Episode Transcript
[00:00:06] Speaker A: Hello everybody, and welcome to another episode of all Things considered franchising. Powered by Scott Milosfranchisecoach.com, all Things considered franchising is a podcast dedicated to the entrepreneur. People seeking business ownership, wanting to explore franchise opportunities as a way out of corporate America, kind of build their own wealth, their own legacy, their own enterprise.
All things considered franchising can be found on all of the podcast channels. Scottmilasfranchisecoach.com is an organization I started many years ago to help people research and explore opportunities, kind of build that roadmap. Today's guest I have a lot of respect for, and I've known for a number of years now, and he's just one of those guys that brings a lot of expertise to the franchising space. And what I admire most about him is his, his under the radar approach.
He's not looking to be that big blimp on the radar personally, but his organizations and who he works for and what he has founded really just kind of exemplifies and speaks for itself. Dan Rowe is founder and CEO of Fransmart, which is one of the, if not one of it, is the leading franchise sales organization in emerging food brands. I can mention names like the Halal guys, five guys, Qdoba Mexican. He's also a co managing partner at the Kitchen fund and Fran invest. He's a board member of the National Restaurant association. He's with the young president's organization as well. And of course, an entrepreneur himself. Dan, welcome to the show.
[00:01:40] Speaker B: Thanks. Thanks for having me.
[00:01:42] Speaker A: Dan, you and I go, you know, go back probably eight, nine years, maybe touching on ten. The industry has gone through the industry, meaning the franchise space has gone through a lot of transformation changes over the last ten years. Yet you seem to have your finger on the pulse. You just seem to know what's working, what's not working.
What is it about you, yourself and the people you surround yourself that allows you to keep and bringing in successful brands? I mean, I talk about brands today you have curry up, now you have Brooklyn dumpling. I mentioned two outside of the box food concepts with glow 30 and pay more electronic. What is it about your sense in the industry that keeps you having your finger on the pulse with the right brands?
[00:02:35] Speaker B: Oh, well, thank you. Thanks for the intro and all those nice things that you said about me.
I don't know. I don't know if it's one thing. I mean, I'm an operator. I'm an operator. I started off as a franchisee. I approached this whole business as an operator, what it takes to be a successful franchisee. And we have so many successful franchisees over the years who keep buying more brands of ours. I'm constantly talking to them about our new concepts. And so you mentioned pay more or glow, right, glow. Both of my two non food brands, the first franchisees in both of those were franchisees of my other concepts. Like, they knew us, they trusted us. We already helped them make a lot of money in the past. That comes from me being an operator. I was a successful franchisee, and I've been a successful franchisor. So I actually know. I know what I'm selling. And we, our ecosystem, if you think about it like, it's not just every brand we've ever worked with, but for every one brand we've worked with, we've looked at 30, right? So we've done deep dives into 30 brands. Then over on the investment side, we invest in all kinds of things. Food, food, tech, franchise companies, non franchise. Like, we were early investors and Sweetgreen and Kava that both had ipos last year. And so we, our ecosystem, our. Our knowledge of how profitable restaurants can be or franchises can be is enormous. And then, you know, between my role on the NRA board, like, that enhanced my Rolodex. YPO is a bunch of, you know, successful business guys, and the ones in food, that they're in my Rolodex. And so we're constantly talking about what's profitable. Like, how do you make profit? And I'm able to look in any category, like mexican or burgers. I'm able to find the ones that are the most successful, figure out what they're doing, and bring that back into our brands. Sometimes they are our brands, but, you know, but we just are constantly, constantly looking for it. And the reason is just simple. Like, we want our franchisees. I don't want to sell a franchise. I want to sell 500, right? So, like, I want my franchisees to be so successful that they want to open up more stores. And you and I have been in this industry a long time. You see the headlines. So and so company sells 20 units, 50 units, 100 units. Two years later, none of them are open, right? Or maybe one was open, and there's no money in that, right? All the money's in royalties in the back end. And when you eventually sell your company. And so, you know, for us, out of necessity, the one thing I think that we're great at is not really even, like, marketing. Like, I think we're pretty good at franchise marketing. I think what we're really good at is knowing how to make franchisees so successful that they want to keep opening up more stores.
[00:05:29] Speaker A: More stores. That's interesting. You know, it's safe to say, correct me if I'm wrong, that for a franchise e to be successful, the franchise or has to be strong. For the franchisor to be successful, the franchise e needs to be strong. And I know you don't want to share your secret sauce or anything, but for our listening audience, let's start with the franchisee side. What does it take, you think, for someone to get to the caliber to be that enterprise that you're referring to? Not just the one store, the two stores, but somebody who wants to build that empire, 20 stores, multiple brands. What does it take for them outside the financial side? Obviously, you need money to get into this.
There's no secret there. But what is it about the operational side of the mindset of someone like that getting into franchising for the first time or considering it?
[00:06:27] Speaker B: Yeah, there's a lot in that question that you asked.
I mean, for a franchisee, they, some of the biggest, most successful franchisees I know, and I'm talking people with 50 locations, 8002 hundred started broke. They didn't have any money. Like, they basically wanted to get into franchising because their life was here and they wanted it to be here, and they wanted to do that in franchising. And people that are successful in franchising, you know, it's funny because you're an entrepreneur, but you're not an entrepreneur, right? So, like, you're an entrepreneur to start your company, but it's not really your company. It's. It's. You're buying a system. Franchising is a business, a system. So the people who are most successful to this, in this business who build big companies, they get more involved with just replicating the system than going in and complaining about things that they wish were changed or going and, you know, whatever. So the ones who are really good at operating are the ones who make all the money. Like the, this whole industry is led by people who are good operators. There's so many examples where private equity or some rich person buys a territory, buys a franchise territory. And what they do is they start looking at it like a finance guy. They start cutting it, and they start eroding the guest experience. They make it not very good for the employees. So the good employees leave, and all of a sudden they run it down, and then all. And then you get a good operator that comes in and just starts executing, goes right back where it was supposed to be be. So, so someone who can focus on what it takes to be successful in that particular chain. And it's funny, no matter what it is, whether it's pizza or electronics or hotels, there's already examples of successful franchisees in there, right? There's already people that are successful. I've never found a franchisee who wouldn't share their secrets with other franchisees, right? Because they're not competing. They're in different areas. So success leaves clues. Go find the most successful franchisees. What are you guys doing that gets smaller so big? It's always operations. Always operations. So once you have that person, what they need to do is not look at it like I just bought myself a job. What they need to do is look at it like I just started a company and I want to get that company to the point where it self funds. That's called compounding returns, right? We call it blitzscaling, but it's basically like, you know, I owned a franchise at one point. We built one. It was a low cost conversion. The second one was a low cost conversion. Those two funded four more, right? All of a sudden we're making a million dollars a year. And then the company bought us out at six x. So we made eight and a half million dollars or something on a few hundred thousand dollar investment. And it was all because we just executed. So the ones who get big just keep going. But you got to think about it like delay gratification, forget the Tesla and figure out how to make your business successful. So you open up a second one, and then those two build a third. Those three build five. You know, up to five. Those five get you up to seven or eight. And at some point then you can take out half the income and you still have enough to keep reinvesting. But what you've done is you've compounded your, your, your returns. You're no longer taking money out of your pocket or out of your bank account per se. You're reinvesting cash and lines of credit to keep expanding. And then what happens is you don't only have a business that's way bigger than you originally thinking. You have, like generational wealth. When you go to sell that company, right? That's the second bite of the apple. In franchising, no one talks about like, oh, how much profit can I make in one store? The whole question is, how do I build a company that I can sell for $10 million, right? So, and so that I think more franchisors should coach their franchisees on that. In fact, like, we have a whole training program that helps franchisees sell that. Like, I want to grow a franchise. Someone signs for three or five, I want to help them get to ten or 20 and sell it. Right. Because at some point they get fatigued and they're ready for their next thing. But they've just had a life changing experience. Now you're selling those 20 units to an existing successful franchisee and he's more profitable for the franchisor because now you're getting 30, 40 royalties on one phone call or one email. So that's how I do it.
[00:10:46] Speaker A: Yeah. As far as the operational side and being successful as a franchisee, is it really just as simple as following the system and being able to delegate and kind of leaning on the franchisor? I mean, what are some of the. I mean, we talk about mistakes, not following the system. That's typically the number one reason why franchisees fail. Is it really following the system in your experience and what you've seen?
[00:11:14] Speaker B: Well, it's a lot, right. So, like, if you're a business that needs a good location, you better have a good location, right. Because the best form of marketing is your location. So you starts with having a good site. Now, on the people side, you have to staff for the company you're trying to build. You can't staff for where you're at. You got to staff for the company you're trying to build. A franchisee is constantly trying to build and grow and you need a. And you're going to have turnover. Everyone has turnover. So you to build that into your plan. But remember, staff for the sales you want. So, like, if I have a $2,000,000.05 guys, but an $800,000 team, what do you think happens to the sales? It comes. They come down to the team, right. The team doesn't rise to 2 million. And so if you want a $2 million store, you better staff it for $2 million. And. And for us whenever, because we only sell territories, we require a franchisee not to just open with his team to open that location, but also his director of Ops and maybe even a secondary kitchen person. Because that location, like the Halal guys you mentioned earlier, Halal guys was from New York. There were carts. We opened. I think the second location was out in Southern California. We made that franchisee put in a director of operations from like a Panera or Chipotle. A GM from Panera. Panera, Chipotle. Both of those had to have opened up at least three restaurants and a kitchen manager. So they opened up with these three people and you're thinking, oh my God, well, that must be crazy. On the cost, their store did $100,000 the first week and almost 4 million the first year. Out of 1500ft. Out of 1500ft. Like put remember in your burger days, like $4 million out of 1500ft. That store self funded seven more. Self funded seven more. And so it's like all in because, and I would talk to these guys, I'm like, staff for the sales, you want the locations, a home run. We knew it. And so staff for the volume you want in that location and then staff for the company that you're trying to build so that your first, you know, location does great, you go on to your second location and it falls apart right then. Then you're never really growing. But if you're going to try and do building blocks, you know, and that's, that's the confidence that a franchisee needs to have in the system.
[00:13:30] Speaker A: That's interesting. That's interesting. That's a great way to look at it. We're talking to Dan Rowe, who's founder and CEO of Francemart. Dan, I mentioned earlier that in order to have a successful franchisee, you need a successful franchisor.
You bring a lot of experience, both on the operational side, and that helps and trains franchisees to much what you were just talking about.
It's safe to say that you and I, over the last six, seven years have seen an enormous growth on the franchisor side. Startups coming out of left field, right field, center field, behind home plate, people that really shouldn't even be in franchising. There have been some great success stories. What does it take coming from your side as a franchisor? Is it just kind of the reverse of what you just said, that it's not just simply telling somebody how to flip a burger and take an order, it's the management side. Teaching a franchisee that you're not the burger flipper, you're not the, I mean, you want to get behind the grill, great. But there's more of that operational management side. Thinking ahead, does that make a successful franchisor?
[00:14:43] Speaker B: Yeah, a franchisor has to be able to do now two things, right? Because they originally their concept was good because their burger was great, or their car cleaning company was good or something like that. Now they're no longer just in that business. They're also in the business of making successful franchisees. Who can execute that, right? And so, so many franchisors I see, will sell the franchise. They'll, they'll sell franchises all over the country, but then don't invest in the infrastructure to train and support their franchisees. So then these franchisees are struggling, and I'd say the same thing to a franchisor. It's like you're. I mean, it's idiotic because you get a franchisee that prepays you to come into your system. They pay you to stay, royalties, rebates, they're growing your value of your company. Like, every time you're proven in a new market that actually adds market value to your company, and they sign an agreement that basically says, I'm going to follow every one of your whims. So we're going to turn into a cupcake place, or I'm going to add playgrounds, or I'm going to do whatever it is. Franchisees basically have to do it. And so franchisees basically make franchisors wealthy. I tell franchisors, like, your whole focus now, you're never going to get wealthy unless your franchisees are wealthy. There's no money in single unit franchisees. Even though you sell a five or ten or 20, there's no unit. I mean, the market will never later pay you on an upfront franchise fee you spent three years ago. Right? They're going to basically buy you for residual income, like your royalties and rebates and how big they think that they can take the company. And so franchisors have to think about, like, I'm only in business now to make successful franchisees. Don't. Do not ever let a franchisee open up in a bad site. I mean, think about that. FRANCHISEE pays $150,000. I actually hear franchisors that approve locations without seeing them. And so it's like, in an early day, in an early stage, like, I do, I'm not even responsible for going out looking at real estate. I go look at all the real eState, like, on my own nIckel, I go out for my brands to go look at them, because I can't afford the franchisees not to be successful. Right? So, like, I'll give you one example. It was a deal that we got through your brokerage.
We found a franchisee of another Brand successful on their own rights. They came to us for another Brand. I don't want to name names, but they bought the franchise. They were having a tough time with real estate in the beginning. I found them a better tenant rep. I went to the market, did a site tour. They were so happy so confident. They're starting to nail such good sites. They doubled the territory. They doubled their territory. So you think about it, it's like that person paid 150,000 or whatever, upfront, upfront, another 100 something thousand to double the territory. And it was. I mean, what it cost me to go to Dallas for a day, right?
I mean, two grand, $1500 or whatever it was, it's like, good Lord. So I don't know why franchisors, and by the way, this franchisor went twice. I've been. I've been back. And so it's like, you need to look at the lifetime value of your franchisee. So not only the upfront franchise fee, so you think about a franchisee. Let's just take a five guys franchise fees, 50 grand, okay? You get that once a royalty, an average five guys does a million and a half dollars. They're paying 6% royalty, that's a plus. Marketing, that's another hundred grand. So you got 50 grand once or 100 grand every single year. When that franchisee opens up, unit two, unit three, unit four, all of a sudden you're getting 200, 300, 400, 500 grand a year. And it doesn't cost you any more than it cost you when you only had one location. Yet so many franchisors don't think about the lifetime value of their franchisee. This particular group, this particular franchisee that came through your group, they've already referred other franchisees. So now you're looking at, like, this thing's, this franchisee, over time, is going to be worth millions of dollars to us. So for us, it doesn't occur to us to not do everything to make that person successful. We helped them find real estate. We're helping them build the team, we're helping them do membership, pre sales, where, I mean, every single thing, even if contractually, I'm only obligated for some of it, it's like, the upside is. Makes it so.
[00:19:04] Speaker A: Yeah, yeah, yeah. I mean, your goal is. I mean, I learned as a franchisor that the goal is, hey, look, you want to get to be royalties sufficient. You want to be able to pay your bills on royalties. You don't want to reach into your pocket. You don't want to take out equity, you don't want to borrow, you want to collect royalties. And if you're going to get royalties, you got to keep your franchisees happy. Dan, let's take the last few minutes here. Great advice, by the way. Let's take a few minutes and talk about France smart and the brands that you have in your portfolio. I mean, we mentioned earlier iconic brands, five guys, the 800 pound gorilla in the burger industry. You really started the fast casual burger with five guys. They had Qdoba. You have halal guys. But you have some interesting brands now that are still in. You got Brooklyn dumplings. You have Taffer's tavern that you're starting to franchise now, which is a great story for those of us who know Jon Taffer and have seen him on tv. It's a great tavern.
Curry, up now, again, a big player. Talk about some of the brands. What you're seeing. I learned that, you know, one of the things in my industry as a consultant is a lot of consultants don't like to present food. I happen to be the opposite. I think food is a great way to make, to build an enterprise. Much like you were describing before. Food isn't hard work. It's long work, but it tends to bring in wealth, and it can build wealth. So talk about some of the brands and things that, you know, you're doing in France. Martin, and maybe touch on the two brands that are non food with glow and pay more.
[00:20:39] Speaker B: Yeah, the. I mean, food, I was. I was just always into restaurants and food. The, you know, it's 8 billion people on the planet. Everyone wakes up hungry, they're going to eat, right? That just seems like a very safe place to be as long as you can find something that's profitable. So nowadays, whenever I'm looking at food brands, you know, everyone, everyone knows that there's labor issues out there. So I find food brands that need less labor so that you can overpay. Right? So, like, if you just need less people per shift, like, we have rise. Our biscuit donut concept used to have six employees. They got rid of the cashier and the expo, so they got rid of two positions. So their sales went up 20%, but they got rid of a third of their labor. And so all of a sudden, the two thirds that that's remaining, you can afford to overpay those people more than they can make anywhere else, and you still got a lower labor percentage. So there's always got to be a hack. We just did a project with Pitbull. So I got approached. It was on the COVID of franchise Times magazine last month. But I met Pitbull, and he. He's like, how come no mexican chains are owned by Mexicans and no latin brands are owned by Latinos? And I said, let's fix that. And so we found a mexican brand in Chicago that had 13 when I met them. They're at 18 now, but they're doing thousand, 1200. They went into a failed Baja fresh. They're doing $3 million. They went into a chipotle.
They went into a chipotle that closed over $2 million in sales. And so there's. There's always. Because their sales per foot, sales per foot matters because you pay rent per foot. So the higher your sales per foot is, the lower your labor cost is. And the lower your labor is, the more, obviously, the more profitability. So there's always got to be some hook about the food. But I like it most. Most of. I mean, the biggest franchisee in the world is 98% food, right? Greg Flynn. So it's. It's. It's food people are going to eat. You just have to make sure that you get into a brand that's profitable enough, right, so that you want to keep your head in the game. And there's plenty of them, like our indian brand, a whole bunch non food, though. All of a sudden, I got approached about this electronics brand and this electronics brand called pay more. They had one location, and an attorney said, would you ever do non food? I'm like, I don't know. And he goes, here's the item 19. I'm like, holy crap. I flew up there the next day to look at it, and I didn't really like it. I didn't like how it was positioned. But they had a different idea of what they wanted it to look like. And that's pay more. Pay more. They want it to. It's buy, sell, trade new and used electronics. They want it to look like a Verizon wireless or a u break or something like that. And so the new stores, did they open up like that? But that, that's an example where the first couple of franchisees were already people that I knew. They were already franchisees of mine in the past. They opened. They're so successful, they buy more territory. I mean, we have one guy with 27 firehouses. He originally bought five locations in DC. He's so successful, he opened, he bought Baltimore, Denver, Dallas, Houston, Orlando. Like one guy, right? Because you took care of him. Now we have glow. We have glow 30, skincare brand, same thing. It's like these places. I think in their item 19, their worst store nets out 225. Their best nets out 700. That's after a franchisee pays royalties and marketing. And that's on a $300,000 investment, $400,000 investment. So for, you know, 50% to 200% ROI. And so you look at that. And it's like, you know, Glow only takes four or five employees on the busiest shift where five guys, you know, Monday lunch, the slowest lunch of the week, still has twelve employees. And so glow is interesting and it's attracting all these food franchisees. It's attracting great clips franchisees, attracting educational franchisees because its economic models better. It's the next thing in skincare, in, in healthcare. It's affordable. It's one of these things where the procedure changes every month. Right, the facial procedure.
[00:24:55] Speaker A: Right.
[00:24:55] Speaker B: Like in October it was like pumpkin and July it was lemon cello. But there are all these curated facials every month that people fall in love with and they don't miss. And then about every, about every three or four months someone might get Botox or another procedure, but they're wildly, wildly profitable and so, so much more profitable than food. And, you know, like we have one of our franchisees that owns Arizona where I am.
[00:25:20] Speaker A: He.
[00:25:20] Speaker B: They do. They were the original franchisees of Papa John's. They were my franchisees of Qdoba. But they have like right now they have Papa John's Jersey, Mike's, five or six other things. They see glow and they're like, we don't even want to do restaurants anymore. Like it's so much, the model is so much better and they, they're another one. They came in originally and said, let me try it, dan. I kind of wore them down. So they're like, okay, I'll try it. I'll try five. Within 60 days. They look under the hood because you're only allowed to show people so much before they buy.
Once they bought and they looked under the hood, talked to some other franchisees, they bought the rest of the state, they bought the rest of Arizona. And so, yeah, so it's good. The franchising, franchising is a wealth builder. There's so many franchisees. Not only, I mean, not only buying one, you know, if you buy a franchise to kind of replace your job, like, like one of my best friends was a software guy and he did five guys on the side just as a way to make extra money and he didn't touch the money. He let it roll. The way I talk about with compounding. And now I think he has, he does 50 million in sales between his five guys and his popeyes. And he started as a side hustle. He did it as a side hustle for his software business. Now he does 50 million a year. He owns most of the property. I mean this is a guy that's going to be worth $50 million in the next couple years. And it all started with a small six figure investment that he just let roll. Right? So that's the kind of stuff. And you guys see it, too. I mean, you guys see really good stuff. You guys have a good database of brands that work with you guys. And it's easy for you to kind of look at the numbers. All we really care about is how profitable they are and then how many franchisees are building more stores, you know, and then other things like, is the franchise we're building? Because they know more than anyone if they're not building, that's a warning sign. If the existing franchisees aren't building, run for the hills. But assuming that positive. And you look at the numbers, if you look at the numbers, it's like, that's it. Then all you. Then all you have to do is in your diligence, talk to a couple of franchisees to validate the numbers. One of the other things you should do is say, hey, if I sign up, will you mentor me? Can I pick your brain? Can I come see you? Will you share your success secrets? If all the success you've had, if you did it all over again, how could you have done it better? And will you share that with me? You'll never. I mean, franchisees share that all the time. So there's really, is everybody. Everything a franchisee needs to succeed is in franchising already.
[00:27:48] Speaker A: Wow, that's incredible. Yeah. Franchisees like to be part of something that's successful. I mean, it's. Investors do. I mean, it's human nature. Dan, I can't thank you enough for taking some time and sharing your expertise with the listening audience. As I said earlier in my intro, you're definitely someone who has been a big influencer in the franchising space and someone that shares a lot of ideas about the industry. For anyone who's interested learning more about Dan, go to LinkedIn, check him out. Dan Rowe, go to francesmart.com quote s website. Check it out. Some great brands out there. If anybody has any questions, you can also reach out to me.
Check out, like I said, Dan's website, francesmart.com. check out all things considered, franchising, and Scott Milo's franchise coach as well. Dan, thank you so much for spending time with us. Any closing thoughts?
[00:28:40] Speaker B: No, no. Have at it. Right?
[00:28:43] Speaker A: Yeah, make that call. Right.
[00:28:46] Speaker B: Thank you. Thanks for having me.
[00:28:47] Speaker A: All right, thanks, Dan. Bye.
