technical professionals and it's really affordable. And so I sent 60 people on my team to take this training. And with that training, you get access to this platform called Rebel, where you can ingest your email, your Slack messages, your Fireflies, all your drive resources. And then you can basically use it as a coach, as a tool, as a thought partner every day. Before I hop on a meeting, I ask Rebel, hey, what do I need to know for this meeting?

31:51Hala Taha:What do I need to bring up? And it will scan Slack and even send me things that I didn't realize was going on in my company. You can create skills, which is create a process that might have taken two or three people and going into different apps. And it can do that on your behalf. It is amazing what you can do with this platform. It has drastically improved our efficiency at Yap Media, so much so that we're pausing hiring on a lot of roles. I recommend you start with their four-week AI competency program. You can get access and get 10 % off at experience.mindstone.com slash yap. That's experience.mindstone, M-I-N-D-S-T-O-N-E dot com slash yap for 10 % off their four-week AI competency program.

32:34So good, so good, so good. New summer arrivals are at Nordstrom Rack stores now. Get ready to save big with up to 60 % off brands like Rag & Bone, Levi's, Adidas, and Free People. Join the Nordy Club to unlock exclusive discounts, shop new arrivals first, and more. Plus, buy online and pick up at your favorite rack store for free. Great brands, great prices. That's why you rack.

33:00Hala Taha:Okay, step four. Do the real due diligence on the franchisor. So what are some of the ways that people can do due diligence? And then also, is like a really well-known brand like Dunkin' Donuts or McDonald's, are those always the best choices? So the way to diligence, I mean, one, use a tool like Franzi. There's all this data that's very digestible. Typically, I would have said go to the FDD, that franchise disclosure document. One, they're hard to find because there's only 11 states that publicly register them, and they're buried in government websites. So they're hard to find. If you do find them, they're 200 pages of legal documents, which aren't super exciting to read.

33:37It's hard to know what you're looking at. And so Franzi, and there's other platforms, so use those as well, that show you revenue, cost to get into it. What's the royalty? What's the franchise fee? Everything you need, just quick at your fingertips. So that's a good way. The best way though, is talk to other franchisees of that brand at random. As you go through the process, it's almost like an interview process. If you've ever interviewed someone and you ask for references, they give you the three best. They're not going to give you the boss that they know didn't like them or that they got fired by or whatever.

34:11It's like, sure, those are great, but you know what they're going to say. Same thing when you're buying a franchise. The brand serves up, here's the three you should talk to. And they're like the most successful, money-making, highest-achieving franchisees, which is great. You want to hear what they did and how they did it. But you should go then secret shop and find your own. Maybe that, you know, and that's listed in the FDD and on our site. You can go look at all the old franchisees. Go look them up on LinkedIn and cold outreach to them. And you might have to email or message five of them. But one or two will say yes.

34:39And you might learn, yeah, the brand said they were going to do X and they really did Y. And then you need to, as an individual, decide, is this believable? Am I hearing this enough times? Or is this they were a bad operator and they're bitter about it? And it's like, there is some of that that you have to sift through and filter through. But that is the single best way to understand, is the concepts legitimate and viable? Is by talking to the many people who have done it before you.

35:04Hala Taha:Yeah, I wonder if there's a world in which you can be the platform where franchisees can provide their reviews and things like that. More to come. We're starting to work on some stuff now that will certainly spotlight and highlight that better. What's a red flag with a franchise? A lot of closures. Like if they've started closing a bunch of locations, something's not working. There's a reason. Either there's competition coming that's just beating them and they're not profitable and they're better off closing than losing money each month. They've cannibalized themselves. So Subway did this on purpose and it's biting them in the butt now.

35:42but subway also had like yoga mats in their bread so they found out it like wasn't technically bread because there's so much sugar in it it was like a donut actually it was like the technical definition for their bread um they did a lot of things wrong at the end especially they just got greedy and some brands will do that they'll you and i have protected territory again and then all of a sudden three years from now they're like we need to open more locations because that's how we as the franchisor make money let's cut you know our territory in half and sell three more and we're like what so we just lost half of our customer base and have all these fixed costs and so brands can do that it's not you know there's there's a lot of protection in the legal documents for the brand and the franchisee but just you got to be mindful of stuff like that and make sure you are picking a brand with high integrity people and that the franchisees all love and get along with

36:30Hala Taha:older franchises might not be good at like updating their marketing tactics or their support systems Am I wrong in that assumption? You're totally right. I mean, you see it in some of you and just like the lipstick on the building, right? It's like a lot of the restaurants that are refreshing the outside and modernizing the drive-through. And that's a good sign. You as a franchisee have to pay for that. And some franchisees hate it. But in order to stand out and be up with the competition, you need to have menu innovation and you need to have better technology and a better experience. So yeah, brands that are investing in that pretty aggressively is a good thing, even even though you as a franchisee will probably be paying for it in some form or fashion, you should be constantly innovating and growing and wanting a brand that is doing that.

37:15Hala Taha:Okay, step five, using transparent data instead of commissioned broker. Yeah, so that's at our core, again, how we get paid. That's frangy. We get paid flat. It's the same across all brands. So we, I don't want to say we don't care which business you get into, but from a financial perspective, we don't care which business you get into. What we care about is, are you going to be successful in this business? Because if you are, you're probably going to buy more locations eventually. And hopefully they're through us. And you're eventually going to add another brand at some point. And hopefully it's through us.

37:41And as we grow as a tech company, we're going to have other products and services. And hopefully we've built this amazing relationship with you that you want to come to us for, hey, I need help with this. Do you have a software solution for that? Do you have a services solution for that? And so everything at our core has to be done through the mission of how do we create the next million entrepreneurs? And how do we, you know, in order to do that, they need to be successful. It's not the next million failed entrepreneurs. It's the next million successful entrepreneurs.

38:05Hala Taha:Okay, so we talked all about in part one, in case you guys missed it, we talked all about Franzy and his platform. Right now we're going to go through different case studies and opportunities of franchise opportunities. And we're going to have Alex kind of vet them for us and help us understand why it's good, why it's bad. So we've got this artificial turf installation, which we were talking about earlier. It's a project based home services business. There's no storefront, right? There's no lease, which means that the startup costs are pretty low. And the initial investment your team, Brett on your team, actually gave me is$121 ,000 to$163 ,000.

38:47Hala Taha:The average territory revenue is a little under$600 ,000, and the net margin is$21 ,000. So talk to us about why this kind of business is really hot right now. It is one of the most popular businesses on our platform. And again, there's 4 ,000 brands you can go look at. I think part of it is new. There's home services for everything. There's gutter cleaning, there's window washing, there's roofing, there's HVAC. How many turf businesses have you ever heard of? And I hadn't really heard of many at all before. And so I think it's becoming a trend, which is good to be a part of and not a trend that's just going to go away.

39:24I think people like the idea of convenience. And when I, I live in a condo now, but I had a house previously and I hated cutting the grass. I'm so busy with all the startup stuff.

39:34Hala Taha:Yeah, nobody wants to do that. I come home, I want it to look nice, but I don't want to do it. And then I'm paying someone to do it. And I'm like, I find myself really caring about this thing constantly and how it's done. It was just like distraction more than it was a thing that I enjoyed. Yeah. If I had a bunch of turf that looked perfect all the time and green and good for dogs and kids, like sign me up. And I think another part of it is some cities are starting to regulate and outlaw the ability for you to grow natural gas or natural grass. So Las Vegas recently said, no, you can't grow natural grass in the city limits anymore.

40:09There's a lot of cities in Florida starting to think about, hey, you can't use water for things like this. And so turf is really the only option if you want greenery. Otherwise, it's like rocks or I don't know, something else.

40:20Hala Taha:So it's the water restrictions driving up demand. So the South and the Southeast, California are really good for these concepts. It works in other colder markets, but really works where there's a lot of heat and constantly watering and grass is dying. And this just solves it permanently. Like for a franchise is 21 % margin good? So the thing that's interesting about franchising is it covers everything, hospitality, food, health and wellness. And so it's really almost industry dependent, just like you would weigh maybe a fitness concept versus a, you know, other health and wellness concept. It doesn't matter if it's franchised or not, the margin is going to be probably pretty similar across both.

40:57and so i think businesses that are over 20 margin regardless of the industry is usually pretty good unless it's super low revenue volume anything over 20 like you have wiggle room there's a lot of buffer there and what i like about this brand or this concept is while the revenue is somewhat low per territory less than 600 000 most people are buying up two three four or five territories at once because the incremental cost to do this is another 30 grand 20 grand you're having to spend

41:27Hala Taha:120 to 180 each time i was thinking that that you'd have to spend 120 but now now it's you just get an sba loan yeah well it's just the right to the territory so that 120 to 180k is really like get the truck get the initial materials three months of working capital you know and some installation equipment etc once you have that the territory is really what's valuable in a business like this because it's all services based so you're now buying if it's 60k for one territory 50k for the second 40k for the third but you don't necessarily have to buy the trucks more trucks no i mean if you start to get to a point where you have jobs every day but that's a good problem it's champagne problems and you got growth happening and so we've had a number of people buy three four five six territories and you do the math you got five businesses with 600k in revenue you're a three million dollar business now with 20 margins 600k a year in cash flow pretty good life i mean how many people do you know making 600 grand a year it's not a lot not a lot of people um so one of my former clients was brian scudamore he was he was my client for years i ran all his social and and podcasts and stuff he's 1-800-GOT-JUNK and he also has like a paint company so are home services franchise businesses are they generally like desirable i think so they're easier to get into and the overhead is not as high so to To me, the risk is lower from a fixed cost perspective.

42:52What scares me sometimes, and I'm doing some physical retail businesses myself, is once you build, you're not moving it. It's there. If you pick the wrong location, you're dead. That freaks me out. What I like about home services is you got a huge territory with a bunch of houses. If one neighborhood's not working, another one might. The cost usually is some equipment that even if it doesn't work out, you can sell back. I can't sell them all the improvements I did at this retail location, all the drywall and plumbing and electrical work we did. That's true. That's there. But if it's my truck that I bought and my power washer or window cleaning equipment, I can probably sell it back.

43:32Not for one to one dollars, but probably half or some amount. So worst case scenario, I'm not out as much. So I like it for the lower risk, lower cost. And some of these home services businesses, there's garage.

43:45Hala Taha:Garage clean out? It's like garage clean out. And like, I call it like Pimp My Garage, like the Pimp My Ride, you know, version for your garage. And they'll do over a million dollars in revenue as a services business, putting epoxy, you know, poxying people's floors and putting custom shelving in a garage. And it's not a super complicated business. It's just such a cool way to just make money. All right. Next one. This one's really interesting. Pediatric speech and ABA therapy. These are therapy services reimbursed largely through insurance. The customers' families with children who need speech or ABA therapy, which is, is that autism therapy?

44:23Effectively helping those with autism or speech deficits to find exercises and therapies that they can do to form habits that help improve those deficits and navigate life and develop those skills in an easier way.

44:42Hala Taha:Interesting. So the initial investment is anywhere from$300 ,000 to$800 ,000, but the location revenue can be over$1 million,$1.3 million for mature locations, top locations doing a million and a half per year. So they're very lucrative. So what's the opportunity in this? Are these becoming more popular? Yeah, so I think, yeah, and I don't know that it's necessarily that people are being, you know, there's more and more people with autism. I think there's just a lot more attention and care to, you know, mental health, special needs, way more than there was historically. I think people in the past were kind of like, rub some dirt on it, basically.

45:23And you just, people wouldn't pay attention. And now there's way more science and research behind it. And so I think it was one in 34 have some level of autism. and so it's centers that help you know people develop skills to better cope and navigate life that might that may have autism or other um you know disabilities or learning um you know issues and so these facilities are becoming more popular the cost for the the location being three to you know 800ks depending on the size the market that you're in but then your point 1.4 million in revenue the margins i imagine it's not listed in their fdd but it's probably similar to a fitness concept where you have trainers or some sort of professional there and usually those businesses have mid-20s to mid-30 % margin so I imagine it's like 23 to 33 % ish margin on 1.4 million again a great business the mission behind it's phenomenal so some people come to us again it's not about the money they're like I want to help because my child has xyz and so this is one of those businesses where there's a you know fantastic mission at its core plus you can make money Plus, you can provide care in a way that's above what's been done traditionally.

46:31Hala Taha:It's also recession-proof. Yeah, you're going to need this regardless. I mean, what parent isn't going to pay, especially if insurance is covering it, makes it a no-brainer. Insurance pays more than a lot of retail businesses would. It's almost guaranteed, and it's somewhat of a recurring revenue model because you're going to have clients for a series of months. It's not like it's one-off, come in, okay, I learned some skills and I'm out. It's like any kind of therapy or physical therapy, mental, going to a psychologist or therapist. For mental health, you're going to go multiple times for a series of time.

47:07And so you have this kind of recurring, I'd say client base built in that's never going away. Once they matriculate, the next group is already coming and it just doesn't stop.

47:17Hala Taha:Okay. I want to go back to the turf one for a second. Yeah. What are the elements of success? Like, what do you think that person needs to do to actually like have a well-running territory? Yep. So turf is one of those like medium to larger ticket sales. It's not like it's tens of thousands, but it's not 500 bucks either. And so this is where I would look. And the team is small. You don't need a huge team. So this is where I'd go back to the ShamWow, you know, personality. Yeah, that's like the marketing guy. You want the person who's like going to go do content in their local market and be like, Like your backyard could look like this and sending, I could see someone sending DMs or AI images of like, hey, I got this picture of your house from Zillow and I made it look like it has turf.

47:59Like, doesn't this look way better? Here's a before and after that I just created of your actual house. Some people might get creeped out by that, but I can see a bunch of people being like, wow, that looks really good. And so you're going to want someone who's creative like that and is coming up with out of the box ideas and getting in front of each single house in their territory. And because each one's an opportunity and the team to install the turf is one or two people. So you don't need to have this huge complex operation. And so I think for someone to be successful there, you want a founder or an operator that is marketing slash sales led.

48:30Hala Taha:And then on the therapy side, what are the key things to make sure that your business is profitable on that side? What do they need to worry about or lean into? Yeah, I think the quality of the therapist is really important. It's such an emotional thing. It's such an important thing that the level of training and the caliber of the individual you have first and foremost in the location, because that's what will keep people coming back. There's support groups and Facebook groups, et cetera, for families with children with autism. And so they're going to be all talking to each other about, hey, we found XYZ facility.

49:01It's amazing. We work with Tiffany or John there and that's going to happen. And so it starts with the quality of the service you provide. I think first and foremost, and word of mouth will be big for this business. The second thing is likely partnerships with, you know, what are other adjacent services? Is it hospitals? Is it, you know.

49:23Hala Taha:How to plug your distribution. Yeah, finding those like one to many distribution outlets. Because this isn't going to be like a Facebook or like a local marketing thing. This is going to be much more relational, emotional, referral based, community based. Like what community partners can you find that share similar clientele? Okay, number three, a sunless spray tanning and skill wellness studio. So beauty and wellness, small format studio, investment is$300 ,000 to$600 ,000. Average net revenue is$650 ,000. Well, I guess operating margin is 25 % because there's retail products as well. Yep. So how do you feel about these spray tanning type studios?

50:07Hala Taha:Are they good? So this is one where it would probably be someone who's more into this because it's a lifestyle or passion decision. It's a traditional tanning is bad for you, but I still want to look good and have good skin health and beauty there. And so this could be someone who's really passionate about that. Maybe doesn't need this to be the sole source of income. And so they're doing this as a little bit of a not a side hustle, but a side source of income. And they like it. and they like interacting with the clientele. They like being that person that owns it because there's other things that you could do that you'd make more money than this one.

50:45Hala Taha:Yeah, and way less initial investment. Right. This to me is one of those ones where people are going to, again, it's a passion thing. They want a physical location and it's not about building this empire, this massive wealth producing thing. Because this one as well, what I was going to say was, even though it's three to 600k or so depending on the size the margin's really good but the operation's not that complicated you know you've got people that come in they book times they go in it's usually equipment that's applying a lot of the the spray tan and so you don't need a ton of people either so it's simple which makes the lower revenue lower you know i think return profile relative to your fixed costs a little bit more attractive because you can kind of this is one of those more potentially semi-absentee businesses.

51:36Hala Taha:Interesting. And so you could open up multiple locations. Like if you got a lot of cash, it could be a good one for you if you're passionate about it. All right, next one. Reformer Pilates to you, my dream. My dream business. These are fantastic. If I quit Yap today, I'd be owning Pilates businesses. So basically you're investing anywhere from$500 ,000 to$700 ,000, which to me sounds high because there's such little involved. Whenever I think about Pilates, I know the machines, but like it doesn't seem like there's that much involved. Average studio revenue is over a million dollars a year. EBITDA margin is 30 % nearly.

52:21Hala Taha:And there's memberships, packages, class pass. So not so bad. I love this one personally. So it has recurring revenue, membership-based. It's like a SaaS, software as a service type of business. And I've talked to Ellen Latham a few times. She's a founder of Orange Theory. And her story is phenomenal. Orange Theory really revolutionized this kind of concept where it was, we're going to go beat the big gyms and do this very bespoke, curated, specific training programs, etc. and people will pay for it they love it they're part of a community it's kind of cult-like a little bit in a good way and she was telling me that at their height they were trading at like 20 to 25x multiples wow which is insane and so i think the multiple is good again because there's recurring revenue built in and there's such a loyal you know following um so for that brand with the high margin the recurring revenue yes the build-out is more expensive but the revenue justifies it i mean the average location i think is like 350k in ebitda or 360k 349 i don't know you get a couple of these open and again you have a pretty good lifestyle and a cash machine this validates my dream and this one when you're talking about getting into a franchise you need like a trainer or someone to run the gym anyway unless you were planning on it being you and maybe like i don't really want to do that um it's a great one to find like an operating partner model because it's not going to be running 17 classes at once.

53:53So now you need 17 people. So you really need a small handful of really good, reliable trainers, some equipment and a location and you're good.

54:01Hala Taha:I love it. Okay, let's move on to the fifth one, gourmet coffee shop. So we've got a coffee shop. It takes anywhere from$260 ,000 to$900 ,000, depending on the format. averaged unit gross sales per year is 600 ,000 top 50 % make 840 ,000 a year. So the margin, I think I pulled it last night. It's 15%. Um, and this one is interesting because there's this like Lego set of being able to set up the layout. So do you want to have drive-through, no drive-through? Do you want a retail, you kind of sit down area, walk-in area? And so that's why the range is so big on the cost from 300k to i think it's 800k or so and so that gives you flexibility and that's where earlier we talked about how entrepreneurial are you this is where you get to be entrepreneurial do i want to go for this or do i want to scale it back do i want to add that later is that even possible can i do my build out in a way where i can add it later and coffee is especially these like more bespoke coffee shops are crushing around seven brew if you're familiar they've blackstone is invested in them they are opening i want to say it's like multiple locations a day right now oh wow um and it's just drive-through it's like a little it's like that uh washington or seattle style coffee shop where it's just a core and then like three drive-through lanes and they're just it's speed versus starbucks has become you kind of go in 17 customizations for every person's drink yeah you sit there and you hang out and that was really good at the time.

55:35Howard Schultz was like, I want this to be the third place. I want this to be a place that people can come and just sit and do work or meet people or dates or whatever it is. And I think the world is just increasingly becoming busier and busier and busier. And there's a huge subset that doesn't want to wait. And Seven Brew and this concept as well is built for speed. And so this drive-thru element, that's why the top 50 % of the drive-thru group of this concept are doing 800 ,000 instead of 600 ,000. The issue I have is the margins just lower and that's because it's food and Bev. Most food and Bev is going to be worst case high single digits, best case low 20%.

56:14Hala Taha:This seems like another business where somebody's going to go into it because they just love coffee and like not realize that it's not the best choice compared to other options that are out there. Well, and this one in particular has a very good high quality gourmet style coffee some of the other concepts that concepts that i mentioned seven brew dutch bros is like this it's way more targeted at a younger demographic it's almost like they're selling custom energy drinks in some cases or these like dirty sodas as well um and those do way more volume way more volume higher margin because just way simpler this is i think it's lower margin because it's it's like very you know high quality beans and their roasting process is protected and they're doing all these other fancier things and selling a premium product.

57:03Hala Taha:Is a coffee franchise more of a real estate business than an actual product business? Yes. So Dunkin' very much like McDonald's, way more value in the real estate that they own than the actual operating business. Most people think of Dunkin' it's like, oh, it's donuts, it's coffee and America runs on Dunkin' and it's the whole business. But the franchisees behind Dunkin' are all primarily in it for the real estate ownership. It could be if you want to get into commercial real estate, you open up franchises knowing that the real value, maybe you get a little bit of money every year from the franchise, but the real value is owning the commercial real estate.

57:40Yeah, some of the like OG franchise guys that I know that are, you know, 60s, 70s now, they started out with a small handful of Burger Kings or Pizza Hut's when Pizza Hut was really blowing up 20 years ago, 30 years ago. And they then started buying the real estate underneath as they became more successful individually from the operating business. And then eventually they hit a point where like, I'm sick of doing this and dealing with employees and turnover and customers and all this stuff. like I own all this real estate now but what can go into a pizza with that like very unique roof and it's like well why don't I just sell my pizza house I'll make some money but now I got tenants in all my locations that I own that are gonna at least run this for five to ten years because the franchise agreement is typically a five to ten year agreement and so I think it's a brilliant play like you can start out operate work your way up again hard work up front is always going to be there yeah then you find yourself as a commercial real estate owner and a path to easily selling to a perfect tenant because it's already built out and it's already there.

58:40And it's the staple, this name brand because it's a franchise versus Holla's and Alex's taco stand that no one knows when we go to sell.

58:48Hala Taha:So you could resell just the franchise rights and not the property. Yes. And you can do that on Fransy. Yes. Okay, so out of all these categories and all the categories that are available on Fransy, what are the most interesting and profitable for people to really look at? Yeah, I hate giving the it depends answer, but it's so much does on the individual and the person. So let me break up like two personas. So for like the more risk averse person who is scared about real estate, like I love home services, because it's stuff that's not going to go away. Even during COVID, everyone's doing all these home projects and home services just skyrocketed.

59:28Maybe some people cut back on the convenience oriented things like someone coming to cut their grass, but your HVAC goes out, you're not going to live in 90 degree, you know, weather in your house or, you know, heat in your house. And so some of these staples, I think if you're willing to outcompete the local options, which many of them are mom and pop. So it's still you who's also mom and pop, but with the power of a brand behind you and the power of a network of other franchisees to learn from. So I love home services for that more risk averse group, both the operational minded and the jam wow sales minded operator um if it was you had endless money and you weren't afraid of risk food does so well it's risky it's lower margin but if you get in the right concept like dave's hot chicken or another one called mike's red tacos it's out of

1:00:12Hala Taha:california it's like berea style tacos i'm so surprised you said that i'm so surprised no but i'm no i haven't but i'm surprised you say you said food because i always thought like restaurant business was so difficult and so i think i mentioned it in the first part but that economist article saying that mcdonald's has minted more millionaires than any other company in the history what they say about restaurants is true i think it's like again me starting my own barbecue shop on my own let's even if i was really good at it it's so hard you have supply chain stuff and menu stuff like you're doing all these things on your own i couldn't tell you how to you do all the menu for McDonald's, but if McDonald's gave me the whole playbook and I just need to now operate this four wall location, I can do that.

1:00:58But all the other stuff that they figured out before me with tens of millions of the hundreds of millions of dollars and the technology and the food innovation and the supply chain, they got farmers in Argentina that they're getting all the burger meat for 10 cents a pound versus me paying a dollar 50 or whatever. Um, that's what makes it's so accessible and the chance of success of a restaurant drastically higher than an independent restaurant if it was independent i would agree with you if it's franchise let's say if you get the right brand especially at the right time they print money average mcdonald's prints six to seven hundred k in cash flow wow a year i'm so that's so surprising nine to ten million dollars average unit volume for one chick-fil-a i figured that with chick-fil-a is so

1:01:42Hala Taha:hot. These brands also get so like trendy, right? Like Chick-fil-A for so long was like so trendy. And I think some of the other ones you were just mentioning, like they kind of just like blow up and everybody wants to go try the new one in their town. There's a guy that I met probably five years ago now. He was a McDonald's franchisee. His dad started out before him and I think had two or three of them. He then took it from two or three to 30. Wow. And we asked him like, what's the average McDonald's do? How much does your portfolio do? He's like, well, the average does. And at the time it was like four and a half million in revenue.

1:02:17It's now up to like five and a half or close to six. So four and a half. He's like, that's for the average. He's like, I have top locations. He like, wasn't just bragging. He was being serious. He's like, mine's in the top quartile. So I'm doing like five and a half per. So we're like, all right, 30 locations, five and a half. So you're doing like 150, 160 million a year in revenue off of something that you started 15 years ago, 20 years ago with your dad at three. He's like, what's the margin? He's like, I'm probably making like 600K per location. So we did the math again and we're like, oh my God, you're paid like an NFL quarterback.

1:02:50And then we caught up with him about a year ago. He's now up to close to 90 locations. And so just like once you get going and you have that level of cashflow, it's like, it's just a monopoly man you're just like i'm gonna buy 10 more i'm gonna buy five more because you already have the team in place you already understand the system and it's just like you're

1:03:08Hala Taha:so repeatable process that you can just do over and over again momentum can't stop there's another anecdote i want to share and this guy was an investment banker so he knows deals his back when we talk about skill you know brand fit he's like i'm investment i like just looking at deals i don't need to be passionate about food or fitness or whatever and he was at an orange theory and he asked the owner, he's like, I'm just curious, like, how much do you make? And he showed him the numbers. He's like, you make that off at two locations. He's like, I make that off of one location. So this individual went and bought two or three orange theories.

1:03:38I think he started with one, quickly got to two or three. And then he started using SBA financing. He was good at raising money as an investment banker. So he started putting deals together and saying, Hey, here's what I'll pay you if you invest in this. So he might not own a hundred percent of the equity of what he was doing, but he in seven years got to 120 locations. oh my god mostly food dave's hot chicken um restore hyper wellness uh pop-up bagels marco's pizza and all of those have average unit volumes of two to three and a half million dollars so in 120 locations we're talking like a three to five hundred million dollar a year business a half a billion dollar a year business in seven years you never invented anything in seven years so like that's fat if you think about seven years from now i'm 34 years old if i started doing what he did by 41 i'm done i don't have to work again i can sell this portfolio for depending on the multiple on the ebit to the ebit on that business is probably 75 to 125 million for seven times that i could sell and even if i only own 30 percent of it i'm selling for multiple tens of millions of dollars and i can decide i'm done and so this is what i like about franchising is there's these playbooks and if you're willing to do the work and you can

1:04:52Hala Taha:really build like a whole empire. What did you call them? Like mumbo or like? Mumbos. Mumbos. Multi-unit, multi-brand operators. That's exactly what this individual did. He started out with Orange Theory and then he just added another, added another. Oh, this is a hot brand. It's not developed in Florida yet. I'm going to go buy the rights to five and build those over the five years. It truly is. I know I'm fanboying again, but I used to hate it. I love franchising now. I think it's such a clear de-risked path to wealth creation. I think it's the most overlooked path to wealth in America that doesn't get talked about.

1:05:26Hala Taha:I mean, I've talked about franchising on this show before. Like I mentioned, Brian Scudamore was my client. He used to come talk about it once in a while. And it always felt like a little bit obscure. Like, yeah, sure, I guess people can start franchising. But like, it just seemed so not easy to figure it out and not easy to find opportunities. So it's really cool that you're solving this problem with Fransi. And now people can go on there and vet opportunities and learn more. And hopefully you create your goal of a million entrepreneurs. We're on our way. Yeah. So Alex, this was an awesome interview.

1:06:01Hala Taha:Thank you so much for breaking down everything about Fransi in part one, going through these case studies in part two, so people can really think about what kind of franchise is great for them. I end my show with two questions that I ask all of my guests. So the first one is, what is one actionable thing our young and profiters can do today to become more profitable? So if it's an existing business, it's the easiest and most effective answer is raise your price. Most people are scared to do it. They're terrified. They think they're going to churn a bunch of customers. Think about Amazon with Prime or Netflix.

1:06:38When they charge us$3 more, we get upset for like a week. Yeah, you forget about it. They just created like hundreds of millions of dollars in profit, not revenue profit, because they have so much volume now. And Alex Formozzi talks about this a lot too. He's like, yeah, I used to have 200 members at my gym and they'd pay 100 bucks a month. So I raised the price to 300 and I provide a little more value to justify the price. I churned half my customers and I have 100 people paying 300 instead of 200 paying 100. Not only am I generating more revenue, my cost stayed the same. Because I had the gym, I had the equipment, everything else already.

1:07:09So not only did I generate more revenue, I'm vastly more profitable than I was. The answer more often than not is raise your price, but people are terrified to do it. You need to do it thoughtfully and you do it in a way where your value is matching it, but raise your price. You will make more money like that and your business will honestly become simpler as well doing it. If the answer is in general, go to franzi.com and check on buying a business and join the movement.

1:07:35Hala Taha:Love it. I love that advice. Okay. And then what is your secret to profiting in life? And this can go beyond business, beyond finance, however you want to answer it. Yeah, I've decided a while ago is like, I know we have one life here and I want to live it fully. And that's with having good times with my friends. That's working very hard to build a business and have an impact. It's loving my family as fully as I can. And so my secret has been, I don't want to be 80, 90 looking back. I wish I would have done that with more intention or more effort or harder. And so my advice is just like every day, whether it's a hard day or not, like get up, do it fully because it is short.

1:08:19I mean, it's, you know, I probably have 40, 50 years or whatever it is. And I want to go at it as aggressive and as fully as I can.

1:08:27Hala Taha:I love that. Well, Alex, thank you so much for joining us on Young and Profiting Podcast. Thanks for having me. And that's how Alex and Franzie profit. This two-part conversation showed us that franchising is not just McDonald's, Subway's, or the big brands we already know. It can be home services, fitness, therapy, beauty, food, and so many other business models. What resonated most with me is that entrepreneurship does not always have to start with a blank page. For the right person, franchising can be a way to start with a proven playbook, real data, brand support, and a business model that's already been tested.

1:08:59Hala Taha:But as Alex made clear, franchising is not passive. You still need to run your business, drive marketing and sales. You still need to know your why, understand your operator profile, run the numbers, do the due diligence and pick a business that actually fits your skills, lifestyle, capital and risk tolerance. So if you're thinking about business ownership and you've got some money, keep your mind open and consider franchises. Don't just chase the sexiest franchise idea. Look for the model you can operate well scale wisely, and profit from over time. Thanks for listening to How We Profit Wednesdays, the young and profiting format where real entrepreneurs share real numbers, real margins, and the real story of how their businesses actually work.

1:09:42Hala Taha:I'm Halitaha, and I'll see you next time. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18 plus. The right window treatments change everything. Your sleep, your privacy, the way every room looks and feels.

1:10:16Hala Taha:At Blinds.com, we've spent 30 years making it surprisingly simple to get exactly what your home needs. We've covered over 25 million windows and have 50 ,000 five-star reviews to prove we deliver. Whether you DIY it or want a pro to handle everything from measure to install, we have you covered. Real design professionals. Free samples. Zero pressure. Right now, get up to 50 % off with minimum purchase. Plus, get a free professional measure at blinds.com. Rules and restrictions apply.