Episode Transcript
[00:00:00] Speaker A: Welcome to Create Wealth Through Franchising. I'm your host, Kim Daly.
Whether you're a CEO, a military vet, a real estate investor, or simply in career transition and ready to take ownership of your future, with each episode, you're going to learn valuable insights and hear inspiring stories from within the franchise industry.
On that note, my guest stories are their own. And as a franchise consultant, I do not make personal brand endorsements or earnings claims, but I do educate, motivate and inspire dreams.
Now onto the show.
Welcome back to Create Wealth Through Franchising podcast and Kim Daly tv. I am your host Kim Daly and in my studio today, welcome to Michael Mudd, one of my best friends in franchising for so many years. Michael, thank you for joining me in studio today on Kim Daly tv.
[00:01:03] Speaker B: Kim, it's my absolute pleasure. Thank you very much for having me.
[00:01:07] Speaker A: So Michael is known in the industry as introducing brands like welcome to Menchies, welcome to Relax the Back. Remember when you were with that brand, Michael?
[00:01:18] Speaker B: I do. That's when you were sending me candidates on fax machines.
[00:01:21] Speaker A: Kim, we've been together a long time. So I have brought my great friend Michael in studio because he is now the founder or managing partner of a company. What is your title?
[00:01:32] Speaker B: I'm the CEO of Brand One Franchise Development.
[00:01:35] Speaker A: Well, there you go. He's the CEO, guys and gal. So he's the CEO of Brand One. He's going to set up what Brand One is. But today's conversation is going to center around the importance of who, not what, when investing in a franchise. This is a message that Kim Daly talks about all the time. Well, I thought who better to really help emphasize the differences in franchisors than somebody who has built a whole consulting company to help bring good, solid franchisors to market. So that's where our conversation is going. But let's back up and let's have Michael, let's have you introduce yourself and talk a little bit about what Brand One is and does in the franchising industry.
[00:02:21] Speaker B: Be my pleasure, Kim. So again, Michael Mudd and I've been in franchising for 20 years. Actually never thought of franchising. When I was young, I was actually going to be a pilot and went to school in aviation. But I met my wife who was a franchise executive and I fell madly in love with her and then quickly be discovered franchising. So I pursued franchising with way back when. Relax the back. I spent four years there, cut my teeth in franchising and then got into menchies. For eight years. And then now I've been leading Brandone for the last eight years and helping them really grow with amazing franchisors. So what Brandone does, we're a professional franchise recruitment firm. We help brands find amazing franchisees. And this topic is so interesting, Kim, because people oftentimes don't think that brands are built by people. And if you think about it, my role is to go find exceptional people to come into a brand and harness the collective power of their experiences and really building a brand forward. And you're going to have the franchisor with amazing people. My role is to go get amazing franchisees and then bring those two parties together. So fit is very important. So we're out there establishing what is the ideal candidate profile for a brand. What is it going to take to win, what types of outlook, what types of culture, what types of capital. And then we identify a profile that then we work with exceptional consultants like you to go find those people for proper introductions to us. And we do that professionally. The firm at Brandone has 300 years of collective franchise experience that we bring to market.
[00:03:57] Speaker A: They are amazing. Okay, wait. So before we even get to the topic at hand, since you just brought up another really good topic, let's talk a little bit about this idea that franchisors are vetting candidates, because this is an overlooked conversation in franchising. Many times I think candidates feel like it's my business to buy and I can come in any way that I want. But when you get inside, and especially if you're working with Kim Daly, I'm going to correct your thinking on that a little bit. But, Michael, so when you say that you're a professional recruiter, I love this. So tell us a little bit more about how you're vetting candidates for franchisors.
[00:04:36] Speaker B: So candidates a lot of times come to processes with some entitlement, and they get surprised when they hear about other candidates in our process. But a good franchisor is going to go and talk to as many people as they can. They're going to get as many people to look at a single market, and they're going to start looking at their options, and they're going to make sure they're bringing the right people into their system. And a lot of times good franchisors will say no to a candidate, and that makes candidates sometimes upset. So what I want to do is have transparent and honest exchange of information. Candidates are obviously looking what's in the best interest for themselves. But franchisors are Also looking for exceptional candidates. And oftentimes they have more than one person that they're talking about at any time. Ideally, that's what they do. That's what they're going to do. They're going to go and build interest in one market. They're going to say, let's go get Detroit, and they're going to call all the consultants who can get them access to Detroit and they're going to flood their pipeline with Detroit candidates. And then they're going to start talking to those candidates and they're going to find out how are they following systems. They're going to watch their behaviors, they're going to ask them the right questions, they're going to make sure that that has the right mindset to win. Right? And at that point, they're going to award the territory to the right person. Not everybody is doing it the same way, Kim. That's why they work with consultants. So hopefully you're getting them with the right people. But developers that are good and brands that are responsible are going to look for exceptional people. That's the one thing I would say is really come into the process to learn, but also come into the process to impress, because it should be just like an interviewing process. The franchisor is looking for good people and the candidate is looking for an exceptional brand that is going to give them the definition that they have for winning.
[00:06:21] Speaker A: Okay, so two questions. First one, so what are the things that set a candidate apart? You mentioned some of them, like following the process, but go back, reiterate them again, like, what is a franchise we're looking for? If you're competing with other candidates, how do I make myself, like, stand out?
[00:06:38] Speaker B: Okay, so this is somewhat different by brand. So I'm not going to say every brand is the same. In fact, what it takes to be successful in brands is somewhat different. So if you go into a home service brand, maybe that brand needs somebody with strong sales acumen because they're not going to have brick and mortar to attract somebody into the footprint of the location. Whereas other locations, they want strong operators. And we work with a lot of investor models at Brandone, and they're not looking for salespeople. They're looking for folks that can run large infrastructure. They're looking for operators. So the first thing that I would say to stand out, your behavior matters. I'm going to tell you that. So anyone that's in recruitment is giving a candidate work. You need to do independent due diligence. Somebody that's working for the brand is going to support you in that due diligence. But they're watching what you're doing between calls. If they're saying to you, hey, you need to talk to a franchise owner between now and then. Because if you don't, that really is a sign that you're not following the system. Like, if they have an exceptional system, this system will create predictable results, thereby mitigating your risk in the business. By following this system and they're planning a process for you to follow for the due diligence and you're not following it, it's probably a good indication that you're not going to follow this system. And if you don't follow the system, that is an unpredictable result. So what franchisors want to see is predictable results. That's what a franchise is. It's a system that you can engage with to mitigate risk and produce a predictable result. So in the process, what we look for are people who follow those systems. We also want to make sure that they have a right culture fit for the brand. This is different, Kim, that it takes a different level of recruitment, I think at that point to really understand what is the culture fit. Because making money is important, don't get me wrong. But you can make a ton of money with people that are grind and it's just no fun. But making crazy money with friends is like one of the most fun things you'll ever do. It's the culture of the organization and aligning candidates properly with the culture. So, and that's just really intimately knowing your brand. As a developer, we're kind of the gatekeeper if you think about it. So we really need to understand intimacy with the founders or if it's private equity led. Who are the group of private equity? What is their vision? And making sure that the culture that they have in their organization fits well with our candidates. And I can give you specific examples, but I'd say culture fit, experience fit, like making sure there's an alignment. Whatever it takes to win in the franchise, we want to make sure that the candidate has strengths or has a plan to hire people that exhibit those strengths. The franchise owner doesn't necessarily have to do everything in the business. If it's the right business, the business should work for the candidate. At some point, you shouldn't be buying a franchise. A franchise should be a business that you're employing people who are doing the work. At some point, where you're getting flexibility in your lifestyle. At some point in time, it might be from the first day, it might be in the future. But that should be something that should be a characteristic of a successful franchise.
[00:09:47] Speaker A: Yeah. Such a beautiful answer. Well, the second question I have for you then is if you're not the person awarded the franchise, should you be deeply insulted and feel like you're not a good fit for any franchise?
[00:10:00] Speaker B: No. Well, let me explain this piece to it. I mean, I told people no more than, you know, Kim, and their initial reaction is anger. They get mad. And I think it's just part of it being entitlement. And I have to remind them that they're doing you a favor because they genuinely think you're not going to be successful in the business. And do you want to not be successful in business? Now, what happens? Again, because each franchise has a different definition. Like, they need different skill set and different experience. And what it takes to win in one franchise is not what it takes to win in another franchise. So just what I'm saying, sometimes people are really strong operationally. Sometimes people are really strong with sales. Sometimes they're really strong with administration. So there's different brands that are going to be aces for the place. Like, you need to find your fit and then make sure you have a brand that's going to align well with your skill set and then also align well with your culture. So the answer is no. Go back and find a brand that is the right fit.
[00:11:00] Speaker A: Yeah. So this speaks so much to the importance of not just reaching out to a franchise on your own because you like the taste of the product or you think your community needs it, or because it's your hobby and you have to run that business. This is leadership. Do you hear the tone in this man's voice? It's all about leadership. And so you want to come to Kim Daly first, Let me match opportunity to you, because Michael trains me on what his brands are looking for. What are the key skills? What is the culture of that brand? And so I'm going to make the first connection. I'm going to serve you to him and his team, and then they're going to really dial in on that cultural fit and the skill set fit. So together, the two of you are going to figure out if there's a mutual connection, but I'm going to help do that in the beginning and just save you from wasting all kinds of time looking at brands where they're just not the right brand for the goals that you have, the skills that you have, or the culture that they have and the kind of people they're looking for. So this is franchising today, in 2024, it's a very sophisticated business. It's unlike it was when Michael and I got started back in the 90s. Right. Like, it was way different. It feels like the wild, wild west compared to today. Right. But that's good. That means we're advancing and we're growing and we're all getting better at what we do. So what a fascinating, like, curveball this conversation took. Not what I anticipated talking about with you today, Michael, but I love it and I think it's a very good conversation and an important conversation for people to hear. So now let's pivot to the conversation I really want to have with you about selecting a good franchisor. So I'm over here on my little soapbox saying, franchising is who, not what. So you're going out around the country and I'm sure you want to do this responsible. You don't want to just help some Joe Schmo franchise guy, you know, who says, I got a franchise, grow his business. So what are some of the characteristics in a franchisor that Brand one is looking for, that as you describe them, may translate to, these are the things that good, solid candidates should also be looking for in a franchisor partner?
[00:13:14] Speaker B: Yeah, really good question, Kim. And two of them I'm just going to give you, I think are foundational. That people, there's foundational bedrock that you need to look for. Okay, so first is unit level economics. What I mean by that is how does the actual franchisees perform? And brands have different evolutions of growth. So sometimes you'll be looking at an emerging growth brand, and sometimes you'll look at it as a micro stage brand. Sometimes you'll look at it as an inner enterprise brand. And we work with them all. At brand one, we have enterprise clients, we have emerging growth clients. So what I say though is the unit level economics, like, even if it's in a micro stage brand, it has to have an affiliate location, meaning a corporate owned and operated location. So what's the proof of concept? So do not get into a franchise that does not have a proof of concept. Is it? That's first and foremost. There has to be something that's working. Okay. And then from there I would understand the franchisee franchisor relationship, because those are the two fundamentals, the economics and the relationship that the franchisor has with its franchisees. So the best way to validate those things is one, I would look at the item 19 of the FDD. In franchising, there's disclosures and all of the like. Significant attributes of the franchise offering are disclosed for you as a candidate. So I would look at that, understand it. But then more importantly, you need to start talking to franchise owners. It's so important to talk with a lot of the owners and understand what is it, the challenges they're having, what are the successes, what was their ramp ups, what did they see in terms of their injection and capital to get started in the business? So the good thing about franchising is you ideally are not the first one to ever open one of these locations. So you need to do due diligence. And that's not just looking at disclosures. The beautiful thing of this is you can talk to the people who have gone before you and find out how it went. Okay, so those are foundational, those two pieces. Now from there, don't avoid competition, please. I get that a lot. A lot of candidates are like, well, it's really competitive. Well, it's competitive because the market is a $200 billion industry, right? So if you're the only kid at high school, it's probably not a school worth going to. That's why no one goes to the school. You're not going to be prom king if you're the only kid that's in the school. You need to have some confidence in yourself. And what I would say, Kim, you did this brilliantly. This is why I like when people go to consultants is you need to do like a moral inventory. You need to look at yourself and have an honest conversation about where you want to be in five years. What are you good at? Like, how much time do you have? Because a lot of times people look at a franchise like it's a stock, like it's a passive investment that they're like, okay, so I'm going to look at the FTD and I'm going to put my money in and this is how much I'm going to get out. And it's like they're investing without understanding that they're investing in themselves. You have to think of it that way is like, okay, I'm Michael Mudd. I know what Michael Mudd's good at. I know my skill set. So when I look at brands, I'm going to find brands that align well with me and what I can do for the brand. So don't think of it as always. The brand's going to give you a return. It's how are you going to monetize your skillset within the structure of that brand to produce phenomenal outcomes? So culture alignment, you want really good fit there. You also want to see a franchisor with a good plan. So how are they going to grow and how are they capitalizing that growth? Because a lot of times they are not getting a hundred, Kim, they're probably running out of money somewhere. So like, are they capitalized to grow? Sometimes candidates aren't looking at that brand. One does though, so we're scrubbing that out. So we wanted to know that they've got a right plan, that they have the right capital, they have a good unit level economics. We also want to understand that the franchisee franchisor relationships are strong. And then we also want to understand the culture of the company and make sure we can establish like trust and respect. So for me personally, that's the foundation that Brent1 has in business. So again, what I say to candidates is make sure you generally your heart can align with your head on that decision. So it's not just your head, because if you just looked at the economics, sure, it makes money, let's go do it. But if it's a grind because you'll get in business sometimes with people and it's not fun to work with them. So I'm telling you, go meet the franchisor, go shake their hand, look them eye to eye, go have a meal with them, break bread, find out what they do when they're not at work, what are they doing to save the planet. That's probably what I would look at as a franchisee in a franchisor.
[00:17:43] Speaker A: Hey, Daily Coach fans, if you're loving this episode, please do me a quick favor and leave me a five star rating and a short review. Your feedback fuels my growth and rankings and shows others that this podcast is valuable. Now back to the show.
It's awesome. Okay, so there's this statistic out there that like only a very small percentage of franchisors actually hit a hundred units. So it's a mind boggling statistic about basically failure on the franchisor level. And this is why this conversation is important. Because if you're out there on the sideline and you think, well, I'm just going to go look at Entrepreneur 500 and I'm going to pick a franchise that sounds good to me. Like, you know, you have no idea what kind of risks you're taking with that strategy for selecting a franchise. The reason this conversation is important is there are two people here who are very experienced for years. Kim Daly is the first door of preparation for you. Michael Mudd is the second door of preparation for you before you ever get fully vetted and matched to an opportunity. So what does that imply? That matching yourself to an opportunity is not as simple as going to the entrepreneur 500 or googling, you know, spa businesses and picking one because they're not all created equal. Not even close. The failure rate at the franchisor level is very high because I would say that if a franchise isn't at least at a hundred units, within a couple of years, they are failing. Why do you want to put your money in a business that isn't on the way to becoming a national brand? A hundred units is not a national brand for most companies. Right. I guess it depends how large of a territory they're awarding, but typically it's about 500 locations. When that's when the world is waking up and going, ooh, what is this? I'm seeing it everywhere. That's what you're investing in. And if you're building to sell and you want the brand equity that comes from the franchise brand, it has to be in this kind of growth category. So, Michael, the question I have is why the failure rate at the franchisor level is so high below a hundred units? I mean, it. Does it speak to the things you just said of what we're looking for when we're looking for a solid franchisor?
[00:20:07] Speaker B: Yeah. And the reason, because if you understand how franchisors make money, they're in the royalty business, so they don't get to royalty sufficiency is what happens. And they can't find and attract the right franchise owners to get them there. So they're not getting the numbers into the system to get to that royalty self sufficiency level. Because ideally, a franchisor wants to get to a point where they have enough operating locations that they can support their entire organization on royalties without having to award another franchise. But franchisors oftentimes are not good at finding and recruiting the right franchisees. It's about building it with the right people, getting the right skillset and the talent to get to royalty sufficiency. Right. And not growing too quickly where they can't support it, but also not growing too slowly where they bleed out because they have to get the royalty's efficiency. That's why people sometimes they're like, oh, my role at brand one, it's important that we get a good brand, but they have to be right. You have to get the perfect situation. Kim. So we talk with a hundred brands a year, roughly, we're basically moving forward with one or two or maybe three of them. So if you think about, like, the success rate might be 3%, that's about what we accept is 3%. We're only looking for these, like, gems out there. It takes a really good brand with the right plan. They have to be fully differentiated in the marketplace where they have a growth strategy that's going to win. So we bet them out pretty well, Ken, before we take them. But what happens is they don't get to royalty sufficiency. So it's critical that the brand builds at the right people and gets royalty sufficient as quick as possible, thereby mitigating the risk that they run out of capital while they're growing.
[00:21:40] Speaker A: Okay, so I have one tangential question that sort of comes back to the comment you just made about franchisors are not vetting carefully and attracting the right franchisees. So let's say that I've been vetted by Kim Daly, I've been vetted by Michael Mudd and awarded the opportunity in a Brand One company. And I'm inside this franchise, but I'm really struggling because I feel like I was owed something from my franchisor that I'm not getting. You used entitlement earlier. And so, you know, I'm launching a whole new company called the Z Suite. Everybody around me knows this. It's the love of my life right now and kind of like taking the conversation from what I call odorship o w e d to ownership to where you invest in a franchise, but you don't wait for the franchisor to do for you what was never theirs to do. So I'm curious, inside the franchise, what do you think are the things that franchisees genuinely are owed and what are they not owed that many of them think they're owed?
[00:22:51] Speaker B: So if you really want to see the legal definition of what a franchisee is owed, you're going to want to look at item 11 in the franchise disclosure document. So that's actually the legal description. So as a franchise candidate, the reality is the franchisor is going to provide a proven system that hopefully has been time tested, it's been replicated, so they have a proof of concept, and then they're going to reproduce that concept and they're going to do it multiple times. So you want to get in a brand depending on where your risk tolerance is. If you're an early adopter and want to get in at, like the first franchisee, there is value to that. There really is, because you're sitting at the table with the founder and you're going to be part of building that company. And there's a lot of people that get excited about that, Kim. But there's a lot of people that are petrified by that, right? So you, maybe you wait till you're the fifth franchisee or the 10th franchisee or wherever it is comfortable. Maybe you want to get in to be the 23,968 at Subway, right? You could be that guy. But what you should be having is a proof of concept that you can do the due diligence with and come into the system. So what the franchisee is owed is materially defined in item 11 of the FDD. Now, the reality of it is the franchisor is going to provide a business model and an operational system. What the franchisee needs to do is apply that. They need to engage and do it themselves with the operational system that the franchisor provides. So the franchisor is typically going to provide some level of training. They're typically going to provide some level of tech stack, they're typically going to buy. This is unspoken about a lot of times. They're going to provide a franchise family of other franchisees. There's a peer group that is very important to tap into, in my opinion. Sometimes the franchisees that are your fellow owners are going to provide as much or more support even than the franchise or will provide. So I would tap into those resources. But the franchisor is going to give you a system. They are not going to wake you up at night, 8am to go run your business. And they're not going to go higher because if they hire your employees, they're going to be violating joint employer issues. What they're providing is a framework in an operational system and a training program to allow you to be successful in your own business. You own it, you operate it, you make the decisions. You're the one who is responsible for making the business successful with their operational system.
[00:25:11] Speaker A: Beautifully stated, Great answer and I love it. So we'll wrap it up on this as I tease everybody about the Z suite. So you've heard my story. It speaks right to this. So I spent eight years in my franchise just sort of floundering around average. But the reality is I was waiting for my franchisor to do for me what really was only mine to do for me. I just didn't know any better. And then I woke up in my ninth year of business asking myself a better question. It was a rhetorical question, what would happen if. And I decided I was going to answer that Question. By seeing what would happen, I put my head down, I dialed in and I stayed committed for one solid year. And what happened was I made history. History for myself and for my family. So I ended up building the largest franchise consulting business that had ever been built. At that time, I had made over 350% more revenue. So my franchise process has stayed the same for 22 years. The leaders have stayed the same for 22 years. We were still in a recession. This was 2011. So nothing outside of Kim Daly changed. And yet everything changed. And the first year I did it, I know now I was unconsciously competent. I didn't even know that what I was doing was going to create this result. But I had a belief and I had focus and I did it. And so it was really now in my 10th year of business when I had to replicate what I just did because I didn't want to be a one hit wonder that I had to start to think what had I actually done? Well, I have spent the last 13 years thinking about that. And that's the system that I'm delivering to you all in the Z suite because I want to take you from eight years of ownership to one year later becoming a legend, maybe in your franchise, but who cares for yourself? Because when you said yes to owning a business, you were trying to get control. People say to me, Kim, you're so passionate about what you do. You know why I'm passionate? Because I'm fully in control. I own every single part of my business. I know exactly where the gas is if I want a result. I know exactly how I have to show up and what I have to do. And that's what I'm going to be offering to you in the C suite. I can't wait. It's coming soon. So that's my teaser. Michael, this has been an amazing conversation. I can seriously, I could talk to you forever because I just love you so much. You're so smart. Every time this man gets in front of me on stage, I'm like, I'm leaning in. I'm learning from him. He is a wealth of information. These are the caliber of people that are available to you in franchising. But you can't go it alone. You have to want our help. My services are free. There's no reason to want to go it alone when you know that I can help you. So if you're sitting on the sideline and you're inspired and you want to meet Kim Daly, I want to be your franchise consultant and your daily coach. So please follow the link in the description below and I will reach out to you right away. Michael, thank you so much again for being my special guest today on Create Wealth Through Franchising and Kim Daly tv.
[00:28:28] Speaker B: Thank you for having me, Kim. I appreciate you.
[00:28:31] Speaker A: You are amazing. And until next time, please don't forget that my name is Kim Daly and I want to be your daily coach.
You can find more content just like this on my YouTube channel at KimDaily TV. And if you're inspired to take the next step to explore franchises matched to you, please email me right now at inquire at KimDaily TV. That's inquire at KimDaily TV.
