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Russ Merbeth, Franchise Consultant & Principal at Bandera Advisors | Navigating the Franchise World · Reframe First

• Oleksij Rak: Hey guys, welcome to another episode of Reframe First. I'm Alexey, the host of the podcast and let me welcome our today's Russ Merbeth, founder and CEO at Bandera Advisors and also member of Franchise Network of Consultants. So, hey Russ, it's great having you here. Russ Merbeth: Hi, Alexei. It's very nice to be here. Thank you for inviting me on. Oleksij Rak: Yeah, before this podcast, you told me an interesting story, how you got into the franchising and how you started working with franchisees, but you also owned a network of fitness clubs. You were also a franchisee and could you tell us the story and we will start from there. Russ Merbeth: Yes. Sure, of course. Of course, happy to. so I was a lawyer and a lobbyist in Washington, DC for thirty plus years. And when I was ready for that career to be over, transition to something else, I could have retired, but instead I wanted to continue to be engaged and economically productive. And I started talking to folks about the businesses they were doing, and friends of mine have a franchise and I started looking at franchises and Oleksij Rak: Yeah. and Russ Merbeth: I was actually connected to Alloy Personal Training, the franchise that I'm Oleksij Rak: that is essentially connected to personal training. Russ Merbeth: an owner in, by a FranChoice consultant. And then over time, that consultant actually said, Hey, why don't you join us as a consultant at FranChoice? So I am presently an owner of two Alloy personal training locations here in the United States. one in they're both essentially in the Washington, DC region. Oleksij Rak: Okay. Russ Merbeth: and then I'm actually full time now doing consulting as a FranChoice franchise consultant through my Bandera Advisors entity. so what I work with and this is what we do at FranChoice, we work with candidates, people who are perhaps in career transition, want to leave government service, military service, the private sector looking for something. to do that's not like what they've been doing, to to find a patient that's more than an occupation, it's more than a job. They want to own something and be in charge of their, you know, their their day-to-day schedule. they want to be responsible for something personally as opposed to working for someone else. So we work with more than 250 brands and help people figure out we're sort of a matchmaking service. It's free to the candidates. Oleksij Rak: you So we work with more than 250 brands and we figure out which ones are matching the resources. So we Russ Merbeth: We try to match them with a franchise opportunity that makes sense based on their personal interests, their business history, things they're intrigued by. Oleksij Rak: try to imagine when they franchise a material that makes sense based on their personal interests, their business history, seems they're. Russ Merbeth: And then we also try to make sure that they consider options that they might not have, just because there can be all sorts of great businesses that you could get into that you'd never think of. Oleksij Rak: Yeah. Yeah, for sure. I've heard there are certain sectors in franchise industry which people do not even think about, like senior care, like home services. Because when thinking about franchise, most people think about food, restaurants, and so on. So being first time franchisee, I've heard there are a lot of... test IT workers that are coming, stepping into the industry because of all these layoffs and stuff. So being a first time franchisee, how do you make a right choice? How do I choose the right franchise for me? Russ Merbeth: Sure. Yeah. I in fact I work with a number of candidates right now. I'm working with them on finding something to do because they're being laid off. They're being downsized. and I'm I I again largely the the candidate pool that I work with are are people in career transition. finding the right fit. Oleksij Rak: You Mm-hmm. Russ Merbeth: in a franchise is sort of a multi-step, multi-layered process because, you know, first you want to think about, well, what do I like doing? What are the things that, you know, what are businesses Oleksij Rak: in the franchise through all the stuff, all the layer, all the steps. Because, you know, first I want to think about all one of my life's One of the things that I'm thinking about. Russ Merbeth: that I patronize that I really like? And then you want to think about your schedule. What kind of a schedule do I want to have as a business owner? Do I want to be day-to-day, 12 hours a day? Do I want to be involved four or five hours a week? Very different concepts there or structures. Oleksij Rak: Okay. Russ Merbeth: and then you want to consider the kinds of things that you might actually be happy doing. is there a brand that I would be pleased to be, you know, put that name on my business card and say, I I own this business and provide this particular service. You know, most franchises in one way or another are are in the service business. You don't find a lot of product. Oleksij Rak: would say I work with the service industry and I find this particular service. You know most of the branch products is one way or another are in the service business. know I find a lot of product, the franchisee that does somebody's making the product, that's what their business is, they're making the product, they don't need the franchisee to do it. The food service is one area that we work with, we would admit, because it's common, we understand that. Russ Merbeth: franchises. Somebody's making a product, that's what their business is, they make that product. They don't need franchisees to do it. But food service is one area that that we work with a good bit because it's common. People understand that as a franchise opportunity. But we also do, as you mentioned, a lot with senior care, a lot with home services. You know, there are I don't know how many Oleksij Rak: them. you Russ Merbeth: Hundreds of thousands or millions of homes in the United States. but every one of them needs something done to it fairly regularly, whether it's cleaning out the gutters or plumbing. And for just about every aspect of your home and the kinds of repairs that you might need to do, there's a business that takes care of those. And a lot of those are franchises. So, you know, we work with clients who say, I don't want a brick and mortar. Oleksij Rak: There. you So. Russ Merbeth: I I don't want to have to to lease a physical space and do a build out. I don't want to be tied to that location. Well, those people are naturals for businesses they can run from their home. Maybe they have teams that they're deploying. Maybe they have vans or trucks. but then there are people who say, I absolutely want to have a physical location where I go to every day, or at least regularly, and be in a service business that is identified with a location. Oleksij Rak: . Russ Merbeth: So, all of those things, you know, it depends on your financial capability. How much money do you have to invest? How much might you be able to borrow if you're going to do an expensive build out? And again, how do I want to spend my days? That's one of the first questions. How do you like spending your day? Where do you see yourself in five years? So that's all part of the process of trying to figure out with someone. Oleksij Rak: Mm-hmm. Russ Merbeth: Are they right for this kind of franchise or for this kind of franchise? And we work with, as I said, 200 and more than 250 brands. And the buy-in level to get started, your initial investment can be anywhere from 100 to 200,000, or it might be a million and a half. It really depends, you know, it's a wide range and it depends on what you want to do and what you're capable of. Oleksij Rak: Yeah, yeah, I was about to ask about the costs of owning a franchise, so from 100 to 200 and up to a million. How about capitalization, undercapitalization? How predictable is it? How predictable are these promised earnings on the franchise? From what I know, you cannot promise anything unless it's written in FDD. But still, how predictable are they? And besides that, besides the franchise fee and some setup fees, there is also some ramp up period probably. How do you account for all of that? And how do you advise your clients that, okay, you got half a million, you should probably go that way? So how does it work? Russ Merbeth: Yeah. You know, again, the the primary consideration initially is what sort of business does somebody see themselves doing? And so we explore, you know, all the different types of businesses there are, what kind of an out what kind of hours you need to spend, how many people you might need to hire. and it depending on what they want to do, depending on how they see their life going, we look at then Okay, if somebody really wants to be in a brick and mortar, can they afford the initial buy-in, which could be much higher? I mean the initial investment. With every franchise, you're going to pay a certain amount up front to the franchise, or that's just an initial fee. It's an upfront fee. You know, that's and that's part of your investment range. Oleksij Rak: Mm-hmm. you You're buying the and the place. Russ Merbeth: It and right. It it you know they have to they have expenses, they have to market, they have to do sales, they have operational expenses, and that initial fee goes to help them defray those expenses. But beyond that, the deployment of capital could be on construction costs, on hiring a construction firm, on paying for the build-out, or it might be if you're doing a service brand where you're Operating it from home, maybe you need three or four service vans, and those need to be outfitted and they need to have the branding put on them, things like that. So obviously, a much lower initial investment, which in turn theoretically means that your ability to recoup your initial investment is going to be much quicker than on a brick and mortar where you're taking on debt. Oleksij Rak: Thank Russ Merbeth: You're working with lenders to capitalize your build out, maybe give you some operating capital for your first year, those sorts of expenses. And in that case, it could take longer to recoup your initial investment. but there are so many, so many different factors. I will say this: the difference, one of the big differences between buying a franchise, going into a franchise system versus starting your own business is. You're working with a playbook. You're working with people who already have a proof of concept in the market. So there's a track record. Many of the brands that we work with are established. They have between, say, 20 and 50 locations already open. and they have plans to have so many open each year for the next five years, say. And then the franchise disclosure document that you mentioned, the FDD, that will provide financials by the unit. So you'll be you're able to see what are top performing units able to do in terms of revenue and what are the lower performing units able to do in terms of revenue. So you're buying in with a franchise, you're buying into a system that exists. There's a playbook, there's marketing, there's branding. Oleksij Rak: Mm-hmm. Russ Merbeth: there's a whole suite of support services available to you. You'll you'll pay, I mean, you pay ongoing royalties, a percentage of your gross revenues to the franchise or for continued access to those materials, those services, that kind of support. But you have a far greater chance of success with a franchise as a as a new business. Than you would with a standalone business, in part because you have that playbook. You have somebody standing behind you who helps you understand how to do this. And then the the thing that I love probably most about franchising is you work with a community of owners, other people who have invested like you in the same brand. Those people have the same operational issues, the same operational opportunities that you do every day. I'm Oleksij Rak: Yeah. Russ Merbeth: I am chatting with with Alloy, my personal training brand. I'm chatting with other owners throughout every day of every week and on the weekends. not because there's something necessarily super critical that needs to be dealt with, but just because we were we're comparing notes. How did you do this? How did you do that? Did the franchise or corporate give you any resources? By resources I don't mean money, I mean Oleksij Rak: I'm with my personal training friend. I'm with other owners. I them out every day, every week, and then I'll wait for them to come. Not because there's something necessary to see for them, because we're hearing others. I need to do this, I need to do that. And I'm free to do that. Russ Merbeth: Did they have some materials that you could use to say help with your marketing, things like that? So we're always constantly comparing notes. And that, again, is something that you get with a franchise that you don't get when you start your own business. My daughter owns a standalone gift shop in Alexandria, Virginia. I mean, she can join the Chamber of Commerce and meet other business owners, but there aren't that many gift shops, and she probably knows those owners already. Oleksij Rak: Yeah. Let me join the chamber of commerce and meet another business owner. Russ Merbeth: But every one of them is is completely unique. So, you know, every business has certain things in common, but the the finances that you have, the issues you might have with your landlord, all those things are you know really your issue and your issue alone. You don't have anybody to to sort of benchmark against. Oleksij Rak: Yeah, that's kind of franchise family. And that's great because it's a network of business owners and it's a great network which you can just chat with and you have something in common with them so you can explore other opportunities. That's what I'm also always looking for. Russ Merbeth: Right, right. It's a it's a support network. It's an emotional support network, it's a business support network, and you make friends. you know, I consider all of the owners that I know to be good friends now, you know, so it broadens your network, which, you know, as I said, I was at the point where I could have retired and I was wondering, well, what will my social network look like in five years if I retire and I mostly Oleksij Rak: Yeah. Russ Merbeth: Sit around the house all day versus going into business, taking on new challenges and opportunities, and expanding your network that way. Oleksij Rak: How do you distinguish a good franchise and a bad one? Let's say, not so good franchise. It can be the same gyms, know, sports franchise, but from what I understand, like, franchises are different. One is better than the other and for certain reasons. So you do have to imagine 250 of... of brands that you work with, but there are like of brands on the market. How do you choose as being a new franchisee? Russ Merbeth: Right. Yeah. FranChoice does a terrific job of screening the brands that we bring in and that we work with. I don't know, you know, I'm just making this number up, but there could be two thousand different brands out there and we work with, say, just a little more than ten. Oleksij Rak: Yeah. I've been heard about 8,000 of them across the country. Yeah. Russ Merbeth: Okay. So you've you've actually looked that up. Yeah. Right. So we work with a very select subset of all those brands, and we do it based on where they are in their growth cycle. You know, it's it's there's more opportunity to bring people in, obviously, if you're a newish brand and you don't have you know, say you have 50 locations open, but you hope to open up six hundred. Oleksij Rak: Mm-hmm. Russ Merbeth: So there are a lot more territories available because everybody typically gets a protected territory that they have, you know, whether it's say 30,000 people or 30,000 households, you know, can be quite quite broad. And it that can be in a in an area of high population density, that may be actually a fairly narrow geographic area, but you have so much opportunity because there are so many potential clients there. Oleksij Rak: Mm-hmm. So. Russ Merbeth: so I think we like to work with newish with brands that that are new, but that have a unique concept, a unique twist on an existing concept. and we bring in, I don't know what the average is at the moment, but let's say one new brand two or three times a month. And maybe one old brand or two brands a month. Exit the inventory because they've matured to a point where there's really very little opportunity to sell more units. and they you know don't need to work with consultants to sell you know the remaining five that are available necessarily. you know, because what we're trying to do is we're qualifying a candidate for a franchise or Oleksij Rak: Mm-hmm. And they need to work with themselves and bring in the right and right resources. And that's we're doing here. It's what we're following. Russ Merbeth: Anyway, so early early in this the life cycle of the brand, we work with a lot of those folks. As they've been around for a while, well, obviously, if they've been around for a while, they have a much greater track record. And that gives us an opportunity to say, well, this is how well they do. But again, we're not salespeople, we're franchise consultants. And It's really up to the brand to make the representations about earnings and and all the rest of that. And they're, you know, they're regulated. So they have to do it in their franchise disclosure document. But we will look at those too to understand how well somebody might be doing. Oleksij Rak: Yeah. What are you looking for in this FDDs, franchise disclosure documents? They're quite big documents for what I learned. It's like from two to 500 pages easily. And majority of it is legal text. So you build being a legal person. So it's easy for you to read, but for others, what should you look for in there? What's important in there? Probably everything is important, but what's the most important that you need to watch? What are the RAC flags that you would say there could be? Like the document has not been updated for a couple of years or anything. Russ Merbeth: Sure. Yeah, so the documents have to be updated yearly. and what I would, you know, if somebody is not working with a franchise consultant and they want to try to figure this out on their own, there are two particular items in the FDD. It's item seven and item nineteen. Oleksij Rak: Yeah. I understand the, the, it's, the 719. Russ Merbeth: And those are the items that tell you the first one tells you what your initial investment Oleksij Rak: And the next thing I want to tell you is the first one to tell you what your name is. Russ Merbeth: parameters are at the low end and at the high end, because there are a lot of variables from market to market. item 19 tells you what kind of earnings units that are open are able to do. They make their their representations there. So those are two critical things. Well, I tend to look outside of the financial disclosure document. When I'm working with a candidate, I want them to, and they will through the process, through the sales process, with somebody who actually represents the brand and is paid to sell those units. What kind of a relationship do you have with the salesperson? How how good a job are they doing of working you through the process? Because there are steps in every one of these processes where you're learning about this aspect of the business this week and about that aspect of the business next week. are they are they giving you enough information to help you feel comfortable with the brand? but also then you typically will have a call with management, with say the CEO of the brand. That's very important because that's who you're going to go into business with. The salespeople. Oleksij Rak: Mm-hmm Russ Merbeth: Once if you've decided to buy the franchise, you may stay in touch with them, but they're not going to be the people you deal with day to day. The people you deal with is management. It's the CEO. It's the support team. So you want to really understand what kind of support does the franchiseor provide? What kind of royalties do they charge? Are they on the low end, say 4%? Oleksij Rak: you Russ Merbeth: Or on the high the higher end, 8, 10, or 12%. Some brands charge much higher royalties because they're really giving you a sort of a business in a box. They're giving you something where there isn't a lot of investment on your part up front, or your investment is much lower. Other brands, it's more in the six, five, six, seven percent range. Oleksij Rak: Yeah. Russ Merbeth: what are you getting for those royalties? What is your what is the continuing engagement with the franchise or like? With Alloy, for instance, the corporate team designs the workouts. So the trainers that I hire don't have to every day with every client figure out a new workout. There's a workout of the Oleksij Rak: Yeah. Russ Merbeth: day that's designed by corporate. The whole system was designed by corporate. And We're there to implement that that system with new new clients. so I I I look very much at the support that the franchise or provides you. What are the royalties? what kind of training do you get up front? Are you getting you know a week or two weeks at the headquarters location? is it all online? And it you know, it depends. Some franchises, you can learn everything you need to know to operate it. By doing online training. Others you really need to see and feel and experience the training in person. so what is that like? Where is that held? things like that. you know, really it it comes down to the relationship and the support that the franchise or is going to provide you for me most. And do you really do you like them? Oleksij Rak: Do you also try to chat with other franchisees of that franchise? From what I understand, they also should be listed in the FDD document and by doing KDD allegiance you probably could chat with other business owners, especially with the past ones who quit for some reason and ask them why they did that. Russ Merbeth: Yeah, no, you're exactly right. And and that's that's a very important part of the process of getting into a franchise. And the salespeople will set you up for what are called validation calls. You're going to talk to you you may do it alone, one-on-one, rather, or you may do it as a group of three or five candidates who are talking with one owner. I do those calls quarterly for Alloy. Oleksij Rak: . Yeah. Russ Merbeth: where I'm an owner representative and I'm not paid by Alloy to talk with these franchise candidates, potential franchisees. and they can ask me anything. And I am very honest and forthright with them about, you know, every aspect of the business from my perspective. But also then, you know, what is what is my relationship like after how many years of being a franchisee? how well do I get along with corporate? Do I Feel that they're supportive enough, things like that. So, yes, that's an incredibly important part of the process. but initially, for somebody who's just looking at the franchise disclosure document, you know, those two items are critical. But then through the process, you know, you want to ask every question and learn every aspect of the business that you can from the salespeople, but then you want to do that also with owners who are actually in business. Oleksij Rak: Yeah, how about some buyer by vendor? Look ins and stuff like that What else should be looked at in the FDD? Because quite often you are forced to use specific wonders and that's it. Russ Merbeth: Yeah. Yeah, you do want to look at whether or not and these are really good questions. you do want to look at it's obvious, it's good. you do want to look at very closely each of the sections and how it describes what freedom you have as a franchisee and what freedom you don't have. What can the franchise or require you to do? Are there Oleksij Rak: I can't work. . Russ Merbeth: as you said, specific vendors that you have to use. Well, you know, think about it from the franchisor perspective for just a second. The franchisor wants you to implement a system the way they would. And they like with Alloy, sorry to keep using that that example, but obviously it's it's relevant because that's the business that I am in. the yeah Oleksij Rak: That's your story. Russ Merbeth: The equipment package. They don't want me just going to Walmart and buying any old equipment or worse, going on Facebook Marketplace and buying some used equipment and putting that in. So they have a very specific vendor and package of equipment that you have to put in. It depending on, you know, there are some brands that really do require specialized vehicles. Well, have is that something I'm buying from the franchise or is that something I'm leasing from the franchise or? Or is that something that I have to, you know, go find, get General Motors to sell me a specific kind of vehicle that's that's suitable to this task? Oleksij Rak: Mm-hmm. Russ Merbeth: Are they, does the franchise or in that case do they do the branding on the on the vehicle themselves? Or am I paying for that? There's lots of little questions about investment scattered throughout. But you know, the the Oleksij Rak: Yeah. Russ Merbeth: equipment vendor package is is a is an important point. And what kind of latitude do you have, say, for software support, for accounting, for things like that? Can you go off-road, do it yourself? Oleksij Rak: Mm-hmm. Russ Merbeth: hire your own bookkeeper, or are you required to use a particular system? And how much does that system cost? Because you do have it's all disclosed in the franchise disclosure document. And it does give you a range, high, high investment range, low investment range. where do you fall in between there? it's it's worth really sort of looking at your local market and trying to find it in the validation process. All right, which one of these owners are in in a mark in a market that's sort of equivalent to mine in terms of the density and the availability of real estate, the price of real estate, things like that. Oleksij Rak: Yeah, it absolutely makes sense from the standpoint of franchisees or because there are names that's written on your territory that you opened. After all, this example of the gym, if you go and buy cheap equipment, there are names that's written there. So it's quite understandable. But quite likely, this kind of wander lock-in is different from segment to segment. in terms of home services and in terms of gym and in terms of restaurant or whatever. It's quite likely different. The approaches are different. So somewhere there is lock-in, somewhere there is no, so probably like that. Russ Merbeth: Yeah. No, I I agree. It it and the as you said, the industry segment that you're working in can make a lot of difference. You know, there are some things where you know, say it's a home cleaning service. Well, the franchisee is incentivized to use the cheapest materials available for cleaning a home. The franchise or wants the brand to be to represent itself as a premium brand. Oleksij Rak: Yeah. Russ Merbeth: That uses only you know certain kinds of of cleaning materials. and something like that, you know, what kind of latitude do you have? But also if you're not going to to use, and this is I think every franchise or is fear, if you're not going to use what they recommend and it has a negative impact on a client experience, and that client then starts talking about it, the brand could Could be tarnished because of one franchisee's use of substandard equipment or materials. Oleksij Rak: Yeah. Yeah, I see that. Russ Merbeth: So and something I didn't mention, it is it is a two-way street between franchisees and franchisors, or between prospective franchisees and franchisors. The process is very much mutual elimination. Franchisors only want to work with people that they want to be in businesses with as well, and people who they believe will maintain the standards of the brand. Oleksij Rak: Yeah, I assume. To wrap up around FDD, can I just take the FDD documents that I got from the franchise or put it into chat GPT and tell me everything about what I should be looking for? Why is there a room in business for consultants basically in this current age of AI? What do consultants provide us? extra service that chargegpt cannot do. Sorry for direct questions. Russ Merbeth: Yeah. No, no, no. I I think it's a wonderful question, actually, because I I believe in the service that we provide, even though it's it's free to the candidate. On the other end of the process, if if a candidate does buy a franchise, the franchisor pays us a fee. so what is the franchise or paying for? They're paying for us bringing quality candidates to them who have already been screened and know what to expect in the process when Oleksij Rak: So they've already been in the stream and now they're to be spent in the process Russ Merbeth: They meet with a franchisor. And what do we bring to the process for a prospective franchisee? Well, it's knowledge of the industry, knowledge of the kind of relationships you have, knowledge Oleksij Rak: of making changes. What are the great things the process of making changes? Well, it's a lot to be in the Russ Merbeth: of the different types of services, categories of services, industries. What's hot? What was hot five years ago? I'm not trying to sell what's hot, but people ask, what's you know, what's the hot new franchise? Well, I can tell you what I what I think, but honestly, what I'm trying to to do is it's essentially sort of an executive recruiting or a matchmaking service that I provide. I'm trying to match a candidate. First I'm gonna understand who they are, what kind of resources they have, what kind of tolerances they have for risk, things like that. That I don't think chat GPT can Oleksij Rak: Okay. Russ Merbeth: Necessarily determined based on you know a few cryptic inputs. But even somebody who who can put a lot into it is still, you know, Chat GPT is going to give you an answer back based on what you've given it. What I can provide is it the experience of understanding the industry. I'm and I work with, as I said, you know, we work with more than 250 brands. Oleksij Rak: . is the experience of understanding the industry and the internet. As I said, we work with 250 brands. Russ Merbeth: I think it could take a long time, maybe it wouldn't, I don't know, for somebody to actually screen 250 brands using Chat GPT. Whereas I'm looking at those Oleksij Rak: I think it would take long time to to the point where we're forced to actually spread 250 brands. But we're not taking the same. We're just trying Russ Merbeth: brands all day, every day, and trying to match people with them. And over time, and it not that much time, you develop an instinct and an understanding of what are the attributes of this business that might appeal to this kind of person versus that business that might appeal to a different person. So it's matched. Oleksij Rak: If a person comes to you and says, I want to open a gym in this location, like. Let's use Jim. Let's continue using Jim, for example. And out of these 250, you have about 20 Jim networks. Which one do you suggest, do you recommend? Do you provide some kind of like side-by-side comparison or whatever? Russ Merbeth: Yeah, well I'm this it's another great question. when I'm presenting brands to a candidate after getting to know them, doing a consultation, having them fill out a lengthy questionnaire, I don't bring them 10 different fitness brands. I bring them three. And they're gonna have different characteristics. Obviously, they're all gyms, but they're going to have different characteristics in terms of the investment amount. Oleksij Rak: Yeah. Russ Merbeth: In terms of what an owner's experience will be in this brand? Is it something where, you know, for instance, something as as simple but as critical as, is the owner going to be the operator of the facility or is the owner more an investor? What is their involvement with the brand going to be like? And which of these brands is better for one of those than for the other? You know, any owner of a franchise can also be the operator, but not every owner of a franchise should be the operator. It's it may be a lot better, for instance, me, lawyer, lobbyist, now a gym owner. What am I going to do trying to train? You know, I have no role, no, no utility as a trainer, but I have hired people throughout my entire business career and I have a sense of what to look for, but there's also, again, this is something that the franchise should provide. Many of them, most of them, certainly I think all the brands we work with do provide you resources, at least in terms of guidance, for what kind of people to look for to staff your location or your service. And, you know, I have to hire skilled, certified, qualified, experienced trainers. for my gym locations. And I I went through an extensive process with each of my full-time hires. Ultimately, you know, they they've been in place a long time. They do hiring of part-time trainers, things like that. And I don't really get involved in that other than to, you know, sort of backstop them to give them my opinion based on their feedback about a, you know, particular trainer. So I hope that Answered your question. Oleksij Rak: Yeah, yeah, kind of. Russ Merbeth: Kind of. Oleksij Rak: There is also always different angles. But yeah, thank you. It's a great answer. With regards to being a consultant or broker, how long does it take the lifetime of a client? How long does it take from moment they come until the moment they buy a franchise, they become a franchisee? And what's maybe the most labor-intensive part of this? of your business area. Russ Merbeth: Sure. So the time frame. I talk to potential candidates every day. I don't engage them in the full process with me unless they're at a position where they say, you know what, I want to be in business in three months or in six months. I'm ready to go through the decision making process right now. Those are the people that I work with because they're ready to do something. I'm not going to waste their time, my time, or a franchise ours. Oleksij Rak: Yeah. Russ Merbeth: time with somebody who's just sort of kicking the tires on the idea of owning a business. I want people who are ready to do something or at least ready to seriously consider this. If they're in that position, and I I tell people all the time, you know how to find me. If you're not ready today, but you're going to be ready in four months, call me. If you're going to be ready, you know, you think in a year. Like, well, I don't really want to do anything until I Oleksij Rak: Mm-hmm. Russ Merbeth: retire or until I leave this job and I'm not going to leave it for another year and a half. Call me then. But for somebody who's ready to go through the process, it can take four weeks at the shortest, but typically eight to ten weeks, simply because you're going through a very deliberate process with first with me. And will, you know, the initial process with me takes say 10 days. Oleksij Rak: Mm-hmm. Russ Merbeth: Because we're going to have several calls, we're going to have a two-hour consultation, you're going to fill out a questionnaire. I'm going to go through all of the brands and I'm going to do a write-up on the the three that I'm going to recommend for your initial engagement. So that's pretty intensive for the first 10 days. But after that, the candidate then is going through a weekly call with the sales team for the franchise. And at a certain point, they will begin also doing validation calls with current owners. Oleksij Rak: Mm-hmm. Russ Merbeth: and at the end of that process, there's sort of a decision point. And decision day or confirmation day is the day that you meet with the prospective franchisee meets with the team at the franchise or and decides. You know, is this the day? Am I gonna do this? Are we gonna sign? but you're also then, you know, really getting to do your final check on. are these people that I want to be in business with. So like I said, it can take eight to ten weeks at the outside to go through this process. Short end four to six weeks probably. Oleksij Rak: Yeah, so the monsters since we're here. Sorry. Russ Merbeth: And then there's No, that's all right. then there's also the last part of it is okay, you've decided to to buy into a franchise, you've you've signed. well, what kind of franchise is it? Is it if it's a mobile services business or you know, a business where you don't need brick and mortar, you can be up and running in a cup, you know, a month or six weeks. But if it's construction involved, if it's a physical location, well then you have to do the real estate search and you have to negotiate a lease and then you have to get your permits and build. So it can be six months or eighteen months even. You know, much different if you're doing brick and mortar. Oleksij Rak: Is somebody guiding franchisee at that point? From what I understand they already signed the agreement, they paid the initial fee and then they are into construction. Is there any kind of guidance during that period for franchisee? Or is it provided by franchisee or...? Russ Merbeth: Yes. It's provided either by the franchise or or by a franchise service organization, an FSO. there are lots of those. Well, let's say there's a handful anyway, that work with brands that are going into franchising and need, you know, more hands, more experienced people to really get this thing up and running as a franchise operation. and typically real estate search, there are services provided for that, connections. There are there's a lot of guidance from the franchise or about location search. and they're using you know sophisticated software to try and understand the dynamics of the population in that marketplace. Are they, you know, for alloy, our Oleksij Rak: you Russ Merbeth: target demographic is people between say the the ages of 45 and 70. How many of those people are there in that geographic area within a say a 15 minute drive of the location that you're looking at? So all of those, there's there's a lot of a lot of support, a lot of data, a lot of analysis that goes into that, site selection. Oleksij Rak: Yeah. That was also one of my questions. How did you decide where the locations that you owned, where they will be? And it really depends on the proximity for people to come over or in certain cases, do they live nearby? So can they come like by feet there? So how did you choose? How did you decide and who helped you? on that way. Russ Merbeth: Yeah. So I I worked with a team that was that provides services to the franchisor and you pay them a separate fee and they work through the process with you on trying to find available locations. You know, the the first screen on that is where do I live? Where do I want to work? If if I don't want to work more than, you know, 30 minutes from where I live, well, that's sort of your Oleksij Rak: Yeah. Russ Merbeth: big radius. you know, but maybe maybe you want, maybe you're fine being fully remote from a physical location. There are people, even in our system, who live in, say, Raleigh, North Carolina, but have studios, alloy personal training studios, somewhere in Utah. It's a different proposition. It takes a different kind of Oleksij Rak: okay. It starts from you. That's obvious. Russ Merbeth: of skill set to be able to do that successfully. But most people want to be within a certain proximity of where they live. So that's your your initial screen. And then there are only so many locations, you know, say retail, strip centers, strip malls, or standalone buildings. And then it's is there enough square footage at any of those? Is there space release? Is it the right square footage? And then you you will look back, of course, you're always going forward and backward in this process. All right, let's go back and look at the analytics within a certain radius of that location. Do we have enough potential clients who meet our you know general demographics? So you're you're constantly, you know, you're overlaying one thing on top of another. Lot of lot of considerations. and some of it, if you're in a local market. And you've lived there a long time, you have a sense of say shopping patterns, traffic patterns. So you'll apply your own personal knowledge as an overlay onto that process. Oleksij Rak: Yeah, where do people meet? Where do they socialize? Yeah, it makes sense. Awesome. Russ Merbeth: Yeah, where am I going? Oleksij Rak: Coming back to you as a consultant, what's the most labor-intensive part of what you're doing? And if there was some kind of software that could help you in that process, what would it be? If you could automate something, what would it be? Russ Merbeth: Another great question. so there are sort of two broad labor parts to what I do. One of them is all of the soft stuff. It's meeting with the candidate, meeting with their spouse, getting to know them, going through the whole questionnaire process and the consultation. That's that's one set of effort or one type of effort. The other type of effort, of course, is Oleksij Rak: Yeah. Yeah. Russ Merbeth: Going through all the brands. Because it's not just what is suitable, but say I narrow it down, I'm like, okay, I think these 10 brands could be, any one of them might be a good match. Well, is there territory available? Where these people want to be? If there's not, well, you cross them off right away. If there is, then you, you know, so you narrow it down from 10 to 5. And then you, if all five of those have territory available, all right. I'm going to go through very carefully each aspect of their business and match it against what I have learned from the candidate. So that's an enormously labor-intensive activity. It takes, it can take days, and then I do a write-up of each of the brands and how that brand and its characteristics match with the candidate's characteristics. Oleksij Rak: So. Can't imagine. Yeah. Russ Merbeth: So I have, of course, been wondering for quite some time now: is there a way to use AI or automate any part of this? Is there potentially a software platform where I can feed in data? And it has not just the data I'm feeding in about the candidate, but then also about these franchises that might be able to pinpoint the suitability a little better, but honestly. At the end of the day, I'm presenting brands to somebody that may be absolutely perfect for them in terms of what they want and what the brand does, and they don't like the name of it. And then, you know, I they can't see putting that name on a business card and handing it to, you know, their best friend. Yeah. Oleksij Rak: And that is life. That's how it works. Russ Merbeth: And I don't know that AI or software can really change any of that. Oleksij Rak: No, it can, but it can save you this couple of days that you spent comparing the different brands and especially matching them against the potential franchisee. So, yeah. Russ Merbeth: Yep. Yep. I I love what I do. It's it's so much fun working with people and trying to understand them. And you know, everybody's different, but over time you see similarities and patterns and things. It's it's very it's it's good work. I like doing it. Oleksij Rak: Yeah. And how do you know if a certain franchise has territory available at that location? Is it in the document or is it somewhere in your internal databases of franchise? Russ Merbeth: Yeah, we we are constantly talking to all of the brands in our inventory and we're updating our we have a data sheet. and we're constantly updating that, but but at the same time, they're constantly in conversations with people. So you have to do a real-time check with somebody at there's someone at every brand who is responsible for maintaining an up-to-the-minute, up-to-date list of locations that have been sold. Oleksij Rak: Yeah. Russ Merbeth: And list and locations that are available. And then there's one final overlay I'll mention, and that is every year franchisors in certain states have to re-register. And while they're re-registering, they have to submit a draft FDD to the state regulators. And during the period that's under review, they can't sell. So there may be territory available for a candidate. And yet the franchise or they're limited right now and they don't know for how long before they can sell again. And that's the one that's probably the most frustrating. You've got somebody who's a great match, you got a good, good brand, and you can't bring them together yet. Oleksij Rak: Okay. But actually, you're doing a great job with this matchmaking because it feels human, you so you try to understand what they want. As you mentioned, meet the franchisees, meet the spores, and so on and so forth. So it's really, there's really human touch because I've checked online all this available like Gator and all other platforms. And being a potential franchisee, you feel yourself a product of a funnel. are not a client, you are product. And you feel being used. And while this is a market of a franchisee, not a franchisee, it's still a market of franchisees. everybody is actively, franchisees are actively seeking to find franchisees. And having a market of franchisee and having a franchisee being a product is weird. Russ Merbeth: It's true. Oleksij Rak: And what you do, you have turned it the other way around. So you do provide a human service to them. that's something that, Yeah, please. Russ Merbeth: You're you're very insightful. You're very insightful about this. you know, obviously there are ways in which technology and AI could assist on the one hand. And on the other hand, you recognize it's it is a matchmaking process. There is the human element. You know, somebody could be a very good operator and just not love the brand that they're with. And they're not incentive, it it disincentivizes. Oleksij Rak: Yeah. Russ Merbeth: Their active participation. Other people can be terrible operators, but with a good brand that has good support and they might be very successful. But at the end of the day, do they really like what they're doing if they're if they're not that great at doing it? So I'm I'm we're always looking for those sorts of intangibles as well. And I think that's where you know the real service comes in. It's it's in all the intangibles. Oleksij Rak: Yeah, yeah. Awesome. Thanks, Ross, for a great discussion. I'm kind of out of questions. Before we wrap it up, is there anything you would like to add on top of what we discussed? Russ Merbeth: Ha ha ha Yeah, that thank you. you know, the world of franchising is vast. There are thousands upon thousands of different opportunities. It doesn't cost a candidate anything to work with somebody like me. You know, there's an upfront fee that they will pay to the franchise or that amount is fixed. They'll pay it whether they work with me or they find it on their own on the internet and somehow make a connection. But I think their odds of making the right connection are increased by working with somebody who can help them with all the intangibles, but then also guide them through the tangible parts of the process. So that that sounds like a self-serving pitch, but in all honesty, I don't know that I'd be where I am if I hadn't worked with a consultant because I would have had no idea where to start. And this was sort of Oleksij Rak: Mm. Russ Merbeth: I was doing it pre-AI days and maybe somebody can can do this all on their own using AI, but they're still going to the the piece that they'll lack in in that sort of exchange is the intangible guidance and feel that somebody like me can provide. Oleksij Rak: Yeah, yeah, that's for sure. From what I learned, that's for sure. Awesome. Thanks a lot for great discussion. Russ Merbeth: Okay. it was my pleasure. Thanks so much for having me on, Alexei. Oleksij Rak: Yeah, and thanks for joining.