Latest / The SmallBizChat with Melinda Emerson / How to Select a Franchise Business with Dr. Robert Needham

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How to Select a Franchise Business with Dr. Robert Needham · The SmallBizChat with Melinda Emerson

• 0:02
  321.
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  Lift off.
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  Ending small business failure.
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  Welcome to the Small Biz Chat podcast with the number one small business expert, Melinda
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  Emerson.
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  Melinda's goal is to end small business failure, and she'll give you the information
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  you need to succeed and live the life you dream of.
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  Now here's your host, the smallbizchat lady herself, Melinda Emerson.
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  Have you subscribed to the Small Biz Chat podcast?
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  Well, it's time.
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  Every Wednesday, we offer listeners bite sized actionable tips to start and grow a successful
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  small business.
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  In just 20 minutes or so a week, you can get a ton of insight and resources to propel your
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  business forward.
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  Be sure to subscribe to the Small Biz Chat podcast today.
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  Hi, everybody.
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  You are watching the Small Biz Chat podcast.
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  I'm Melinda Emerson, small biz lady, your host.
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  And now we're talking with my guest, doctor Robert Needham.
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  He is a seasoned executive with more than 35 years as a business and franchising executive.
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  He's president of the Collaborative Franchise System, LLC.
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  He's often called on as an expert in business, franchising, forensic analysis, and technology.
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  He's been a franchisor in franchise consulting in nutrition and fitness, mobile food truck,
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  and gourmet dog food.
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  He's also advised more than 90 different franchises and hundreds of brands within the
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  industry.
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  He currently focuses on service based franchises with a high return investment
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  potential.
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  Doctor Needham, welcome to the Small Business Chat podcast.
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  Hey, Melinda.
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  Glad to be with you.
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  I am so glad to talk to you because you've written this wonderful book on how to escape
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  how to escape from economic slavery.
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  And I and I want to talk to you about that because that's a very provocative title.
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  But tell us a little bit how you came to even write a book like that.
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  Like, tell us a little bit about your business background.
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  Well, I started out in government service.
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  I used to launch space shuttles for a living and then, I decided to leave NASA and I went
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  into business for myself.
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  And one of the things I realized early on, I started out in financial services that most
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  people couldn't balance a checkbook.
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  And the reason that they couldn't is because they were really never taught to do that.
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  It's not that they didn't want to.
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  They just didn't know how.
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  And so I began to learn a lot about finance.
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  And and as I went through that process, I realized that owning my own business was pretty
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  much a dream I've had from about age 7, and nothing short of that would probably give me
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  the freedom that I wanted.
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  So what how would you define, you know, economic slavery?
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  Right?
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  Because that's that's something you're really passionate about freeing people from.
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  Can you define that for us?
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  Sure.
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  We'll start off first.
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  The primary definition of slavery is is when you're held captive by a master and that master
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  feeds and close you and provides a house for you to live in.
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  So you work for them for free.
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  Economic slavery is slightly different from that.
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  In this case, you have to pay for your own house and your own food, but you still work for
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  someone else who has decided your value or what they're willing to pay you.
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  So in order to escape that mindset, you have to figure out how to move from a scarcity mindset
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  where there isn't enough to an abundance mindset where there is more than enough.
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  Wow.
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  So how do you how do you do that?
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  I mean, is that is that, like, how you talk about your concept of shared capitalism?
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  Like, how do you how do you get to the point where you say, okay.
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  I'm not gonna go work for the man anymore.
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  I'm gonna create, you know, my own business enterprise.
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  You know, how do how do you make that shift?
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  How do people get past the fear of, oh, no.
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  I'm not gonna have health insurance.
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  Like, how do people do that?
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  I know.
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  It it is probably the single singular most brought up item when they think about going
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  into business for themselves is, oh my god.
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  I can lose everything I've saved up to this point, and and where am I gonna get health
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  insurance in case things go bad?
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  The truth is things normally don't go bad.
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  And when they do, there are affordable ways to solve the health problem, but that's for a
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  different time.
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  Let's talk about let's talk about here specifically how do you overcome this fear, or
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  how do you make this decision, you know, to to get into business for yourself?
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  The first thing is is that you have to decide where you are and are you happy there.
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  Meaning that the average person in America makes $75,000 a year in income.
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  And so if you're looking at getting into a business that only will pay you $75,000, then
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  all you're doing is trading a job for more work.
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  Because all of us who've ever started a business knows that there's 3 phases of owning
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  a business.
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  It's where you work hard and make nothing.
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  It's where you work hard and you might get paid what you thought you were worth.
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  And finally, where you work very little and get paid more than you're worth, and people think
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  you were born lucky.
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  And and so, as a result, you know, we have to move through that mental transition.
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  And so you have to figure out where you are and then where you want to go and and and what that
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  next step looks like for you.
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  Now I know that you're a big advocate of people looking at franchises as as a potential
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  business model because it has it it doesn't have as much grunt work involved in sort of,
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  like, building the idea, getting the brand out there and all that stuff, and then figuring out
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  who the customer is, and then finally figuring out the right pitch to sell to them.
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  Why do you think that that's a good way to sort of from being an employee to being an
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  entrepreneur?
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  Well, if you think of
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  a continuum, on one end is the employee and on the other end is the entrepreneur.
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  So discontinue.
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  The franchisee sits pretty much right in the middle.
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  They're a little bit of country and a little bit of rock and roll, which they they they they
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  don't want to make all the decisions for themselves, but they don't want someone to make
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  all the decisions for them.
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  So they're typically a mid manager, someone like that who's thinking, you know, I wanna
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  double my income.
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  The only way I know to do that is to fire my boss.
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  Right?
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  So so they're they're saying, how do I get into business for myself?
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  And so the the first thing happens is they have 3 choices.
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  They can either build, they can buy, or they can partner.
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  So if I'm gonna build, I'm a start up.
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  That means I have to go learn all the mistakes.
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  And the one thing I think about most successful people is true.
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  If they really are honest with you, they've more they've made more mistakes than anybody
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  else.
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  Okay?
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  So you have to be willing to accept a lot of failure if you wanna do a startup.
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  2nd, if you if you're buying, then you're buying a preexisting business with a
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  preexisting customer base and all that, but you also may be buying preexisting problems.
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  So there, due diligence is really important.
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  Do I do I really understand how this business works and all the insides and out?
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  So that leaves us the that middle person, the franchisee, the partner idea, the collaborator
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  who says, look.
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  I'm gonna come to you, and I'm gonna get 3 things when I buy a franchise from you.
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  I'm gonna get a brand that people trust already.
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  I'm gonna get a business system where you've made all the mistakes and I don't have to.
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  And 3rd, I'm gonna train program because I probably don't know how to do what you do, but
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  you're gonna teach me.
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  And that's the real strength of franchising.
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  Well, talk to me about some of the downsides and limitations of franchising, though.
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  Well, first of all, if you don't know what type of franchise you're buying, you could either be
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  buying a job or you could be buying a broken wing.
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  And what I mean by that is if it doesn't give you enough net margin to get you where you
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  wanna go, you'll spend all your money, and you'll get off where you got on and never go
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  anywhere.
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  Right.
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  So all not all franchises you know, even though I'm in the franchise issue, not all franchises
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  are right for the average person.
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  In fact, what if we we talk about the most popular franchise most people think about, what
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  would you guess that would be?
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  McDonald's.
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  Of course.
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  Everybody says McDonald's.
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  The big golden arches.
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  Branding perfect.
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  Right?
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  They've got a drive through.
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  You can get your chicken McNuggets every time.
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  You know, that's a great business system.
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  And then 3rd, those people really know how to greet you and and and give you those fancy
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  statements.
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  But when you look at them financially, forensically, like we talked about earlier,
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  when you look at them that way, you realize that McDonald's is not designed for the
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  franchisee to get rich.
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  What?
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  That's right.
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  It's Wait a minute.
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  What?
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  Like, hold on.
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  Who's getting rich then?
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  Who's or?
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  Because because McDonald's is all about real estate, and you don't get to own your real
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  estate.
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  They do.
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  McDonald's is all about getting you to run 9 to 5 to stay alive.
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  And by the way, you'll spend a 1,000,000 and a half dollars to get into McDonald's, and you'll
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  make about 400,000 a year.
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  You said, well, that's a lot of money.
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  But what if I could tell you that you could spend the same 1,500,000 and make 2 and a half
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  $1,000,000 a year?
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  Would you
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  want me to Sign me up.
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  Sign me what do I gotta do, Robert?
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  It's the same money.
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  It's the same money.
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  It's a franchise, but it's knowing which ones make the most money.
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  And so you learn quickly that where the money's at is in service, not in product.
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  Okay.
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  Wow.
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  The highest possible gross margin so that you don't have to make so many sales in order to
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  survive.
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  Remember, we talked about continuum on the left side.
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  Again, now that's wholesale.
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  You gotta sell a lot of stuff to make real money.
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  Mhmm.
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  Over here on the niche side is this, you know, the super powerful brain surgeon, let's say.
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  They can only do what they can do.
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  They make a lot of money for doing what they do.
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  They've traded they've exchanged their knowledge for that money.
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  So products, you don't wanna be involved in.
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  Of course, retail sits right in the middle.
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  It just depends on which side you fall on whether you can make it or not.
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  The key to franchising is to find a business system that has got high gross margin.
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  We call this, and we'll get into that today, but we call this net margin overinvestment.
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  How we get to those numbers is a whole whole another conversation.
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  But the idea is if you can determine your net margin and divide it by your investment, if
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  that ratio is less than 0.5 and McDonald's is 0.26.
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  Okay.
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  Then it's not worthy of you buying as an investment.
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  Wow.
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  That I think that's the first time I have ever heard that explained like that.
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  And I really thank you.
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  But but I can't let you go without you telling me.
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  Okay.
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  Now give me 3 that's got these numbers right.
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  That that
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  I'll be the 3 I need to be looking at tonight, Robert.
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  Come on.
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  Well, listen.
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  If if you're the compassionate person, you know, that really loves helping people, then
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  let's talk talk about a concept of senior center.
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  You think about that.
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  And and what you realize is did you know today that there's 10,000 people turning age 75 every
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  day in the United States?
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  Okay.
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  That's 10,000 new customers being created every day.
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  The the person who has someone sitting at home with them will spend an average of $6,000 a
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  month to have them sit with them.
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  Wow.
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  If they go to a nursing home, it could be easily $10,000.
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  But this the so if you get the nonmedical senior sitting program and you run it well,
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  then what you find out is with 10 customers, you can get all your money back.
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  Wow.
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  And start making 100 of 1,000 dollars a year because the average bottom line for those
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  companies is around 30% of your gross falls to the bottom line.
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  So knowing that, that means you're making $1800 net net for every customer you put on.
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  So if you owe $18,000 a month in income, you just get yourself 10 customers.
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  Well, I like that kind of math, Robert.
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  What what else you got?
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  Give me another way.
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  Give me another one.
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  Okay?
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  Today in America, one of the most phenomenal new sports is pickleball.
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  K.
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  Okay?
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  It used to be tennis and basketball and all those kind of things.
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  There's pickleball.
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  It's growing like a 30 40% a year and has been doing so for quite some time.
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  There's literally hundreds of thousands of people playing pickleball on any given day.
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  What what you realize is these pickleball courts are small.
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  And because people are shuffling their feet back and forth on these pickleball courts,
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  they're wearing them out faster.
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  So the real money is in resurfacing pickleball courts.
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  What?
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  Really?
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  Yep.
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  To show you how to get a little truck and know how to do the right techniques.
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  And so for about $100,000, you can get a business that probably within your 2nd year,
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  you're making a $1,000,000.
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  Oh, lord.
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  Okay.
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  You're gonna make me start thinking about manual labor.
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  Okay.
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  Now alright.
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  Give me one more ride.
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  No.
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  No.
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  You hire people to do the work.
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  Oh, I hire okay.
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  So I don't have to go do it.
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  Okay.
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  Okay.
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  Not sitting with the seniors either.
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  You had somebody do that.
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  Okay.
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  Okay.
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  Alright.
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  Give me one more.
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  I need one more.
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  One more.
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  Let's see.
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  One more that that would be, pretty exciting to you.
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  Well, there there there could be a coaching position.
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  There's several coaching franchises out there, and you pick the area that you like.
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  Because there, you have no cost of goods.
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  Right?
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  There's no product you're selling.
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  You're just selling your time.
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  And and there are good coaching programs out there where they can show you how to make
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  anywhere from 200 to $1800 an hour.
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  And in doing that, you just gotta have against a few clients, and that's your business.
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  There's probably a 100 good ones we could help you with if we'd sit down and found out exactly
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  what the person wanted.
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  You know?
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  I think I think you're the best person I have ever heard talk about this.
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  I have I have got to tell you.
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  Alright.
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  But I got one more question for you.
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  Sure.
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  What is the best business advice you have ever gotten from someone?
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  Never mistake activity for accomplishment.
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  Never mistake activity for accomplishment.
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  Right.
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  Like that.
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  I think that's tweetable, folks.
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  I hope you give give doctor Needham some love for that.
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  Listen.
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  Thank you so much.
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  You have been such a joy, and you have given so much really helpful information.
• 16:12
  Thanks for listening to the Small Biz Chat podcast with Melinda Emerson.
• 16:17
  Subscribe to this podcast wherever you listen to podcasts, and join us next Wednesday for
• 16:22
  more fantastic information and interviews.
• 16:25
  You can find more sources and small business success strategies by visiting Melinda's
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  website, succeed as your own boss.com.
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  Thanks again for listening, and we'll see you next week.