In Episode 40 of the RevPartners B2B podcast Pit Stops to Podium, Jon Ostenson opens a new topic with our host and audience - franchising. He illuminates the successes that franchising can bring and ways to “de-risk” the desire to be a business owner that most of our audience shares. Listen in to understand more about who is buying and what it takes. Jon is the current CEO of FranBridge Consulting and the author of "The Franchise Path."
Pitstop Highlights
Who is Buying Franchises?
With the rise of the COVID-19 pandemic, many people have begun to question the path their on, perhaps to begin taking a path with more autonomy and control. You’ll find there are two types of roles within franchise owners: the absentee role and the owner operation role. The absentee role is common among people already running their own companies and looking to expand, while the owner operation role revolves around people who are looking to leave corporate and jump full-time into a franchise.
When many think of franchises, they often think of fast-food chains. Today, this isn’t the case. According to Jon, more people are investing in health and wellness franchises, especially among the growing-age population.
Franchising Financials
Jon suggests having at least 150,000 to 250,000 upfront when going into franchising. After around 6 to 12 months, you should then expect a cash flow–and possibly multiple times your investment. So while the barriers to entry might be high, there is a favorable return relatively quickly.
Selecting the Right Franchise
Jon’s affiliation with the largest brokerage in the U.S gives him access to see emerging brands and development groups across the country, possessing a wide vast of options for his clients. Typically, Jon asks his clients questions and based on those answers, presents five to seven opportunities in the market that meet their criteria.
After the franchises boil down two or three options and the clients will be able to choose who they want to work with from there. Jon’s work is completely free for clients–he gets paid on the back end by franchisers.
Connect with Jon:
Full Transcript
Brendan: Hey everybody, welcome to Pit Stops to Podium, the RevPartners podcast where we talk to execs who compete and won in taking their companies from high growth to high scale. My name is Brendan Tolleson. I'm the co-founder and CEO of RevPartners and I'm delighted to have with me today, Joh Ostenson for this episode of Pit stops to Podium. Welcome, Jon.
Jon: Thanks for having me. Excited about our conversation and love the show.
Brendan: Thank you. It's always fun on a personal level when I get to connect with fellow dads or moms that are a part of my daughter's school community. So, Jon, this is a fun one for me. So, thanks again for stopping by. Jon, before we get into the meat of the presentation, I’d love for you to give our audience a little background of who you are and what you do today.
Jon: Yeah, absolutely. So based here in Atlanta, Georgia as Brennan said, father of three young kids active in the community. But my background was largely in the corporate world, like so many out there. I had a great run with Accenture. And then Carter's, you know, did the whole MBA checkbox way back when and spent close to a decade with Carter. Gosh, you know, got to be exposed to quite a few things. I, you know, given additional opportunity over time on the sales and marketing side, and it was hard to leave at the end of 10 years. But like so many, I had that desire to do something a little more entrepreneurial in the private world. And so I looked at a lot of different private equity firms and try to figure out which portfolio companies were the best fit and long story short stumbled into franchising on the franchise side with shelf Jeannie franchise system had the opportunity to come in and serve as president, supporting all their daily operations and franchise owners across North America. And that really opened my eyes to what I call the world of non-food franchising. It's an area that's oftentimes not on people's radars, but once you expose them to it, then it really gets the wheels turning fand helps them think through opportunities. And so fast forward, I spun off from Jeanie with the founder. We built up another business in which we served franchises. It was called 10x five. We had close to 40 employees, got a marketing agency and a call center and a technology team. And it was a great model, except that it wasn't that profitable. So we were doing a couple of million a year, but the profitability really wasn't what I thought it would be. I ultimately made the decision to wind it down and found homes for our people and for our clients, and pivoted over to what I'm doing now, which I absolutely love. And that's franchising. I get to serve on the consulting side, working about 300 different brands across the u.s., a number of different industries, and I get to play matchmaker, helping people understand that world and then match up the right opportunities. In addition, I've got business partners and we own franchises as franchisees ourselves, so Nelson on both sides of the franchise table and just love so many different dynamics around it.
Brendan: Well, we may have to set up another podcast interview around transitioning from the was a tennis 5s outright to for Franbridge, because that's a whole different topic, which I'd be fascinated to learn how you make that exit and start this business. But before we get into our big idea, Jon, which you can imagine for the our audience is about franchising. But before we get into that, we do have a tradition here at Pit Stops to Podium events to get to know our guests outside of work. So what are three fun facts that our audience should know about you?
Jon: Yeah, I think for facts, when you have young kids, I mean, it all revolves around them. So, you know, I push my son's basketball team. My kids are 10, 5 and 3 are their ages. We've led small groups through our church in our home over the years, and so we stay active in the community. But going back to when I was with Accenture at the beginning of my career, kind of a fun fact. I spent about six months over in India, in Hyderabad, India, and just had a great experience that really opened up my eyes to a lot of different facets of highly politicized topics such as outsourcing. And I got to see both sides and for my own opinions. We just had a great experience and have not been back to spring break in India since then, but have a lot of respect for what's going on over there these days. What's your what's your favorite Indian dish? Gosh, there's so many. I just love the naan bread and all the curries. And yeah, so I love Indian food trying to rally the family around me.
Brendan: Yeah, we've started to get our kids to finally eat some butter chicken and tikka masala. So that's as far out as they can branch so far. But we're hoping that they will plant some seeds for four more spicy foods to come. Good for you. Good for you. Now, that's a good way to go. Well, Jon, I appreciate you sharing a little bit more about who you are. Let's transition to the big idea. We already kind of teased out a little bit in light of what Franbridge does, but let's kind of park on this topic, which is why start a company from scratch when you could own your own franchise? And I think this is a really interesting topic in light of our audience. Here we have aspiring sales and marketing leaders and a lot of your background. I think it's really relevant. Before we get into some of the big talking points you mentioned in your introduction, you've been Accenture, you've been at. What led you to think through that process, even from your own perspective?
Jon: Yeah you know, I think most people have a desire to be a business owner at some point in their career. You know, it's something that's on the radar for most of them. However, you get the golden handcuffs. You know, in the case of Carter's, you know, we had stock vesting those happening and it was hard to walk away. However, you know, you only live once and I think you want to challenge yourself. However, there are so many risks and you hear about the stats of how many tech firms actually make it, and those are the ones to get the headlines. But there's so many of don't. And so a lot of times people just don't know what that looks like. You know, starting a business, they're waiting for that great idea. And there are a lot of people with a lot of ideas that are doing a lot of talking, but they don't actually take that step. And so what I've seen is just the successes of franchising can bring. And I'll start by saying franchising is not right for everyone. There are those. I'm a member of the entrepreneurs organization and some of the EEO members are interested in franchises, and I have to tell them, no, you're too entrepreneurial. You wouldn't stay within the bounds. You think you're the smartest guy in the room. Then I have other EEO members in that case that say, hey, I love the idea of not reinventing the wheel, but having something that I can step into on the side. Maybe some of the benefits of franchising would definitely be, you know, not to be too cliche, but you're starting on third base instead of first base. You have that proven model. You know, the playbook on the operations side and the marketing side, so you don't have to make the same mistakes that someone else may have made in building that business. You also have a coach on the sidelines if you think about the franchise or that way, where the better you do, the better they do. So they're very vested in your success, and not all franchise owners are created equal. I mean, that's part of our vetting process in choosing the brands that we represent. But you also have other franchisees around the country. There may be testing marketing vehicles or trying new things that you could learn from. And so I've seen that play out as well. And there's an interesting study recently because you also think about, you know, when you own a business, your cash flowing, you're building an asset. Obviously, you get the tax write offs. You know, these are benefits. You don't have the w-2 employee, but part of that is that exit. So you're building an asset that's going to have an exit value down the road. And you know, you may not see the same multiples that you see some of the firms that you work with Brendan on the tech side. However, you can make a very healthy dime off of that, and the Ryker school of business did a study. They looked over 2000 companies had exits over a 10 year period. And looked at similar industries to compare apples to apples franchise versus non franchise. What they found is the franchise businesses actually traded at a 1 and 1/2 multiple of the non franchised counterparts, and so it was really eye opening to a lot of people to understand that benefit as well.
Brendan: Yeah, that's a great data point, and this is really educational for me to your point of if you have an entrepreneurial mindset, you want to become your own kind of an owner. As you mentioned, it's a way to somewhat de-risk that where you have a proven asset with a proven playbook, proven process, proven market, et cetera. You know, so long as you have the right mindset and the right makeup, but it could be a pretty compelling way to go. So let's dive in a little bit further. You had mentioned earlier, franchising is hot, especially in the non-food segment. So who is buying and why?
Jon: Yeah, you know, we're seeing first of all, I'd say franchising is as hot as it's ever been. I think COVID's cost a lot of people to question the path they're on and say, maybe now's the time to take a step out and I want that sense of control. I want to build my own empire, not someone else's. So we're seeing overwhelming interest really across the country, but we're seeing those that want to keep their day job or maybe their existing business owners, and they've got other companies that they're running and they want to expand, you know, their revenue streams. And so that could be a semi absentee role, as we call it. And or those that are looking to leave the corporate role, let's say, and jump full time what we would call an owner operator model. So we see both fashions and their best practices around each one I get into with my clients. But you know, right now from an investment standpoint, you've got stocks that are an all time high interest rates, historically low, only so many good real estate deals to be had. So outside of crypto and some other alternatives, where are you investing? And it's a real problem that a lot of people are facing, and many of them are wising up to the idea of having a side business as a diversion or diversifying play, and in some cases, it can even complement their current business. I'd say more than half of my clients are real estate investors as well. There are a lot of businesses that play very well within that sector and what they're buying. Brendan, it's know, I talk about nonfood because a lot of times when people think franchising, they think fast food. And what we see gravitating people gravitate to right now is a lot of COVID resistant or essential services. So think of like the serve pros of the world or roll off dumpsters or home services, property services type businesses. We also see a lot of focus around health and wellness and the growing aging population. I actually think there are a couple of examples. This week that we did placements on. I had a Wall Street attorney outside of Boston. He's bought a gutter business because the numbers on the business are. Saying he never thought he'd be running that kind of business, he's doing it full time. I had a couple of works for the University of Arkansas. She's a PhD out in Fayetteville. They spot a fitness business that caters to the older population. They're the only national brand that really does. You know, I've got a client here in Atlanta that just bought a property management business. I had one that recently bought a business coaching franchise. And so there are a lot of different sectors once you really peel back the onion. We just did a 10 unit oil change deal a couple of weeks ago. They had some uniques about it, so people love digging in. And I'd say over 80% of my clients end up in an industry with an idea that they never had on their radar to begin with.
Brendan: Yeah, it's interesting what you're describing. You're right, that most people will just think, at least I can only speak for myself, but that food is what you would typically think about the franchise. And there's so much. It sounds like up front from an awareness perspective that once you make people aware what's out there, it drives interest. And I think it's a good segue into our next topic, which is just the financials. So help our audience understand the financials. And so once they're aware that there are all of these franchise opportunities, but I mean, it's got to be a compelling aspect of how do you make money out of this? And so what does that look like within the non-food segment?
Jon: Yeah and so of course, it varies by industry. But let's just take the gutter example, and I'd say that's a highly profitable franchise. It's probably one of the more profitable within its sector. But in that case, my client was purchasing three territories defined by population, all an investment on this one because he doesn't have to have the physical location, he can work remote. He's got the trucks and equipment his all needs between 200 50, I would say 250,000 and per territory. So he'll launch with one territory and then expand to the second, then to the third one territory on average across the US is yielding its owner's 1.2 million in average revenue top line and 380 and bottom line EBITDA or operating margin, if you will. Cash flow so highly profitable, very scalable. You know, there's potential to do roll ups down the road as well. I'd say right now, private equity loves franchising. I get multiple calls a week from private equity firms looking to invest the typically at the franchise level, but they just love how it's such a repeatable process or using other people's money. You've got vested interest in those local markets. There's just so many benefits around it. The average deal size we do, I mean, it can't. Some are higher. Some are lower. But I'd say 1 50 to 250 is kind of all an investment average. And some of these clients are funding it, be self funding. Some are doing, they're using their retirement accounts. We have some special programs that we can use that create tax benefits around that, as well as SBA loans continue to be very common.
Brendan: So 150 to 250 is what you said in terms of the up front and then I mean, what's typical in terms of when you're talking to a prospective owner, when they expect to see that money back, is that a term of years or what was the best way to be mindful of that?
Jon: Yeah, no. If it's a brick and mortar retail type establishment, let's say the oil changes. For instance, even though they use prefabricated buildings, you know it's a higher entry cost. In that case, it could be months, 12 months, 15 months. I'd say most of our service based franchises where you don't have at least a customer facing built out storefront with a lot of those, some are cash flow and day one. I'd say most cash flow within six months. Yeah, well, yeah, I I'm an investor in a driveway, franchise, driveway and coding. It's great little business. I've done five or six placements with them. And you know, the margins on this business are close to 40 percent, 40% EBITDA end of the day. And it's not day one, but you build up to that in a short amount of time. You start scaling it. And when you think about that, that's 40% on revenue. However, when you look at your entry costs, what your investment was, I mean that 40% could be North of 100% I mean, you're getting multiple times your initial investment. Well, EBITDA is somewhat of a foreign concept to a lot of technology companies.
Jon: So for the audience, there may be a little bit of a crazy concept, but it's profitability is nice. And so I think it's what you kind outlined here to me, at least, is there's an opportunity the barrier to entry is on say it's impossible. It's pretty low, but there is a cost associated. There is a favorable return pretty quickly, which is exciting. Now, Jon, you obviously play a role in this space. So how do you help clients get selected for franchises?
Jon: Yeah so you know, the great thing is it's entirely free to my clients, so there's no charge at all. I'm never selling. I'm sitting on their side of the table. We have vetted roughly 300 franchised brands we've chosen to represent. I'm affiliated with the largest brokerage in the u.s., the FCC. And so it gives me access to all these emerging brands and development groups across the country, which I love just seeing all these new business models come to light. But the way I work with clients is very streamlined. Get to you fill out questionnaires and such. Then based on what you've shared with me based on what I see resonating with others with similar backgrounds as yours around the country, I'm able to bring opportunities for evaluation and we walk through those together, typically five six seven opportunities available in your market that meet all of your criteria that we see some really positive upside with. And from there, I then hold my clients hands through the process as we typically evaluate 2 to 3 in working with the franchisor. So entirely free I get paid by the franchise was on the back end. There's no charge at all to my clients that gets passed on to them. But yeah, love absolutely love what I do, getting to play matchmaker and do a lot of educating.
Brendan: Yeah, I think you're a great follow on LinkedIn. You have some really good educational content for people who are trying to understand this space. And so what are some practical next steps, either for folks to understand more about what's going on in your segment, but also those that may be interested in getting involved in this space? What's the next step they should take?
Jon: Yeah, absolutely no. Certainly connect with me on LinkedIn. I do provide a good bit of information out there, but then go out to our website for Franbridge consulting and on the website. Just share your name and email address and I'll reach out to you. We'd love to set up a 10 or 15 minute call initially, and we just bounce some ideas around and see if it makes sense to carry the conversation forward, but happy to share resources as well.
Brendan: Well, Jon, Thanks for stopping by. I love learning more about franchising. Candidly, this is a new area for me, but it's an opportunity that I think a lot of my audience will be interested in learning more about just because of the reasons that you outline. So those that are interested. Jon is the guy to reach out to. But thanks again, Jon, for stopping by.
Jon: Absolutely Thanks for having me.
Brendan: All right. Talk to you later.