Episode Transcript
[00:00:06] Speaker A: Hello, everybody, and welcome to another episode of all Things considered franchising. Powered by scottmylosfranchisecoach.com, all Things considered franchising is a podcast dedicated to the entrepreneur people who are researching and exploring business ownership for the first time or looking to diversify a portfolio.
We have guest that present great education, research, and guidance in regards to the franchising and independent business space. Scott Milos, Franchise Coach, is a organization I started consulting organization that was started many, many years ago, helping people research and explore opportunities, kind of building that roadmap criteria and introducing opportunities that fit.
I am privileged today to introduce someone who is an icon in the franchising industry. And if you were like me 1520 years ago when I got into this industry, you wanted to have your ears and eyes open to people that really could kind of guide you through and provide.
And the guest today is that person, John Hewitt. John T. Hewitt, who is now CEO of loyalty Brands. And you may know him, and we'll get into some of his past experiences. But John is also an author of I compete, an extraordinary strategy book.
So, John, welcome to the show.
[00:01:34] Speaker B: Scotty, it's my pleasure. Thanks for having me.
[00:01:37] Speaker A: You have been around the franchising industry for well over 50 years now.
I hope you still look at that as a positive, and you've probably seen a lot of changes within the industry, especially in your experiences.
It's safe to say that you were founder, CEO, president, builder of one of the largest and well known tax franchises, Liberty Tax.
What is it about franchising that has kept you going for 50 plus years? What is it about the industry? Because that's remarkable, especially in today's world, business world.
[00:02:17] Speaker B: I guess part of the reason I love franchising is that when you have employees, I found that you can only get about two or 3% of employees that act like owners. And that's just so frustrating. But when you have franchises, about 95% of the macroc owners, so it's a competitive advantage.
I have my franchise Z typically competing with the employees of other companies, and so I compete. I'm always looking for that little edge. The edge is ownership versus employee.
[00:02:58] Speaker A: Let's go back a while back when you probably had the business plan, this idea of a tax franchise sitting on your desk.
What triggered you to really open a franchise, start a franchise, be a franchise, or in the Liberty tax model, and really build it to an empire, to probably the number one tax franchise opportunity out there at this point?
[00:03:27] Speaker B: Well, Scotty, can I take you back to the beginning? Because.
[00:03:30] Speaker A: Sure, absolutely.
[00:03:31] Speaker B: In order to understand that, I can do that in about three minutes.
[00:03:35] Speaker A: Absolutely.
[00:03:36] Speaker B: I started when I was at the University of Buffalo working for H and R block. I loved it. And twelve years later I was running 250 h and R block locations. My dad was a CFO of a public company. He liked a little Apple computer better than the mainframe that was running his public company. So he decided we should computerize taxes. So in 1981, we both quit our jobs and built the first tax software for an Apple computer. No one wanted it. Way ahead of its time. There weren't even a million desktops in the country. And got lucky and found a company in Virginia beach called Mel Jackson Tax Service. Mel had died. We bought six offices from his widow.
We merged the two companies, changed the name to Jackson Hewitt and built a billion dollar company. Jackson Hewitt became a billion dollar company with 6000 locations. I sold out in 1997 and had a non compete, but the non compete didn't cover Canada. So I opened Liberty Tax in Canada and within three years became one of the top 100 retail chains. So now I build one of the top 100 retail chains in the United States and Canada, came back to the United States in 2000 and had to compete with my own name, my own software and my own system at Jackson Hewitt. And yet, not only did we grow faster than them, we grew faster than them in H and R block combined. Liberty Tax was one of the top 4000 franchise franchise companies ever. Fastest growing.
[00:05:11] Speaker A: Interesting.
[00:05:11] Speaker B: Yeah. Again, a top 100 chain. So I'm the only person that's built two of the top 100 chains. I brought in 5200 franchises in my career. They had hundreds of thousands of employees. I've changed tens of thousands of people's lives with those companies. And then again, Liberty Tax became a half a billion dollar company, sold that and started loyalty brands. And now we have eight different franchise systems.
[00:05:36] Speaker A: Yeah, that's interesting.
Let's go back to building the systems that you implemented to grow it to what it became. You have now become a.
I don't know if you label yourself as an FSO, but you are now instrumental in helping brands put the pieces together, from the development side to offering franchises to the operational side. So when you look at the franchise industry and there's been an influx, and. Correct me if I'm wrong, John, but there's been an influx over the last five years of businesses that want to franchise. I just got back from the national franchise Expo down in Dulles, Virginia. And, you know, one out of three people that stopped by my booth to chat were people that are interested in franchising their business. So how does that all play into the franchise industry? I mean, there are 4000 franchises now, plus give or take, how does that all fit into, and what is your experience in building brands and for the brand to become successful?
[00:06:43] Speaker B: Well, I'm really glad you asked me that. Can I give you a quick question?
[00:06:47] Speaker A: Sure.
[00:06:48] Speaker B: You're right. There are 4000 franchise wars in the United States. To be in the top 50%, guess how many locations you have to have.
[00:06:58] Speaker A: 50?
[00:06:59] Speaker B: 20.
[00:07:01] Speaker A: Wow.
[00:07:01] Speaker B: So, yeah, every Tom, Dick and Harry wants to franchise, and most Tom, Dick and Harry fail. And what they have is a mom and pop that is very wildly successful. And people come to them and say, why don't you franchise this? I want to buy one of these. This is the greatest thing since sliced bread. Well, they're up to here running their great business.
They don't know anything about franchising. So when they start the franchise now they have two things to run. They have their own business, which they've done very well. They're experts at that. But then they try to be a franchiseor, they don't have the time to do it, and 95% of them don't have the skill to do it, so they just flop and they don't succeed. So, yes, it's very difficult to build. Both of my companies built from zero to 500 employees with huge market share. Over 500,000,001 became a billion dollar company. So that's incredibly difficult. In the history of the United States, there's less than 1000 people that have built a billion dollar company in the top 100 chains in the United States. There's 99 people that have done that, and I've done it twice. So it's a real challenge. And to me, the biggest challenge is that as you grow exponentially, there's always chaos. You can't go from zero to 4000 in ten years or twelve years without chaos. There's always difficulty, right? And there's always the management of resources. You have to have the right amount of structure matching the right amount of income. If you have too much income without structure, you fail because of lack of service. If you have too much structure without income, you go bankrupt. So you have to manage those two.
When can you hire your CFO, when can you hire your CIO, CMO? And when do you hire your receptionist? Or how many marketing people and so forth? So it's a constant challenge to be accurate in your vision of the future. That's the most challenging thing is to manage those two things together, the income and the expense. Manage them together to make sure that you're always in sync. And I've done that. Now I'm on my third time. They say third time is a charm.
But in addition to that, one of the reasons that most franchiseors fail, and most of those people that are thinking of doing it today are going to go out and fail because they don't agree or understand this obvious principle. This is extremely obvious. Everyone should get this. And the key to a franchise success is happy, successful franchisees.
[00:09:55] Speaker A: Yes.
[00:09:56] Speaker B: And they don't get that.
[00:09:57] Speaker A: It's a relationship.
People don't get that. You're absolutely right.
[00:10:01] Speaker B: They have happy, successful franchise. Or if I start a business, I want to be happy, I want a nickel and diamond, I want to charge them for technology, I want to charge them for advertising, I want to charge them to belong to this, I want to charge them for product, I want to charge them for this. And they don't understand, if you have happy, successful franchisees, you're going to be wildly successful. If you don't, you're going to fail. And most franchiseors that have started in the last ten years have failed, believe it or not. And it's a wonderful system. It's amazing, Scotty, that when you think about the big picture, I've had 5200 franchisees, 5200 groups of people or individuals have paid me to work for me. They pay me to work for me.
[00:10:48] Speaker A: Right?
[00:10:48] Speaker B: I mean, where do you get that kind of resource, right?
If you're in the army and you have troops and they're paying you to be there, they pay me. And the franchisees are typically, they act like entrepreneurs and they're excited and they're enthusiastic and they're more talented because they're more independent and more aggressive and more assertive. And so you get these great group of people, and then most franchiseors let them down.
[00:11:21] Speaker A: Howard, some of the people listening, we're talking to John T. Yud, who's CEO of loyalty brands and founder and chairman of the board of Liberty Tax, had been founder and chairman of the board for Tax. You know, John, some of the people listening today may be people who are looking to pick up the phone for the first time, start researching, exploring business ownership. Maybe franchising is the right way for them to go. They're still looking to make kind of that first call. But you just touched on something that's very interesting. In order for a franchise or to be successful, you have to have successful franchisees that are comfortable with the systems and best practices, and you kind of hit the nail in the head that the franchise war doesn't have their hands in their back pockets, so to speak. There's this image of the brinks truck from the franchise or showing up the franchisee, putting all the cash into the brinks truck and driving off. So what is the secret sauce or that recipe for someone who is interested in becoming a franchisee, a business owner, what are some of the secret sauces for that person to be successful as a franchisee? Why should somebody consider franchising, I guess is the easiest way to put it, actually.
[00:12:41] Speaker B: If you get a great franchise system, and there are hundreds of great franchise systems, out of the 4000, at least four or 500 great systems, then you don't need to reinvent the wheel.
You're given a system, you're given a recipe. You need to go to the kitchen and follow the recipe.
If you start from scratch, and many, many people that think about getting a franchise think, well, why don't I just do it myself? Well, they don't understand all of the intricacies and all of the time and energy and cost about building a system. And so you get a system. Here's your vehicle.
When you go buy a car at an auto dealer, you don't need to know how it works.
You don't need to be able to fix the engine. You don't even need to know how to blow up your tires, right? They'll do everything for you. We do everything for you. You just got to get in it and drive.
Now, you would think that would be easy. You would think that anyone would get that. Why would you pay money, good money, to join a franchise system and then not drive it? Why would you get out and go into, open the hood and pull something apart and then get back in and drive? And that's crazy, right? But the phrase I've used in my life the most often is ten times more than any other phrase is just follow the system. You would think it's automatic. This is my 55th year, and most of my franchisees haven't had 55 months or even 55 weeks and some not 55 minutes. And yet everyone knows better than me from the minute they start.
[00:14:33] Speaker A: Amazing, isn't it?
[00:14:35] Speaker B: The key is follow the system. And I've brought in 5200 franchisees. Not one hasn't listened. 100%. Everyone tinkers. Everyone tinkers. They go and repaint the vehicle. Or you're absolutely right, they add in this or that. Don't tinker. Learn the system. And then once you got it down path, then tinker. If you think you know better, but don't do anything until you follow the system religiously. But it's against human nature. It's very difficult to do.
[00:15:12] Speaker A: Right. Yeah, I've heard the analogy that whether it's a little Cessna prop plane or it's a lear jet or a 747, to get the plane off the ground is the same way. You got to put the throttle up. It's follow those guidelines to get the plane off the ground. But when you get it up in the air and you're flying, you don't all of a sudden pull back on the throttle and say, okay, I'm up in the air. Because if you did that, you crash. And I think that's the idea about franchising, is that people think just because they signed the franchise agreement, got training, now all of a sudden they can go out and do whatever they want and kind of change the recipes or the best practices.
There are also some misnomers about franchising your business, too. And I just wanted to go back to this because this is a conversation, like I said I had in Virginia last weekend, about people who are interested in franchising their business.
In my mind, it's pretty easy today. And if you go back 1520 years and maybe you'll agree with me, is that it was a little bit more complicated to actually franchise your business. The paperwork, the FDD, the training manual, it was a lot more expensive, and there were a lot more pieces to the puzzle to do it today. It's pretty easy through templating and the different systems that people have and pretty much inexpensive, when you think about it, to franchise your business. And what I've been trying to tell people is that the easy part is to franchise your business. I mean, anybody can put an FDD and a training manual and operations manual together, but the implementation and the development of your brand supporting your franchisees is a lot of hard work, and it's also very expensive, and people don't understand that. How accurate am I in that, in delivering that message?
[00:17:05] Speaker B: Well, you're right. Some things have gotten more generic, but with inflation and time, the cost isn't dropped. And, yeah, the legal work and the paperwork, which includes the operating manual, the training systems, everything, you can do that for about 100 grand, and you can do it, well for about 100 grand. But then how do you attract new franchisees and how do you bring them on board? And so you're going to spend 100 grand in operations, or, I'm sorry, legal and administrative paperwork, and then you're going to spend another 200,000 trying to get new franchisees on board.
So now you're in for about 300,000. And the frustrating thing for most entrepreneurs that fail, and again, most new franchiseors fail. The thing they don't understand is they're not dealing with employees anymore. And while they had this successful mom and pop business, they had employees. And most of the time, they're just in one location. But even if not, they have employees that they can dictate to. And now you get a franchisee. You can't boss them around like you could an employee, and you have to treat them. They have many hats. A franchisee is a customer, they're a partner, they're your boss, you work for them. I mean, they're demanding.
One of the great things about being a franchise system is they're so demanding, even when they're wrong.
And if you understand that, you need to have the best system in the industry, which I've always had, always had the best system. If you understand that to have the best system, you have to be growing or improving. You have to be improving. And if you're not improving, then your competitor is catching you. So it's so hard to improve without criticism. But with franchise system, I've had 5200. I'm one of the most criticized people on the planet.
There isn't any franchisees that didn't have advice or a complaint for me at some time, and some have hundreds. So it's so much easier to learn if you have people complaining. But I've had a lot of people that work for me and seen a lot of other failed franchiseors that can't stand that. The minute someone starts complaining, especially if they're wrong, and they can be wrong, they hate them and they destroy the relationship. And so it's hard to take, and the criticism is often justified.
Scotty, if you and I, you're a smart guy. If you and I disagree, I believe neither one of us is right. The answer is somewhere between us. You might be mostly right. I might be mostly right. It might be 50 50. But if you and I have a disagreement with your experience and your knowledge and your wisdom, then neither one of us is 100%. We need to each think about carefully what the other one is saying.
[00:20:20] Speaker A: Right. No, you're absolutely right. And being on the franchise or side for many years and being part of the upper management team of building a brand, a national brand, now you've got to have ears and be able to listen to your franchisees. Some of it, you may be scratching your head and going, wow, wait a minute, where did this come from? It's that from Les Field. But to your point, there's got to be a medium point in the middle. You've got to learn to agree.
Human nature is we're going to disagree. You mentioned that before. It's human nature that everybody's going to disagree. The hard part is finding that resolution. And somewhere, like you said, in the middle.
Before we start running out of time here, I want to get the opportunity of talking to you about loyalty brands, because this is a venture you started about seven years ago. You've become kind of that silent, big radar on the blimp in regards to building brands now taking on brands that may have come into franchising, started to struggle, now need some handholding? Tell us about a little bit about loyalty brands, what you're doing and how that's playing an integral part in helping brands grow as a franchise system.
[00:21:39] Speaker B: Yeah, we have eight different brands, and I don't have time, obviously, to talk about all eight brands. And I'll say that we have two that are very exciting and fast growing. One is mobile pet grooming, Zoom and grooming, and the other is our tax division. I've always been the best in tax. I call myself granddaddy of tax. But what we do with each brand is we bring in our mentoring experience and we bring in our sales team and we have something that almost no one has in bringing in all these franchisees around the country at Block and Jackson, Hewitt and Liberty. I have people in every city in this country of over 25 or 30,000 people that have worked for John Hewitt.
Wherever you want to expand to, if you want to go to Milwaukee or Los Angeles or Jacksonville or Providence, there's someone there that's worked for me before, working for me now. They can be customers, they can be employees, and they can be franchise owners. So we bring a lot to the table and including cross.
[00:22:49] Speaker A: Interesting, interesting. Yeah, I noticed. Zoom and grooming a great brand. It's growing. I mean, you're part of the IFPG referral network. So you're in our portfolio and you have some home service brands. You're in the staffing industry, you're also in home services. And of course, like you mentioned, Atax, another tax company that you're starting to build, that's done very well. John, any closing remarks? Anything you want to share with our listening offices, listening audience about franchising?
Any words of wisdom for anyone who's, like I said, looking to pick up the phone and kind of make that first step, or somebody who may be looking to diversify their portfolio. Any closing comments?
[00:23:34] Speaker B: At this point, it all comes down to there are great franchises and there are failing franchiseors. So be very careful. And most people are better served about owning a franchise than starting in business for themselves. I mean, Sam Walton owned a franchise. Dave from Wendy's owned a McDonald's franchise.
People are better served by owning a great franchise. But keep in mind this phrase, happy successful franchisees. And it contains two words, happy and successful. There are many systems that I've seen that the franchisee can be happy for a while. They feel good businesses, but eventually, if you're not getting a great return on investment, you're not successful, you're going to get out of that business. None of us are in this to be a charitable organization, to be a nonprofit organization, if you're for profit, you got to make sure that the system you're joining is the franchisees are both profitable and happy.
[00:24:41] Speaker A: That's great. Well, John, we appreciate your time here. I know you're a busy guy, and I think what I respect most about who you are and what you're doing is that your passion for business ownership, especially in the franchising industry, I mean, you've always been one to step forward and offer guidance and advice and education to people like myself. And franchising, like you said, really offers the opportunity for somebody to get into business with a partner and own the business but have all those systems and bells and whistles already in place. But like you said, you need to dot the I's, cross the t's, do your validation, and make sure that it is the right opportunity for you.
If anyone would like to connect with John, you could check him out on LinkedIn. John T. Hewitt h e w I t t. You can also visit his loyaltybrands.com website. That's loyaltybrands.com. I am your host, Scott. Scotty Milas, all things considered, franchising. To review this episode or all the other episodes, I should say, visit allthingsconsitivefranchising.com and all the podcast channels out there. For those of you who may be interested in learning more about franchise opportunities, business ownership, you can connect with me on LinkedIn or go to scottmylosfranchisecoach.com and fill out the inquiry form and I'll get back to you in a timely manner to discuss. John, we wish you all the best and we hope to get you back on sooner rather than later and keep doing what you're doing because you're just a great asset to the franchising industry.
[00:26:14] Speaker B: Thanks, Scotty. It's been a great pleasure.
[00:26:17] Speaker A: Thank you.
