MDH 72 | Non Food Franchising

 

There was a time when franchising a business almost always involved food. Famous brands like McDonald’s, Popeyes, Kentucky Fried Chicken, and Starbucks were some of the most well-known in the food franchising sector. But soon enough, non-food franchising businesses such as pharmacies, nail salons, and travel agencies entered the scene. Today’s episode will talk about non-food franchising with a national franchise broker, investor, author, and international speaker, Jon Ostenson. Tune in to get expert advice and useful insights on franchising as well as how to achieve explosive growth in the business.

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Achieving Explosive Growth With Non-Food Franchising With Jon Ostenson

Welcome to another episode of the show. I have a very hot and interesting topic to discuss. It’s a topic that I’ve always been curious about, but we’ve never presented it on this show before. I’m excited to learn about franchising, specifically non-food franchising. I have somebody who has been in the space for a very long time and is an expert. We can break it down into small bite-sized pieces so that we can understand the whole process of franchising from the point of view of the franchisee as well as somebody who has a concept of what’s a franchise business in a big way. Without further ado, I’d like to welcome my guest, Jon Ostenson.

Welcome to the show.

Thanks. I’m excited to be here. I love the show. I’m looking forward to our conversation.

Franchising is such a hot topic. I know you are in the non-food franchising, but I have some friends who are in the fast-food franchising and they’re all multi-millionaires, so apparently, franchising as a concept works. It’s working for the franchisor, but it also works for some of the franchisees. Why is franchising such a hot topic? Before we get there, tell us a little bit about your own background and how you got into this. Did you get stumbled into this?

I had a long run in the corporate world and, like so many of your audience, climbed the ladder and enjoyed the benefits that come with Corporate America, but I had that itch to do something a little more entrepreneurial. That’s where I stumbled from Corporate America into franchising and took a little bit of a different route. I then came in on the franchisor side. I served as President of the ShelfGenie franchise system.

We experienced some great growth. ShelfGenie did custom pull-out shelving for kitchens and pantries and had the opportunity to come in and run all of our supporting teams that were supporting our owners all across North America on a daily basis. For me, that opened up my eyes to this world of franchising outside of fast food, which I’d always associated with franchising as a lot of people do.

Long story short, I ended up becoming a franchisee of a few brands myself with some business partners, including the founder of ShelfGenie. For the most part, we’ve got good people running those businesses for us. It allows me to spend most of my time playing matchmaker going deep with all these different brands in different industries, representing a couple of hundred franchise brands and then helping them find great candidates to step in and take on new markets. We get to have a lot of fun working with our clients, taking them through a streamlined process, and introducing them to the opportunities that are the best fit for them.

Let’s get down to why franchising is so hot. Something becomes hot when it is a win-win situation. It’s when people get into something that is making a lot of money or making a lot of noise and becoming inventive. That’s why I’m guessing franchising is hot. It has been an upward trend for a long time, but people didn’t think about franchising. When you say franchising, they think of things like Subway, McDonald’s, or Burger King. They don’t think about other industries such as health and wellness that could be, for example, tanning salons. Massage Envy is probably another one. Why is it so hot, in your opinion?

A lot of times, people don’t realize they’re shopping at different franchises or they’re using franchise services. They don’t realize it’s a franchise. Franchising itself is an $800 billion industry, so it’s very important to the GDP of the country. There are 800 establishments leading to 8 million jobs out there. It’s a huge industry. In the past couple of years, franchising was experiencing an upward trend and then COVID accelerated that. QSRs and fast-food restaurants had a tough time during COVID, but a lot of other industries thrived.

What COVID did was it caused a lot of people to question the path they’re on and say, “Maybe now is the time to scratch out the entrepreneurial itch. Maybe I need to go build my own empire instead of someone else’s,” but oftentimes, they don’t know where to start. How do you enter into business ownership? What is the right opportunity?

A lot of times, people do associate franchising with fast food, and what they don’t know is that of the 4,000 franchise brands in the US alone, half of those are in non-food industries, which I know we’ll dig into in a minute. Once the light bulb comes on and they realize that there are these other paths to business ownership, we see a lot of interest from a wide variety of backgrounds.

We’ve done deals with those in their 20s all the way through their 60s, but certainly, there’s a lot of activity in the late 30s, 40s, and 50s where maybe half of our clients are those that are looking to make a jump into full-time business ownership and run the day-to-day as an operator. The other half are looking for the executive model or what we’d call a semi-absentee where they stand up a general manager from day one, and then they provide some coaching along the way. It comes down to having the right person, but we are able to coach them around that.

 

MDH 72 | Non Food Franchising

Non Food Franchising: Franchising is an $800-billion industry, so it’s very important to the country’s GDP. There are 800 establishments leading to 8 million jobs out there. It’s a huge industry.

 

You hit a lot of topics here that are in the news. I wrote my book, Million Dollar Passion, some time ago, in 2017 and 2018. In that time, the world has changed. We had COVID from 2020 to 2022. We’re now living in what they call the great resignation era, where we have upwards of 4 million Americans who quit their jobs every month.

I hear from a lot of them. Every time I give a speech or a free webinar, I’d say that a good 1/3 of the people tuning in have already started a side hustle or want to start a side hustle. They’re in a corporate world. They don’t know how to make that transition because they feel like the higher they are in a corporate environment, the harder it is for them to leave the job. It seems like the job sucks and they don’t have a lot of job security, but they’re still getting a huge paycheck, so they have to invest money.

There’s this conception that when you leave the corporate world, your only choice is to run an active business or become a silent investor in somebody else’s business that you don’t know who they are. In the middle of that, you’ve got the franchising. If you’re reading this and thinking about starting a business or you’ve already started a business and you realize you’re working longer hours than you used to in corporate and making less money, franchising could be something you could explore. What advice would you have for those people? What are the real benefits of franchising? Let’s go to that.

I’d start out by saying franchising is not right for everyone. I’ve got some clients that are too entrepreneurial. They want to put their thumbprints all over it and don’t want to live within the boundaries, but for so many, franchising is a better path to business ownership. You look at the numbers and after five years, over 90% of franchises are still in business, whereas less than 10% of startups would be. I like to say that with franchising, you’re in business for yourself but not by yourself. You do have a supporting mechanism. You’ve got that franchisor, and the better that you perform, the better they do. It’s a coach on the sidelines.

You’ve got other franchise owners and other markets that are living the same thing day-in and day-out. It’s a peer group that you can learn from. I’ve been a franchisee myself, and I’ve seen how we’ve traded marketing tips, tested different types of hiring practices, or found talent. We’re constantly exchanging best practices. The big thing is you’ve got that playbook. You’re not testing product-market fit on day one. You know it’s a proven model and a path to profitability. It’s all about going out there and executing it. That’s a huge win.

From an exit value standpoint, you’re building a business that’s going to have cashflow along the way. You’re going to be able to write off expenses that you couldn’t as a W-2 employee, but then lastly, you’re going to be able to sell that business down the road. There was an interesting study that came out by the Rinker School of Business that looked at 2,000 business exits over a twenty-year period. They looked at franchise versus non-franchised in like-kind industries. What they found was franchise businesses traded at multiple one and a half times that non-franchised in similar industries. There’s a lot of value that are resell-buyers down the road as well.

You brought up some great points. One of the biggest drawbacks of being a solo entrepreneur or a true entrepreneur is your business. The easiest way for you to succeed as a true solo entrepreneur is to become the personal branding yourself. A lot of the relationships with your suppliers are with you, not with your employees. All the important things are with you.

Therefore, you’ve got to be there the whole time, and then when you want to exit the business or if your kids don’t want to take it over, it’s tough to sell it without you being there. Having something like a franchise, your exit is somewhat guaranteed. You may not make a fortune off of it, but you’re still not going to lose everything when you leave.

There are a lot more exit options down the road. That franchisor has probably collected names of people in your market that have wanted to buy, but they haven’t been able to because you own the rights there. That’s a great lead list for us. One of the franchises that I’m invested in is a driveway repair business and concrete coating business. It’s going gangbusters, but we bought out two other franchise owners in the Atlanta market where we’re based. You do have those roll-ups naturally as well.

Is there such thing as minimum startup money that you need to start a franchise? I’m assuming it varies depending on location and as well as the industries, but can someone truly get into the franchising business with very little money?

A big piece of that comes down to the type of business, whether it’s real estate-related and that it’s got a brick and mortar customer-facing retail type of environment, which you think of when you think of franchising, but I’d say 50% to 60% of the deals that we’ve been doing don’t have a physical location. That’s where people have been gravitating towards as well coming out of COVID, not being tied down. I’d say 75% of the placements that we do fall in the range of 1$25,000 to $300,000. That’s the range that we see most deals falling into. Some are a little north of that and some are south of that.

There are different ways for funding that. In some cases, people are using SBA loans. Those are very common. Believe it or not, the government still supports small businesses in some ways like SBA loans, and then you’ve got the ROBS program, which is a retirement program. Another option is the self-directed IRA or 401(k). Portfolio loans are very common.

 

Franchising is not right for everyone, but for so many, franchising is a better path to business ownership.

 

That’s something that I do personally because the interest rates are so low. It’s an arbitrage type of opportunity. With the record levels of cash on the sidelines, you do have some people who are self-funding the business, but when I quote the $125,000 to $300,000, that would be an all-in, including working capital and everything.

I don’t know if you’ve seen this or not. My publisher told me that it’s not good enough to cite a recent Forbes article. You would have to write, “Forbes article on February, whatever of 2021,” and a written by so-and-so. It was in Forbes and it was something like 63% of Americans want to start their businesses. It’s interesting because 63% of Millennials want to start their businesses because they’re tired of horrible bosses, horrible pay, and horrible working conditions, and they don’t see a huge upside in the next ten years.

At the same time, 63% of the people that are looking at retirement age, 50 and up, are saying that they would prefer owning a business to retirement if money was not a huge issue because they feel like they have so much more knowledge than when they were in their twenties. They’re in a better position to fund their venture because they’d have some savings. They have all this money in there.

It was an interesting study that 63% was so consistent. That’s in every age group. This might be why franchising is hard because people would be evaluating their priorities and how they live. That sounds great. In every industry, even in franchising, there are some trends that are hot. What would you say are in the non-food industry that’s hot for franchising to jump in as a franchisee? We’re going to get into the franchise or thing in a minute.

We see things moving and coming out of COVID in the home and property services. That has been the hottest area. It’s a $600 billion market. I did three separate deals on gutters. We had a Wall Street attorney buying a gutter business. We had a couple of Corporate America executives buying a gutter business. They never thought they’d be in that space, but they loved the financials, the model, and the support on the backend.

I mentioned my driveway business, but I joke that non-sexy is the new sexy. I’ve got clients that are buying roll-off dumpster businesses or SERVPRO-type models that are services that Amazon or COVID is not going to disrupt. Recessions won’t ever put it out of style. Then, you also have health and wellness and fitness. I had a client in Arkansas. She’s a PhD from the University of Arkansas. She bought a fitness concept that’s a smaller box and technology-driven that caters to those 60 and above, which are largely not catered to by the big box retail type of shops. They care more about their health and wellness than ever before.

The people are about their health, homes, kids, and pets. Those are other areas that businesses can cater to. You think about the aging population. There are a lot of businesses that are not just in-home care but retrofitting bathrooms, chairlifts, wheelchair ramps, and letting people age in place. There are even oil changes. We know electric vehicles are coming, but less than 10% of cars on the road will still be electric fifteen years from now. There’s still a long runway.

We did another ten-unit deal where they used prefabricated buildings backed by an investor group in unused parking spaces of a retail shopping center. That concept’s on fire. They’d probably done 100 deals in the past. It’s because people are realizing, “This is a great model in an age-old industry and we can do it a little bit better.”

I’ve been looking for a gutter person to deal with my gutters here for almost a year. It’s hard to get anybody out. You don’t know who to call. We don’t have gutter franchisees out here in San Diego, where I’m at. I’m in a very affluent area where all these homes are very large. I used to have everybody on a schedule. I had a chimney cleaner guy go over all the chimneys in my home. The last guy who did the gutters moved to Arizona a couple of years ago and I haven’t found somebody consistent that can go up and do it. Roofers is another one.

When it comes to health and wellness, I’m in my 60s and my mother-in-law is 100 years old. For the last few years, we have had to go through all that. We had to do the chairs and we had to retrofit our bathrooms. We had to get everything for health and fitness. I’ve got pets. We used a franchisee called Just Dogs. I don’t know if you’ve heard of them or not. My dog had IBD and this company has a nutritionist there and they cook all the food. You go pick it up every Tuesday for the week. It was $400 a week for the dog food, but I was glad to have found them. I can imagine they made a whole lot of money doing that.

The driveway is another thing. My whole house is hardwired. A lot of that wiring is under the driveway. Even if you are not sure, at least with the franchisee, you have recourse if they do a horrible job. I hear you. Everything you mentioned makes a lot of sense to me. As far as the whole world is catering to the Millennials, I’m thinking about the Millennials and most of them don’t own homes, so in this list of things, if they don’t own a home, they’re not buying a home and property services.

To me, 60-plus is an overlooked market because they have the money. They care about their health, their children, and their pets. That’s interesting. Let’s jump back to the franchisor model. If you had a killer concept, for example, consistently helping to change eating habits, weight loss, or maybe a way for you to get a certain amount of calories, how hard is it for you to go from concept to franchising something?

 

MDH 72 | Non Food Franchising

Non Food Franchising: A lot of times, people associate franchising with fast food. They don’t know that of the 4,000 franchise brands in the US alone, half of those are in non-food industries.

 

It’s a great way for a lot of companies to scale. I think that a lot of business owners I talk to through the entrepreneurs’ organization and other groups are realizing, “Maybe I should consider franchising as a way to scale.” Think about that as a business owner. You always want your employees to act like owners, but here’s a way as a franchisor where people are putting skin in the game and you’re using other people’s money to scale. They know their local markets. They care about the business. You’re able to do that typically more quickly than if you were to go build it out yourself across the country.

There are a lot of benefits to that side. You’re able to buy in bulk on the back end. There are a lot of synergies. There’s a feel-good side to it too. You’re creating new business owners and jobs. You’re contributing to the economy and to their families as well. The flip side is, and I’ve been a franchisor, so I’m speaking from experience here, one day, you’ll wake up and realize you’ve got kids all across the country that have expectations of you. It does change your day-to-day.

I always encourage people that don’t have a franchising background to augment their industry experience with someone that has franchise experience. Hiring someone in-house that understands that the franchisor-franchisee dynamic is wise. Franchising makes a lot of sense for many different businesses in different industries. I always encourage people to have something unique. Do you have some barrier to entry or have you figured out a better way to do something versus competition that would entice people to want to buy into your business? Are you someone that they would want to partner with?

One thing that is attractive is when you think about that exit strategy from the franchisor’s standpoint. Private equity loves franchising. If you do some Googling, you’ll see all the acquisitions that have been happening. I’ve got private equity firms reaching out to me at least every other day saying, “What are you seeing out there? What franchisors would you recommend we take a look at?” You’re seeing the deal flow. They’ve got more money than they know what to do with. They love the whole model of franchising, so it does set you up for a good exit potentially as well.

Everything you said makes complete sense. When you look at something like SoulCycle, the idea that you’re riding a bike is not new, but the way they’ve packaged the whole thing is different. You ride a bicycle doing yoga. There’s also the music. They got all the DJs, at least the ones in New York. What they’re doing is they’re doing something that everybody’s already doing, but packaged in a different form that’s very unique to them.

I think of a franchise that I use, Drybar. I love Drybar. I was probably the very first customer they had in Los Angeles. I use them twice a week because it’s very convenient. It is not that expensive. Can somebody just blow-dry your hair? It’s not that difficult to do that, but it’s a pain to have to call your hairdresser. Going on to Drybar after booking myself every week is so easy. Sometimes, it’s not necessarily that you’ve invented the new wheel, but it’s how you do it so much better, cheaper, and faster than everybody else.

You’re bringing a degree of professionalism to oftentimes a highly fragmented space. That may be a white-collar approach to a blue-collar industry, or in that case, you are adding in the technology and professionalism in an industry that’s sporadic and fragmented.

If somebody was interested in looking at franchising as an option and maybe moving from corporate to starting their own business via franchisee, or maybe they used to work crazy hours, or you’re a brand new mom, but you missed the second income and you still want to have some connections with the outside world other than the baby babble, what advice would you give in terms of how you go about doing that? I know that you have a website that helps you go through that, FranBridgeCapital.com, but other than that, what practical advice would you have on that?

I started doing some research. We talked about those leaving the corporate world as well as those looking for a side hustle. We also have a lot of clients that are existing business owners that are looking for additional opportunities to complement their core business. We had a real estate broker buy a property management franchise. He could have started it himself, but he said, “I’d rather start on third base than first base. Let’s get going.”

In some cases, it’s a different industry than their core business, and they like to diversify. We work with a lot of existing business owners as well. If you do some googling out there online, you’ll find that there are a lot of franchise opportunities and they’re all putting their best foot forward. They’re going to show you their marketing message and the challenges you don’t get to see behind the scenes, and that’s where we come in. The way we engage with clients is entirely free. We never get paid a nickel by our clients. We get paid by the franchisors on the backend. For them, it’s a sales and marketing expense and none of that ever gets passed on to our clients in any way.

What we’ve done is we’ve streamlined the process, helping you narrow down those opportunities that are available in your market that are the best fit. What we’ll do is we’ll get to know you. We’ll pull together the opportunities that are the best fit and available based on what you’ve shared with us and based on what we’ve seen resonating with others with similar backgrounds to you around the country. We’ll typically present 8 to 10 opportunities.

We’ll walk through those together and let you choose the top 2, 3, and 4, to then have an initial call with where you’re going to learn a lot. You’re going to start to build that framework. How do you analyze business A versus B versus C? We’re going to serve as a sounding board through that process, help you think about the funding decisions and the legal side of it, and hold your hand as you walk through it and then narrow it down to the right opportunity.

 

Franchising makes a lot of sense for many different businesses in different industries, but have something unique. Figure out a better way to do something versus the competition that would entice people to want to buy into your business.

 

The franchisor has a very concise time process within their timeline where they hit on unit economics and the franchise disclosure document review. You get to meet their team. You get to talk to other franchisees, the current owners of that business, so you get to hear their perspectives. The goal is to give you an eyes wide open view as you go through the process to make sure you’re making the right decision. We’ve seen success story after success story. We’ve had a Wall Street attorney, a couple of corporate executives, and stay-at-home moms. They come from all sorts of backgrounds but lend themselves to business ownership in one form or fashion.

I thought about one more question, which is, when you’re franchising, the hiring and firing decisions, do franchisors typically have something that replaces that traditional human resources department? I’m in California and I have a team. I have a nice group of people that work for me. The labor laws and everything changes all the time. They’re not major, but it’s all those little things that you want to check off. Do they have something like that? Do they provide you with something along those lines?

For things like the payroll, I use a paycheck service that does that for me. They do a lot of the things that have to do with monetary changes when it comes to employee relations, but when it comes to other stuff, I don’t have a human resources person that’s high level enough to handle the 6 or 7 people that are in this office. How does that work?

I’d say most franchise stores have systems that you’re able to use for your processing of payments and such. For payroll, it’s very common for them to offer a shared platform. They may say, “If you already have a preferred provider, go for it.” A lot of them do help you on the recruitment side, too, especially when it’s more specialized, whether it’s a martial arts trainer or a licensed contractor.

When I was at ShelfGenie, we’d have franchise owners say, “You’re making the phones ring with your marketing. You’re answering the phones with your call center. You’re supporting us in all these different ways. What do we do day-in and day-out?” I’d say two things. One, get involved in your local Chamber of Commerce and in your community. Sponsor the Little League baseball. It’s those grassroots efforts. Second, find good talent, incentivize, and retain them. Make tough calls when needed. It’s that local level and being able to work with people that I’d say separated our top owners from the average.

I always tell people when you serve people the way they want to be served, they will bring ten other people. Franchising makes it easier for you to go out and do it because a lot of small business owners are stuck doing the day-to-day work and they never get out. That’s one of the biggest problems they have. Thank you so much for coming in. How can people learn more about you and what you do? If they want to connect with you and contact you, what are all of the ways they can contact you?

I’d say as a first step, come out to FranBridgeCapital.com. We have an agency putting out a new website. Come out to our website and sign up for our newsletter. We deliver great content on a monthly basis. If you sign up for our newsletter, make sure you get a copy of our book that comes out in the third quarter of 2022. We’re excited about that. We’re putting the finishing touches on it about all things food franchising. Follow us on LinkedIn on social media as well. We put out good content 5 or 6 times a week. LinkedIn is our primary place.

What’s your Linkedin? Is it under Jon Ostenson?

Yes. Feel free to email me at Jon@FranBridgeConsulting.com. We’d love to set up even a 10 or 15-minute call, chat a little bit more, get to know you, and certainly help you think about whether it makes sense to jump into the process and explore franchises.

Thank you so much for coming by and sharing your incredible knowledge about this. You have made it very relatable and something that we can understand because a lot of times when we get into an area we don’t understand, we’re very lost, but you broke it down very easily for us. For those of you who are reading, please go ahead and subscribe, and make sure to share this episode with at least one other person that you know is thinking about career changes or franchising. As I always say, stay happy and healthy. Happiness is a choice, and I hope you make great choices. Until next time, stay happy. Thank you.

 

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About Jon Ostenson

MDH 72 | Non Food Franchising

Jon is a top 1% national franchise broker, investor, author, and international speaker specializing in the area he has coined as ‘Non-Food Franchising’. Having served as the President of an Inc. 500 franchise system and now as a multi-brand franchisee, himself, Jon is uniquely positioned to educate others on franchising and franchise selection.

Jon serves as CEO of FranBridge Consulting and has helped thousands of entrepreneurs and investors explore business ownership and investment opportunities.

Jon is the author of ‘The Book on Non-Food Franchising’’ and is a frequent contributor and thought leader for publications on the topic of franchising and franchise investments. Prior to FranBridge, Jon was the President of ShelfGenie, a national franchise system with 200+ locations.

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