Bill: That’s all good.

Patrick: We started getting talking at our booth, going through the demo at Vetted Biz. And then the topic of semi-absentee franchisees came up. Owning a business, but not working full time in that business. Just the peel of that and how much demand there is. What potential there is in the franchising space for franchisors to offer that. But many, many more franchisors should be offering that in a manner that’s more tailored to the prospective franchisee.

In today’s conversation, we’re gonna focus on semi-absentee ownership of a franchise. The vast majority of franchises are not set up for semi-absentee ownership. And it’s Bill’s job to help you navigate all the franchise opportunities. Figure out which one might be the right fit to match that with your time management, your industries of interest, investment amount, etc. So, Bill, really appreciate having you on today.

Bill: Yeah, happy to be here. It’s a bit of a hot topic with me.

Bill’s beginnings in  Franchise CoPilots

Patrick: And remind me before you got into the franchise consulting space, you were working in wealth management?

Bill: Yeah. I was a branch manager for one of the Morgan Stanley branches in Michigan.

Patrick: Okay. So, I can imagine a lot of those types of folks that are using Morgan Stanley services on the wealth management side, they have their business. They’re interested in investing in stocks, and ETFs. But they might wanna also invest in a business that they’re not working full time in, right?

Bill: When I first started looking into the whole franchise broker industry, it kind of hit me like a ton of bricks. Because, as a branch manager, I had about 50 financial advisors that work for me. And I would spend about half of my day helping them improve their client experience. And, the other half of the day was spent talking to competition and trying to get top producing financial advisors of UBS and Wells Fargo, or Merrill Lynch to franchises and come to work with Morgan Stanley.

So, once I kind of dug into this, I quickly figured out the skill set to be successful at that. And I was very successful at it, which is very similar to what it is for this. It’s helping people figure out what it is they’re trying to accomplish, dig into the database, check all the boxes, and match them up with a handful of things that would be a really good fit for.

Standard Clients

Patrick: What’s your typical client? Is it someone coming right out of college or they’re more established in their career?

Bill: I do a lot of work on LinkedIn, and my average client is probably somewhere between 40 and 60 years old and has been in corporate America for 10 to 30 years. He has got a little bit of a net worth built up. He has probably got a significant chunk of money in a retirement plan or a 401(k) plan.

And, maybe they just took a severance package, and, maybe, it’s not the first time that that’s happened. And they wake up in the morning and the light bulb goes off and they go, “You know what. I’m done with corporate America. I’ve been thinking about starting my own business for a long time, and now is the time to dig into that to see if it’s gonna work for me.” That is probably half of my clientele.

Patrick: Okay. You have those folks that got a nice severance, they have the capital. And I imagine they’re willing to work, they have the hours. The opportunity cost isn’t so high, but you also have those 40 to 60 years old that have a nice paycheck. 100K, 150K, 200K, and leaving that. Especially if their partner is not making the same amount of money is probably a bigger step, right?

Bill: Yeah. If that person is the main breadwinner in a household and they’re younger. That combination of things makes it harder for them to just walk away from a six-figure paycheck. If the person is closer to that 60-year-old mark, and they built up some network over the last couple of decades to be able to fund a startup of a business and support their household is not such an arduous task form.

This brings us to what you and I were talking about at the conference is that the number of franchisors out there that will allow for semi-passive ownership of the onset, meaning, they can hire a manager on day one to run the business form. I think the industry has realized that to attract the kind of people they want, they’re gonna need to morph their business model to accommodate that. And, I think, that’s happened over the last 10 years, because you see, more, and more, and more that will allow for them on day one.

Franchise CoPilots: New Franchise Concepts

The newest trend and I think it’s where the industry is headed. And there are a few franchise concepts out there that’ll do it now is that they have an in-house field management team that will, for a flat fixed fee, literally run the business for you. It almost doesn’t matter what type of business you wanna own a business that you see the value in it then you eventually wanna get involved in it, but, you’re signing the franchise agreement, you’re funding the bank account.

If there’s real estate involved, you’re signing the lease. Other than that, you have absolutely no involvement in the business. And for the people of the younger end of that age spectrum that we’ve been talking about, they’re maybe the 40 to 50 years old, and they like to own their own business now, they don’t wanna wait another 10 years, but they just can’t afford to walk away from that six-figure paycheck.

Patrick: That’s gonna keep going out probably over the next 15 years potentially.

Bill: Exactly. And so that allows them to get the business running, and, maybe, they let the in-house field management team run the business for the first 12 or 18 months and ramp the revenue up to the point where the person can draw enough money out of the business to replace that lost income. And they almost kinda use the in-house field management team as like a set of training wheels. Not only does it buy them some time to get the business ramped up, but it also allows them to sit in the background and watch and learn.

So, there are not many of them that offer that right now, but we’re starting to see more and more, and learned about a couple more new ones when we were at to conference a couple of weeks ago. And I’m hoping that more and more the franchisors…look, I realized it’s a big undertaking from the reason they’re franchising…

Patrick: For sure. And some people become franchisors not to be managing those corporate locations.

Franchisor Running the Business

Bill: Yeah. They don’t wanna run 700 different locations. But, I think, if they could look at this through the lens of we’ll help you run the business for the first year and, maybe, we can do that for 20, or 40, or 50 franchisees a year. And very few people want the franchisor to run the business for ’em forever. They want to run it, in the beginning, to get the business ramped up. They can stand in the background watching, and learn. So, it’s gonna take some additional staff for most of the franchisors to be able to do that. But most of the franchisors will tell you off the record that the locations that their field management team is running are performing better than their franchisees

Patrick: Well, some franchisors disclose that. Like Marco’s Pizza will break down corporate locations versus franchise locations, which essentially that’s what it is. If it’s their field management team running the location, it’d be more, you’d think the financials are more turning as if they were a corporately owned and operative one.

Bill: Right.

Patrick: So, yeah. I’ve seen a few different businesses in the space. Especially, the services, health care, pet care, and some food concepts. But, I do see a niche of anywhere from like three, or five locations where the concepts have been proven up to 50, potentially even more. Where a franchisor should consider this as a way to basically receive a fresh injection of capital and grow together with their investors, these individual franchisees.

Massive franchises volume

Bill: Well, and I tell you the proof is in the pudding. But, one is in the fast-food space, and one of them is in the in-home elder care space. The fast-food space throughout item franchising for two or three years. They got to the point where I think they had just right around 100 locations. And then they opened up this idea that they had an in-house field management team that would run the business for you. And they added on 35 or 40 licenses in a matter of 6 months.

So quickly that they pushed the pause button, and said, “We’re not taking any more of these, because we can’t handle the volume.” And the same thing happened with the in-home elder care business that they’ve been franchising for four or five years, which had 35 or so locations. They opened up this concept of will manage the business for you for a flat fee, and they doubled the number of licenses that they had in less than a year. It went from 35 to [inaudible 00:09:51]. It was great.

Patrick: It’s kind of like proof too that the concept works that there’s enough margin in the business to have a day-to-day manager from day one, which will eliminate 80%, 90% of franchises. Where, maybe, it’s just not that great of a business. Or it’s gonna take a year or two years like a staffing franchise to really break even and have the owner drying dividends out. And that’s something that you should be mindful of, when you pass breakeven and when are you starting to get money out of a business?

Bill: Yeah, exactly. Yeah, for sure.

Selecting Franchisors: The Process

Patrick: And for those, there should be a wake-up for franchisors, especially, emerging concepts that are trying hard to recruit franchisees and maybe spinning their wheels to look at this option. Bill, for the franchisors that allow an owner to maybe just work 5, 10, or 15 hours a week, could you walk me through that process and kinda how that works selecting franchisors?

Bill: And, again, it’s a whole idea that the industry has kinda morphed over time. That’s probably one of the best examples of it. Because, the database that we use the franchise broker association will use in the past. Do they allow for a manager to run the business on behalf of the owner from the onset? That’s one option. The second one is they will allow for a manager to run the business after the first 12 months or after the first 24 months.

I kinda keep a list in my back pocket of all the concepts that I like that all have the box checked. That says, “You can hire a manager from day one because there are just certain subsets of the clients that are out there to go.” I wanna own my own business in either I can’t invest 40 hours a week. Or 60 hours a week in my own time. A lot of people get into franchising as much as they make a living from a lifestyle perspective. They wanna spend more time doing whatever they do on their [crosstalk 00:12:00].

Patrick: The number one reason is to be your boss. I was kind of surprised, but I saw the results of a survey, and that was the number one reason. It wasn’t financially related. It was just lifestyle, just be your boss.

Bill: Yap, exactly. When I’m going through my initial discovery conversation, they want me to put together a list of all possible concepts for them to consider. That is one of the obvious questions that I will ask them. Look, there’s a fully passive ownership structure which is very few. The other end of the perspective is the owner-operator. Where whatever you’re doing, you’re gonna be there doing it all day every day.

That’s the other end of the spectrum, there are also very few in that camp. But most of them are semi-passive. Take that semi-passive ownership category kind of split it into two parts.  They allow a manager to run the business from day one. Or do you have to run the business for some sector of your time? Before they’ll allow you to turn it over. And there are pros and cons to both. In a lot of businesses, I see the need to have the owner running the business for the first year so they understand what they’re getting into.

About Advertising

Patrick: Sure. It’s tough to hire that role under 100K for someone to manage the separate relationships, right?

Bill: There’s a lot of businesses that I kind of break out when I get into the conversation with a client. We start talking about different concepts is that some business to consumer businesses are very heavy advertising-impacted. And others, there’s no advertising at all of marketing. It’s about getting out in front of who your referral sources are, and who will direct business your way. The business owner needs to be the guy who’s the face of the business. At least, for the first year or two to build those relationships. So, those referral sources will do the thing for you. So…

Patrick: For sure. In terms of your franchise consulting practice, you’re the owner. You couldn’t hire someone to do your job with the type of role you’re in.

Bill: I’m gonna choose my words carefully on this one. There are very few people who are franchise broker consultants. Who has built a practice that if they decided they wanted to retire or stop practicing. They have an asset in their business that they can turn around and sell to somebody else. 10% or 15% of the people I talked to, might wanna consider becoming a franchise broker based on their background.

But I become very clear to them. You are creating a job and a paycheck for yourself. And the day I stopped picking up the phone, the cash register comes to a screeching halt. So, unlike most other franchises where, you can build following the clientele and, you have an asset that you can sell at some point in the future. So, that…