Maximizing Franchise Success: A Conversation with Rich Anderson | RMT170

All righty when you are ready 321 Hey, this is Laura. And welcome back to laurels Real Money Talks, a podcast that talks about money, how to make it, how to keep it, how to invest it, how to use a team. And what is it like to integrate a plan. We live in a very segregated financial services world and that goes from business and finance. So we always have someone on our podcast to talk about what they're doing differently to either make or investment, money, and different strategies. So today, average Anderson on he's a dear friend client for a very, very long time we met at a real estate seminar, I believe in Ohio in his hometown area, or that the state I know that and we ended up just hitting it off and we went out for a lunch or a dinner and had some beverages. And I should say the rest is history. But he and I've done a lot of stuff. So he was the first person I called when I grabbed a little pizzeria in Tahoe, and we're going to franchise together and he is a franchise expert. So Rich, how did you and he owns a ton of subway. So talk a little bit about how you arrived here because you didn't just start in subway. So give a little history to all of our listeners. I actually started

I was actually working for Burger King and I was loading trucks. And I was driving semis for seven years. And I stumbled on to a little store next to one, Burger King that was subway and then in for a sandwich. And a year later, I was buying my first franchise. I thought it was a franchise didn't even know so.

So talk about how franchising works. I mean, that's your expertise. He's got just opportunities for you to have one on one conversations. We'll talk about that at the end of the podcast. But how does franchising work because franchising and licensing have confusion in the marketplace? So, talk a little bit about that.

Yes, so licensing mainly, you'll take you know, 15 $25,000 for people to come in and learn what you're doing. And you just send them on your way and you that's not the end of it. That's the end of your cash flow. Whereas franchising is when you buy into a franchise, or how should I say, if you're the franchise, or you could either license or franchise your business. So, licensing, you get one time payment, if you franchise your business, you get a lifetime. It's actually 20 years they do franchise contract contracts, and you could extend them from there. So

are most contracts like that, like go backwards a little bit? Actually, before we dig into the overall franchising conversation. You went from one franchise and subway to many. So maybe talk a little more about your journey, like what were the costs back when you started to what they are maybe today like I want to I want to build the story, like where it was and how strong franchising is today and still will stand.

So franchising for me, you know, I knew Burger King, because I was delivering them. I knew the cost for what it was to build one Burger King. And from there, you know, I got into subway, and it wasn't until I met you, you know, when you told me to do Rebbes through our big table, that, you know, I was already flipping properties I had real estate had, you know, all the above the big mixture that you talk about to do. And then you said Rebbes. So I put my head to thing and said what are what is not going on in this community? Well, there was no franchise talk. So I made a business around teaching people how to find franchises and helping them do that. So, from that, I've learned a lot more from franchising. There's roughly four to 5000 different franchises out there. That top 10% have roughly 10 stores or more. So you know, or I'm sorry, the top 90% have 10 stores or more. So you know you It depends what you're looking for. If you want to ground floor one, you know you're rolling the dice is it gonna make it or not? So, the big difference is Mom and Pop startups fail in at 95% in the first five years where franchising succeed and 95% in first years, and that's mainly because you're buying a business in a box, you know, you're they're telling you how to do it and we're not to step on the landmines and you know, that's why they succeed at a higher rate somebody's already went through that minefield so you're paying them the money to tell you how to walk so to speak.

So again, rich let's use subway if you're okay using subway as an example. So, from where you bought it in the cost to buy in way back in the first one to subsequent like and obviously I mean every if if you're watching this and you don't know subway, I mean, you clearly don't know sports My God, the amount of money they're spending on sponsorships from you name it from Steph Curry to Patrick mahomes to now they got a gymnast on. I mean, like they're spending a pretty penny to have endorsements of the pros, and some of the biggest athletes in the world to endorse their brands. So it was the subway cost then and maybe even like the detail like, what were you able to then or not do now? You have digital marketing. Now their marketing has changed drastically, I'm sure since you spell your first subway.

Oh, yeah, we, we didn't even need the email account. I started at nine. So a long way. So

what was your first cost in 89? To get one? Oh,

to open a store was 75,000. Whereas now if you want to open it's to 250. So yeah, the cost have gone up a lot. You know, so the cost with a franchise is you have your your franchise fee. And that's sort of gives you the right to use the logo and be a part of the team. And then you have a franchise fee that can go from 15,000 to 100,000, depending on what franchise you're looking at. And of course, you're talking about them using all the advertising we pay 5% towards advertising. So that's how they pull a lot of money from us via you know, get no all that money from all these stores that are out there.

And that's the top they pull 5% for top line revenue to entrepreneurs. Right, I would assume that 5% is what's going to pay the sponsorships of the curries and mahomes. And you know, the names we just named which are you know, just a few I mean, because subways I think doing an amazing job. That's why I wanted to point to them, I think safe Farm is a pharma franchise. Yes, it is. Yeah, I mean, if you look at some of the the biggest promotions and marketing their franchises, like you said, if you're a new entrepreneur out there, it's a safer route. Because you're basically buying used to like a business in a box, but you're buying the brains and the team and the mistakes and everything that comes along with it. So Rich talk a little more about like, there's the those layers, like what, when you buy a franchise, like what do you get? What do they get? How does that relationship work to create the most success because 95% Success is phenomenal compared to the alternative of failing, right.

So you get your, like, they have airy developers, which is another piece of being a franchise that, you know, if you're a franchisor, you sell off areas to what's called an area developer. And they generally pay about 100,000 for certain areas, zip codes, so you get the support directly from them, they will come out whenever you need them, you can pick up the phone and call them. You don't have to go to Subway. So you get a lot of support from them. And you know, if you find a franchise that doesn't give you this support, you know, it's not worth it. Why did you spend the money? So they do they do audits, somewhat used to do audits once a month, they come out to make sure we're doing everything the way it's supposed to be? You know, so that's why, yeah, why we I believe that's why we did so well. A lot of people don't like it. But that's because they weren't doing what they're supposed to do. And

just to talk more about the like, so what makes the difference between a franchise making it or not making I mean, Subway, I think is one of those that you've just seen the success trend. That's been amazing. But there's others that are, you know, the brand, but they haven't done a good job. So talk a little bit about what what what should people be looking for, I mean, they're actually being at a franchise. Summit.

I'm sorry, you should be looking for a franchise that at least has 10 units, because they're succeeding, then through your due diligence, if you would call those people that are already open and seeing if they're getting what you talked about, all the backend support from the franchisor is in you know, that helps with them to succeed. So there's, that's part of your due diligence when you're looking at a franchise and when you first find one that interests you, they'll give you a PPM that's a private, I'm sorry. This is a document that they give you from Subway, or any franchise and it will tell you all the costs and what it costs to open and work you know where they're at. And it gives you all the names and phone numbers of people that have been in it so you could call them or the people that got out. You call them too but usually you're gonna hear them they failed because they weren't doing what they're supposed to do if you usually if you fail the system Yeah, you make the money. So

that's true. So again, what are some of the winners doing that that others aren't? Is it mostly that the local honor, whether they're following the the franchise rules and SOPs? Is it really that simple or what? What causes some franchises to soar and some just kind of moderately.

So if you want to get into that I have bought in what I call two subways that were they didn't do what they're supposed to do. You know, the first one, a guy paid same as me, 75,000. And a year later, I bought it off him for 27. And, you know, I went and checked it out. We were doing back in 89. We were doing 4000 A week, he was doing 1600. And I went to see, you know, what's the issue, and it was a very filthy sore, he was brought on one employee, you know, and with one employee, you can only do so many people at lunch, you know, the fourth person probably doesn't come back the next day. They don't want to wait. So I generally would look, you know, there are good franchises, but poor owners. So, you know, it was an easy buy, I fix it up the first day, and changes out lights, the cutting boards were brown, I mean, so I changed them out and I changed the ballast since about two o'clock the same day, a guy walks in, gets halfway up to the register and looks stress stops looking goes, Did you remodel, you know, so it's, you know, it's the operations. And you know, when I coach a lot of people, I'm like, you know, don't advertise or promote your business until your operations are in line, because you're just going to push it down in the hall, they're going to come in and get the bad and they're going to people love telling about bad experiences more than good. So it's all about operations. And then it's what you ask what else since they do a lot of marketing, you know that, through a lot of businesses that don't do marketing don't get a lot of sales, you know, you have to market you have to spend at least 5% of your gross on marketing. So I actually spend a little more than that locally, because I have Jimmy John's and these other jersey, Mike's open in town. So I started advertising and not old clippers and something that just to keep people from going there. You know, I ate that food cost just to keep customers and we didn't drop in the sales so

and so you save spent five to 10% I know you've done like you said local and unique. So talk a little bit about the the marketing you've done in addition to what subway does when they pull, you know, your five gross to do their national advertising. I know you've sponsored sports teams, like talks, addresses some of the fun campaigns that you've done, that have helped prop up really prop up your revenues locally.

I did a lot like you say banners at baseball fields, Little League. You just got to keep yourself in a public eye. And let them know, you know, they perceive you as you know, donating you know, little league team sponsored footballs, I mean, they're in there, you know, the programs, they hand out, I have coupons in there. And you know, you just gotta do this, and I have coupons in my pocket when I go to dinner anywhere in town for free sections. You know, I get a server I'm like, here, you know, here's somebody coupon plus their tip, you know, so I'm always doing things for people trying, you know, possibly telling people what they a good point, my biggest one I actually do Laurel is when I go to my stores, I get in line to order a sandwich, and then whoever's behind me, I'll turn to them and shake their head says, Hi, I'm the owner rich, I'm like, you're free lunch today. And people are blown away by that. I mean, you know, you wouldn't really believe the responses I just from doing that. So and gender, sometimes I'll wait to see an older couple come in. And so I'll get in front of them, you know, and, you know, the price of goods nowadays, you know, I'm just glad they're coming in. I was under the business, commerce and you just gotta stay connected, you know, you can't work in your business, or you can't work, you know, on your business, you should work you know, not in it, but you should work on it. So that, you know, get out from behind the, the sandwich line, Fred DeLuca, who passed away recently, the owner of subway said, if you're making BM T's, you're not making BMWs so, you know, meaning Get your butt out. You're only gonna make the MTA you're just worthy of sandwich artists, you know, hey, roll, so you know, get outside the store, do your marketing shake a lot of hands kiss a lot of babies so to speak. And, you know, just get out there and I think a lot of people get trapped, you know, behind are in their business and don't think about the marketing and all that they think it's just going to come and it comes very slowly, you know? Yeah. So, I've you know, I've done it You know, I could write a book on Guerilla Marketing. So you know if anybody hasn't heard that one read that book, so

I love that book. So you obviously own more than one in most franchise models, can someone own more than one? Like if I wanted to buy, say, McDonald's or a subway, is there a limit that on how many stores I can control?

Every franchise is different. Some you cannot be absentee owner, which pretty much says you can't buy two stores, you know, so if you really want to grow like in subway, I knew back in the day, if I wanted to make good money, I'd have three or four, because they'd spend, like 50,000 apiece. So you know, at one time, I had eight now I did have some partners in there. But you know, it's, it's how you know, you, you get to grow up but then you get to grow the you know, the team around it, I pay high school kids more than the other franchises just to keep them because I don't want to turnover. Turnover kills you, you double staff to your teacher, you know, it's just all those little things you got to try to keep even though you're paying more so. So yes, some franchises are single, some are more, you know, just depends on each franchisee you have to read the FTD to find out what it is that they'll allow. So are you talking to franchisees in

FTD is sort of like the PPM, right? It's the actual

it's the Franchise Disclosure Document, every one has to have it. It's mandated. And there's a certain period to get right you once you receive it, you can't buy into for so many days before you can make that decision. Interesting.

So we're about diligence works like that. So they're gonna get the just kind of walk through the process of somebody that's sitting out there, they're listening in, and they're like, explore maybe buying this as a transition on my job or an extra investment and asset, which you better be careful if you have to be the owner and you have a job. How are you going to do that? But how does due diligence work in the franchise world.

So the franchise world would be you get the s&p, which then in there, actually in Section 19, states, financials, it will tell you, you know, certain stores are doing this amount, certain services do that amount. But it's optional for the franchisors to put in there. So you might see 50% of them, do those quotes, or extras quotes that are not close to actual real. So you want to look at that, then go to the back and find all the existing franchisees and the ones that you know, left, and start calling them and just have a list of questions. You know, how long you've been in? What was the cost? You know, are you making what you thought you'd make? As you know, anything you want to know? And generally they'll answer that. So that's the main way then go around to a few. And you know, like, for me, you know, there was only two, two in the whole areas. I was eating for a week, my doodle and she was trying to sandwiches. And then I called a couple of people and the one lady where I never thought about it was that she goes well, this is my, my pension. She goes, you know, down the road, I'm gonna be you know, just drawn off the store, you know, No, we never thought of that. I was I was only 30 years old. She was thinking about pensions, you know, so, or, you know, what do you do after you're 60. And so, you know, that's what you want to do just, you know, connect the community. They do. They, they have a day, it's called discovery day where you go to the franchisors they have a location as either their headquarters or a store they use where you go there and they do another presentation, and take you out to a store. And generally, some people buy them once they go through, they've done all their due diligence. The last thing was to meet the owners. You know, if you're not just like when I hire somebody, if I tell my managers, if there's something about him that you don't like in the beginning, and your gut doesn't like walk away, you know, and it'd be the same thing for franchisors because you're gonna have to deal with them for 1020 years, you know, so you want to deal with people that you like so. And that's about it. I mean, you just want to know what they're making. So here's the thing, if you're making 150,000 a year, and you want to get away from that w two, you would be looking for, like three, they call a three pack of franchises, because each maybe kicks off 50,000 a year. So now that you've just covered you're not so you can, you know, walk away and then grow it bigger as you do that. So don't get turned off if they're not making a lot. You can get into some branches as little as often 3000 That's a non, you know, non brick and mortar, it could be a van based or something like that, that, you know, you can do, and I've put a lot of money out, you know, but you could go all the way up to a million building a big a big restaurant. So,

so ratios, their financing options, as people think about this, and then we're gonna get to how people can contact rich, he has generously offered to give you a kind of a intake form to see if you're ready to do this, and how you could evaluate it. But is there financing available as they get into some of this. So

um, there's a lot of fun, especially after you have your first store open, and you prove yourself, you'll get a lot of companies calling you that franchise, franchise, franchise, franchise or license and all that. But yeah, the money's out there. Generally, your first is the toughest they don't. In the restaurant, business, restaurants and bars are the hardest one to get financing. You know, if you do some other business, they will finance that are more secure. Franchises will get franchise or x franchise finance faster than your mom and pop. And you could always lean on your 401k you could take the loan to start your own business. So people a lot of people don't know about that without any penalties if you're working for your 401k, so to speak. So there's ways to do it. Even if you don't have the cash law, you know, lines of credit for me, I started, I worked for burger or I was Pillsbury was Burger King. But after 12 years, I have 55,004 Oh, 1k. And back then I made didn't have you Laurel, or I'm not going to shoes available, but I cashed in my 401 K took a line of credit for 25,000 on my house. So I had 75,000 and opened my first subway, but you know, then came the tax consequences of cash in that. So I'm not even sure if they had that back, you know, going back then, but you know, you really have to do something you want to do you know that you can you know you love going to work. And so that's such a hatred, you know, or, yeah.

I love it. So how does somebody get a hold of you if they want to talk to you? Find out. I know, your franchise Success Center helps people find the franchise that fits them the best because, you know, I mean, you saw I mean, we're talking restaurants mostly today. But I mean, there's one 800 got junk, there's marketing, I know, there's a ton of, you know, marketing stores, our UPS stores are all franchise too, aren't they?

Yep. Yeah. So there's, like I said, come and go four to 5000 different franchises, and they're almost in every different category. If you want to have a quick look, go and pull up January edition of Entrepreneur Magazine, they list the top 100. So that gives you a little clue, and you know, what's really hot and what's moving because that, you know, they got to hit their specs to do that. So, so for me, you know, if you guys are interested in you know, having us help you, you know, instead of you doing it alone, like law system pay along Ranger. So you can go to the website franchise success center.com Fill out the form. And we will help you identify three to four franchises that fit your skill sets and your money that you have to invest so and you know, figure out what you need to do to get into franchise well, and then that's a no cost to you at all. You know, we're just helping you, you know it along the way the franchisor will pay us a fee for bringing someone to them. So I

love that. And so if you are interested, again, go to franchisesuccesscenter.com Fill out the form and have a conversation. So those of you again, you say Well, who would do that? Do you want it to be your pension, right, if you want to have your transition money, you want to just jump out of a job because you're absolutely sick of it, and just understand it all. So dig in a little bit and really understand

why pretty much you really need to have around 50,000k to be looking so but again, it could be in a 401 K or whatever. So just a little tidbit there.

Now I know and you could borrow 50,000 against it. While you're still at your job. You can also borrow from other people call the people's money and use that to buy and I do know we do have some other franchising up or I mean some financing options, whether they'll do the franchise completely or not. Does SBA different franchise? Just curious is SBA differentiates financing sometimes if it's a brick and mortar?

The we did on the restaurant we bought me and Jim member Jim, you know, we went through through them, you know, they did a portion of an SBA you said right? Yep, yep, yep, they did. They will. And the neat part is SBA usually it's 20%. If you have no experience with a restaurant. But if you do, you know, we got it down to 10% down payment because I had all the experience doing that. So yeah, the SBA is out there. Like I said, to get involved with the laurels community, there are people that become involved with our community that you know, saw the widget and want to do something out not only know about their widget, but are looking in invest. And you could find partners or you know, just people to loan you the money through you know, her community. So I highly recommend you that being involved with Laurel has done a lot for me. And you know, it helped me do a lot of different things. So I'm always, you know, happy to do anything she wants me to do. So, like

be on my podcasts and tell these people up franchising and if you have any questions for me or want to join our community learn more about it go to ask Laurel as K Lor al ask a question, make a request. We're here every Friday. So hit that subscription to my podcast, click the notification button. So the minute it comes out on Friday mornings, you're here listening every Friday to a new success story. And we have some amazing new people coming from other like total restaurant historical restaurant owners to musicians, so get some Nashville. Great. So I'm going to be interviewing some sports athletes. So a lot coming as we kind of move into the rest of 2024 to learn what is great entrepreneurs do to make money. Rich, thanks for being on and I'll be in touch with you shortly.

All right, take care, Loral.

Thank you and the rest of you again. astro.com is where you go for any question around our podcasts. If you want to talk to our team, you can call our office in the show notes and we'll be back next Friday. Have an amazing week.