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Franchising is a strategy that can be utilized by business owners and High Net Worth investors to create and grow wealth. But is franchising a good investment during an uncertain economy?
Kim Daly, a top franchise consultant, joins the show to discuss what franchising is, how to get started, and why some High Net Worth investors choose franchising to help grow their wealth.
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- What franchising is (hint: it’s not just fast food), and why many investors and business owners have inaccurate preconceived notions of franchising.
- Why franchising can be a relatively safe investment, even in an uncertain economy.
- The habits of successful franchisors and franchisees.
- The power of proven processes and networking within a franchise.
- How to get started in franchising (and how much it costs).
Today’s Guest: Kim Daly
About The Alternative Investment Podcast
The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.
Jimmy: Welcome to the show. I’m Jimmy Atkinson and on today’s episode, “Creating Wealth Through Franchising”…and we’ll also talk about is franchising a good investment in an uncertain economy. I’m very excited to be joined today by Kim Daly, one of America’s top franchise consultants. She’s also a business coach, podcaster, author and speaker. Kim, thanks for being here today. Welcome to the show.
Kim: Thank you, Jimmy. I’m excited to be here.
Jimmy: Excited to have you here, Kim. And Kim, you know, I’m sure everyone in our audience of high-net-worth investors has some level of familiarity or preconceived notions about franchising already. I have my own preconceived notions but I wanna hear your take on franchising. What is it exactly?
Kim: Cool that you recognize that it’s probably a preconceived notion. So, this is the only reason that Kim Daly even has a job or a business. So franchising is nothing more than buying down the learning curve of starting a business because you’re partnering yourself with people who’ve already figured it out. So, you’re buying that readymade toolbox, their…that includes their marketing plan, training for you and your staff, technology. So, you don’t have to come in as an expert. You don’t ever have to have owned a business before even to be a successful franchisee. So, you’re really just…you’re partnering yourself with people who figured it out. So, when you’re exploring a franchise…this is where I bring my…the attention of all of my candidates to. I want you to look up from the widget what the business does because everybody thinks that that is what is most important but at the end of the day, that’s a very minimal importance to who you’re partnered with.
You wanna find people that have a track record of success that gives you confidence that when they project forward to that vision of where they wanna bring this brand, you get bought into that because you look at what they’ve done in the past to say, “Well, if past performance is some indication of future capability, I feel good about that.” You wanna look at their financial capability because it costs a lot of money to build a franchise brand and it doesn’t come from royalties in the beginning, right. So, the franchisor needs to have proper capitalization as does every good business. And you wanna buy into that vision and their culture. So, my whole coaching practice, when I help people find…select the right franchise for their dreams, it starts with their goals and dreams and then matching them to the right opportunity. But then it’s getting them focused on these characteristics, the people. You are buying a partnership. That’s what you really are getting in a franchise.
Jimmy: Yeah. That’s really interesting. The product that’s created or manufactured or whatever by the franchise is almost secondary to who you’re partnering with and the process within the business. Do I have that right?
Kim: Yeah, always, Jimmy. Because think about it. If we go back to 2020, right, widgets did not reopen doors, right. Leadership is what adapted products and opportunity and reopened doors, helped, you know, to mitigate the fear and help franchisees feel confident that they could get open again. In the title, you said, you know, franchising in an uncertain economy. So, widgets don’t adapt on their own, right. It’s the leadership of the franchise that is helping to grow and adapt the opportunity for you, the franchisee in a recession, in a struggling economy or if competition comes in and changes the way everybody has to behave, right. Because that is business ownership, right. We can’t be afraid of the competition. We have to be partnered with people who we feel have what it takes to overcome whatever the competition is doing or hopefully is not doing which makes us the competition, right.
Jimmy: Yeah. Absolutely.
Kim: So, it’s always about the people.
Jimmy: Absolutely it is. That’s so important, is it’s always about the people. It’s always about who you know, networking and who the people are behind the business. And that applies not just to franchising but to all aspects of business and investing in my view. I wanted to zoom out a little bit, Kim. Can you tell us just at a very basic level what is franchising, how does it work? And you’ve used a couple of different terms now already, franchisor, franchisee. Which one is which? Who does what? Can you walk us through just a very basic high-level overview of how franchising process works?
Kim: Okay. So, somebody starts a business as an entrepreneur, right. And they’re able to replicate their business across multiple locations and hopefully across multiple, like, states, you know, to show market variability if you will. And they’re successful. So, then they say, “Okay. I wanna franchise this.” So, they go to an attorney and they turn their business into a franchise. Now a really good franchise, one that Kim Daly would bring to you or would be proud to represent will have leadership on the executive team that has been a part of developing other franchise systems. So, once you turn…once you’re an entrepreneur and you turn your business into a franchise, you’re no longer in just the business you’re in. You’re also in the franchise industry. And this is a whole new business with its own set of challenges, right. So, you cannot just be like a mom and pop and think, “Okay. I’m gonna go sell franchises.” Well, you can and plenty of people do but those are the statistics, right, and not the good ones we wanna be a part of.
If you wanna find a really good, solid franchisor, you need a franchisor partner that has done this before or a leadership team that has successfully brought another brand to market that can bring that experience to this pioneering brand. So now you’re a franchisor. And then you…if you’re good, you come to consultants like Kim Daly, a franchise consultant and you leverage our network and our ability to coach people to this idea of owning a franchise and I’m paid to bring, you know, franchisee or candidate and franchisor together and hopefully we’ll create a franchisee out of that process. So, the franchisee would be you, the investor. The franchisor or meaning corporate, franchisor is the corporate entity.
Jimmy: Got it. Now I’m gonna admit to some of my preconceived notions of franchising here right now. When you first came to me with this idea, you’re a franchise consultant. I was thinking you help people get started owning their own McDonald’s or subway or KFC. I had food in my mind as a franchise. I think of the local McDonald’s franchise down the street from my home. But are you working with food a lot or are there nonfood examples you can give us?
Kim: Yes. I love that, Jimmy. So, I’d say 80% or more of the people that come to me…and I think even more people who don’t come to me, they don’t come because they absolutely know they don’t want food and that’s what everybody thinks franchising is. So as one of America’s top franchise consultants, I will tell you that you will have to beg me to show you food. And I have it. Trust me. There’s tons of food in franchising but you will not pick it even if it’s in your model because once I teach you how to really think like an investor, right…there are faster, easier, better ways to make money than food. Food has the highest failure rate of all SPA lending. There’s that, right. It has way too many moving parts. It’s just a lot of staff. You know, very slim margins. It’s perishable product. Seven day a week business. It’s basically 24/7. And like I said, there are just easier, faster, better ways where you can make infinitely more money.
So, I particularly love…like, people say, “Well, what’s the best franchise to get into, Kim?” Well, I don’t really have, like, the best franchise but I have the best characteristics. So, I love low investments. Check that box. Low fixed cost meaning I don’t have $20,000 a month in fixed expenses and I’m waiting for people to come in so I can pay my bills, right. So low fixed cost and high margins. Who doesn’t want any of that? Everybody wants those. But people don’t know that these types of businesses exist in franchising. And the last thing is if you throw in a membership or a reoccurring event to, like, a service, I mean, that is my sweet spot all day long.
So, let’s focus on the home space for a minute, Jim, because there’s a lot of options for services for homeowners that many people wouldn’t even know are franchises. So, let’s go back to 2020 and let’s think about…I say the two biggest explosions in 2020 were in the pool industry and the puppy industry. Pools and puppies, right. So just in those two industries alone, all right. So, let’s say I got a pool. Now I need a fence. That’s a franchise. Maybe now I need outdoor lighting. That’s a franchise. Maybe I now wanna fertilize my grass because I’m looking at it. It’s a franchise. Maybe I need a patio. That’s a franchise. Maybe I need a pool cleaning service now, right. Love that franchise because it’s reoccurring, right. Now on the puppy side, right. Puppies need to be groomed. They need dog food. They need treats. They need training, right, so they’re not barking at the door like mine is every day.
So, all of those things I just mentioned are all franchises. So as consumers, we drive by the Jimmy John’s and the Subways of the world and I don’t wanna, you know, take anything away from my franchisor friends but there’s just easier, better ways to make money and more money when you have a non-brick and mortar business. Whenever you have the four walls, it does afford you some leverage which in this format I won’t get into but what it also does is it caps your income. So, when we look at creating wealth, the title of this episode, right, wealth is always gonna be created through scale. Now in a franchise or a business, the scale can be built through teams of people, through equipment or trucks or through brick-and-mortar location. So, and that’s gonna be the order if we go from low to high in terms of money. It’s gonna cost the most to scale the business using location, location, location, right.
But if you look at what the unit volume of one, you know, brick and mortar business can do…let’s just say it’s a million dollars and let’s say it nets you 15%, right. As a parttime owner with a manager in place after all expenses are paid, you’re making 150 grand but you’re like, “But I wanna make half a million.” Well, you need the opportunity to scale to three of those and whatever it costs times three in your market. Now let’s compare that to something that’s, again, more home based or service based where you’re buying a territory. And let’s say the franchisor says to you, “Hey, Jimmy. Our market is defined as a population of 200,000 people.” And let’s say that you go out and you talk to the number one franchisee in the system and let’s say he’s knocking it out of the park. Let’s say his business does $5 million a year and let’s give him a 20% margin so he’s netting a million bucks on that, right.
Two hundred thousand people, maybe he actually owns two or three territories. So, he paid 2 or 3 franchise fees in the beginning to have the ability to expand into 600,000 people. But then you go and you ask him, “You know, how many customers are you regularly serving out of the 600,000?” And I’m just making up these numbers but let’s say that he says…let’s say he says, “I have 1,000 customers.” And he’s, like, the number one guy in the system. So, you have 600,000 people across 3 territories that only cost you a franchise fee times 3, right, versus if it…a storefront costs you half a million dollars. Now you’ve got, you know, half a million times three. Over here, for franchise fees, 50,000. The second one might be 40,000 and the third one might be 35,000. So, it’s way easier to scale into that population and the beautiful thing when you’re scaling into the population is you’re not starting with all that overhead, right.
If you’re growing by, like, truck. Like, so let’s say that you had a 1-800-GOTJUNK business, right. So, you’re gonna look at revenue per truck. So, you may again…you may take three territories. Let’s say the franchisor says, “Each territory maxes out at four trucks.” Let’s just say. And each truck can do 250 a year in revenue so you have a million dollar…yeah, a million-dollar territory, right, with four trucks. So, you buy the potential to build a $3 million business but you literally start working one territory with one truck. And then over time you’re gonna scale to the 12 trucks but you’re not putting, you know, half a million dollars into a location and 25,000…
Jimmy: It’s a lot easier. Yeah, it’s a lot easier to scale with more vehicles than it is to scale with more real-estate, at least at first. Is that right? Is that the main gist?
Kim: Yeah. And there’s more…less sleepless nights. I mean, if you have $25,000 a month in rent and labor and utilities in a brick and mortar, you know, and no predictable way to count on that revenue, it’s a lot of stress. And you might be that business.
Jimmy: You know what I’m thinking of right now? We had an enormous hailstorm here in Fort Worth a couple of weeks ago. We had…I kid you not, Kim, we had hail the size of baseballs hitting my roof and now everybody in my neighborhood’s getting new roof here in the next few weeks or months.
Kim: A franchise.
Jimmy: What about roofing? Can roofing be a franchise?
Kim: It’s a franchise. An incredibly profitable franchise. And they’re not just storm chasers. I mean, they do love going after that insurance work but a lot of my roofing franchises will, you know, canvas neighborhoods and they’re not climbing roofs. They’re throwing the drone up on the roof to take a picture, show the homeowner and like, “Hey, if we find some damage from a past storm that you didn’t even know was there, you know, we’ll work with your insurance company to get this done for you.” So yeah. That’s a very, very lucrative franchise. But you’ve gotta be pretty sales oriented in that industry.
Jimmy: Yeah, absolutely. I can’t tell you how many times our doorbell rang within 48 hours of that storm. A lot of different people coming by offering free roof inspections. We had to put a sign up on our door to turn them away. But anyways, enough about hail and roofs. Wanted to talk more generally now. In your mind, Kim…we’ve got this basic understanding of franchising now. How should high net worth investors consider franchising in their minds? What should their mindset be in terms of franchising, what it is and how it can create wealth for them?
Kim: Nice question. So, if you were to come to me, what I would wanna know first is what are your goals, personal, professional and financial goals. I’m infinitely more interested in what you want out of the business than what the business does, right. So, once I’m clear on what you’re using the business for…like, people will say to me, “Kim.” Let’s say they have a corporate job. I worry about the stability of my job. If a recession happens, I’m gonna get laid off. Like, I’ve got kids going to college. You know, it’s gonna interrupt my retirement planning. I need another income stream that I own and can control. That is a story I work with all day long. Or let’s say that you’re super real-estate heavy but right now the interest rates are high, the market is high, it’s too expensive to buy another property but you have some money. You’re looking for some diversification. A good semi absentee franchise investment fits into that as well, right.
So, these are some of the scenarios but I’m more interested again in the owner that you wanna be, the role that you wanna play, the time commitment, what the goal of the business would be for you. Build and sell in five, seven, eight years or maybe build and pass on as a legacy to your kids? Because those could be two different investment strategies, right. You’re not gonna invest in, like, fitness if you’re gonna be passing it on to your kid. Hopefully, if you’re smart enough, you’re gonna realize, right, like, the trends are gonna change. So, we don’t wanna be in this for too long. But if you are building something that you wanna build and get a child involved in and maybe leave, you can think things that are long-term sustainable like laundry, right. Like, it’s not gonna change too much, right.
So those different strategies make me, the consultant, think of different industries and even different franchisors. So, we start with the end in mind and then we work back. And then I’m the one that kinda brings the widgets or the actual brands that match those goals. So, the first thing you should do if you’re a high-net-worth individual thinking about a franchise is why. Why do you want a business? Why do you want a franchise business, right? And then what do you want out of this? Once you’re clear on that, I’m telling you finding the right franchise, the elusive right franchise, it’s so easy, right. When people come to me like, “Oh, I looked at franchises. I couldn’t find the right one.” Well, they weren’t right, right. When you are clear on what you’re using the business for, the business is just the vehicle creating an outcome in your life. Selecting the right one becomes so easy, especially when you know what I know and you have the relationships that I have which I’m gonna give to you.
Jimmy: Yeah. We’ve talked about some of the characteristics I think of what a successful franchise business looks like, some of the characteristics that you like to look for. And okay, now we’re talking about the mindset of the investor, what he or she wants to get out of the business. What are some of the key habits that you see with successful franchisors and franchisees? What are some of the habits of success?
Kim: It’s a great question because everybody worries. Whether they’re saying it or not, they’re worried about am I gonna fail, why do franchises fail. Like, everybody really wants to know the answer. That’s a very nuanced question. So, and I’m infinitely more interested in driving top performance than I am in having a conversation about how not to fail, right. So how not to fail is to know how to drive top performance. So, it’s such a great question. So, I would say across the board in franchising, if I interviewed lots of franchisors and said, “What’s the number one characteristic you’re looking for in a great franchisee match?” They’re looking for grit. They’re looking for people that have that competitive edge because ultimately, that winning spirit is what’s gonna propel you to push through the challenges that are naturally gonna come up as you become a business owner, right. No matter how proven the franchise is, if it’s your first time owning a business, you have a learning curve and if it’s your first time owning this business, you have a learning curve even if you’ve owned 10 other businesses.
So that grit, that competitive edge. The second thing I would say is being coachable. Like, being able to check your ego at the door. If you wanna be the inventor of the path, don’t become a franchisee. Don’t pay people fees and then buck the system at every turn, right. Like, that’s just a waste of your own money and frustrating for them, right. But people do it. We all laugh about it. I have so many videos on this very topic on my YouTube channel but it’s, like, you know…I present companies and you didn’t even know what I was gonna say and I come back and you’re like, “Oh, well, I never even thought about that.” And then you go away for a week, you go on one blind date that I call it. You come back and now you’re an expert. Now you’re telling me all the reasons this franchise can’t work in your area and all the competition…and I totally get it and I’m not putting you down for doing it. I would do the same thing. In fact, this is why I have a business. So, if you didn’t throw up the objections, I would be in trouble.
However, you’re not the expert. No offense. There are reasons it will work. You have to be open and coachable even from the point of trying to find the right franchise. Now let’s magnify that after you’ve given the franchisor money. Money makes us crazy. Spending money until we’re making money. There’s fear. I don’t care how rich or not rich you are, right, how much money you’ve made in the past or haven’t made in the past. Once you invest your money, your fear level goes up. So, there’s always gonna be, though, a gap between when you invest and when you’re actually gonna start making money and that gap…what you do up here and the self-talk that you have is gonna determine everything for what you actually get in your business. People think when I say that, “Oh, that’s too simple, Kim.” I’m like, “It’s everything, right.”
The 6-to-18-month mark as a business owner, that’s the crucial period. That is the make-or-break period. If you go into that…and let’s say that things don’t go wrong…don’t go right right out of the gate and your fear level goes through the roof. You lose a little bit of faith in the franchisor. You start shrinking back. You start asking for help because now you’re maybe feeling like they didn’t really have your back, right. Common, I get it. You cannot do that. You’ve gotta lean into them more. You’ve gotta continue to trust and know that they have your back. They want you to be successful. If you fail, they have to disclose that in that franchise disclosure document as a failure. So, a good franchisor partner is in this for your success. So, you’ve gotta fight your own fear and natural tendency if they’ve let you down of wanting to pull away and do it yourself and instead lean into them. And if not into the…oh, if not into the franchisor, into the other franchisees.
Jimmy: Oh, sure, yeah, no. I would imagine as a franchisee, when you make that payment, you’re not just licensing the rights to operate the business of the franchisor but you’re also…you’re buying into a process or a system that the franchisor has that has worked repeatedly over and over again. So, you need to lean into that process, into that system. And a couple of interesting things that you just said there, Kim. One, you need to rely on the franchisor to help you out but also this network of franchisees under the franchisor. Talk to me more about that. How crucial is that network? Do you see those networks getting developed? Franchisees under one franchisor helping each other out in different…maybe it’s in different markets or tell me more about that in general.
Kim: Even in the same market.
Kim: So, all franchisees…I won’t say all. There are some that don’t but the vast majority of franchisees have a protected territory. So, we’re all shareholders in the same brand. And so, when I figure out something and I can help you, that builds that brand equity because that’s another reason to invest in a franchise over a mom-and-pop business is if you invest in the next thing, that becomes, like, the next big Orangetheory or the next big Massage Envy to where when you go to position your business to sell, you have some high multiple that can be applied to that EBITDA that you’ve built for yourself. Like, that’s the whole value proposition of a franchise, right. Some of my franchisees say, “I made my greatest return upon exit.” Another reason to think about an exit, right.
So, this network of family or family of franchisees, it’s just that. It’s a family. We’re shareholders in the same brand. We are in business for ourselves but not by ourselves. We work collaboratively. We come together to solve problems. Sharing best practices is what we do. Like, I would say the simplest way…in words of 2023 but the simplest way to explain what a franchise really is, it’s a giant masterclass. Like, that’s what we’re doing. We’re coming together and sharing what’s working. So even the neighbors. Like, when you’re first looking at a franchise…let’s say that you’re coming into a crowded market. There’s franchisees already around you. I may say to you, “Hey, don’t reach out to your neighbors first.” Like, because if they’re already in the system and that market that you’re gonna buy is gray area, they’re allowed to work that, right. And if they’re getting a lot of business from that, it might’ve been on their mind that at some point they were gonna buy that territory and if they get a whiff that you’re sniffing around, they might go to the franchisor and the loyalty will always go to them, right.
So, if you really like this opportunity, don’t necessarily reach out right away. Go to other markets, get confident. Then once you’re deep enough into the process, the franchisor will give you the loyalty. And that’s when it would be okay and safe because now it’s your territory until you decide whether you want it or not. So even if the neighboring franchisee did, you know, call in, they would say, “Hey, sorry. You know, we’re gonna wait for Jimmy to make his decision. He’s gone through three quarters of our process. We believe he’s gonna, you know, gonna say yes.”
And so, then it goes from maybe being, like, a little competitive with you because they might try to talk you out of it so you don’t buy it to, “Hey, you know, welcome to our family. Come on in and let us show you what we do.” In fact, just last week I had a guy who hadn’t signed yet. He’s in Raleigh, North Carolina. And he’s buying, like, one side of Raleigh and another franchisee had already bought the other side of Raleigh and the trainers…because oftentimes once you graduate from training, a franchisor may send field support people to your actual market to help you get open. So, they’ll go on those first sales calls with you, you know. They’ll do it with you. Not every franchise but really good ones do this. So those field support trainers were out in the Raleigh market. So, they got wind that Matt was just getting ready to say yes. So, they invited him to come out. He sends me a text. Oh, my God, Jimmy. My heart, like, was, like, just, like, on fire for him. I texted him back like, “This is the best text.”
He was like…he sends me a picture of…you know, he was like, “They invited me to go out on a call.” He’s actually going into an outdoor lighting company. So, he’s like, “I even got my hands in the dirt today,” you know, like, learning how to do it before he even goes to training which just helps to…it gives you that camaraderie, that feeling of like, “”Wow, these…look at…” Not just the trainers but my neighbor, right. I’m in his market doing…putting, you know…doing…installing a job with him and that feeling of like, “We’re gonna be friends right from go.” And he hadn’t even signed his franchise agreement yet but just seeing and being a part of it lowers that fear. Like, I got this. Okay. There’s gonna be a lot to learn but this is gonna be fun for me. And he got a kind of a taste of, like, what it was gonna be like to say yes. So, this morning when I talked to him, he was like, “Oh, I’m signing that franchise agreement on Wednesday.”
Jimmy: No, that’s great. I mean, there’s a lot to that, having that network, having safety in numbers, knowing you’re not going it alone, knowing you can rely on other franchisees. That’s something I haven’t considered. Versus, you know, doing your own mom and pop thing without that support network. That’s a great benefit to working in franchising. Kim, who are your clients typically? Are they people who want to buy their first franchise or license their first franchise or do people come to you and they’ve already been in the franchising game for some time? Whom do you help typically?
Kim: Yeah. I’d say both to your question because I’ve been doing this for over 20 years. So, I have…and I am, like…
Jimmy: Yeah, maybe tell us a little bit more about your history, how you got into this also and then how many people have you helped.
Kim: Okay. So, a loaded question. Let’s just go back to the first part of that, was my…who are my ideal candidates. So, I like people that just have a little measure of pain in their life, Jimmy. That’s, you know…again, whether they’re real-estate investors who are looking for diversification, too heavy in real-estate or interest rates have them scared off at the moment so let’s diversify. Sometimes real-estate can make you real equity heavy but not cashflow consistent, especially in the early days. And so, then a nice cash flowing business, right, that can also provide some tax shelter and build equity long term can be thrown into the mix. But I also…for the first 18 years that I was a consultant, I worked almost exclusively with W-2 employees looking for more, people who just hated their job, hated corporate life, were in career transition, had already been let go or feared being let go. You know, there’s a lot of misery. I don’t say that meanly but, right, there’s a lot of people that work for somebody else and…
Hey, I mean, I’m not judging it. You use…we all just land where we land and you…what happens is you start making great money. You’re climbing the ladder. Now you’ve got kids and a mortgage and, you know, you can’t afford to leave, right. But at some point, there’s just so much maybe pain from traveling and missing your family and not having a quality of life or just…I hear this a lot. I’m doing all of this for somebody else and I don’t even get to make the decisions that impact me or the full reward for the time I’m putting in. I’m like, “Yeah, this is…let’s be self-employed, you know.”
So, it’s that pain point, a transitional moment. Sometimes people are happy in their corporate job but they know that at some point, the job’s gonna go away. And they wanna never be retired. They wanna build something meaningful that they can do past the corporate job. So, they do it initially with a corporate job as a semi absentee owner. And then the goal is for it to carry them through into retirement where they can still live off of cashflow rather than savings. So, all of those scenarios and so many more, you know. If you’re interested in owning a business, I wanna meet you basically, right. So, there’s that.
So, my story, you know…nobody really, like, wakes up and goes, “Oh, yeah. I can’t wait to get into franchising.” I mean, all of us in franchising…franchising found us from some transitional moment in our life. Now I was super young. The first job I had out of college was for a franchise company. So, I answered a classified ad in the newspaper. I was on my way to medical school. I’m a nutritional biochemist by degree. Wanted to go work with professional athletes. And I answered a classified ad for a telemarketing job that turned into the greatest, you know, thing that ever happened to me. I found this industry of people helping people, everyday people waking up to realize their own dreams and I was hooked. So, I did what everybody who thinks about owning a business does. Well, not everybody but a lot of people. And I went and became an entrepreneur. So, I locked that job at 25, started my first company. I had been unemployed or unemployable since I was 25.
Now my dad says I’ve always been unemployable because I like being the boss of me. But I have never looked back. But I did come back to franchising for all the reasons I’ve shared today. You know, being an entrepreneur is very lonely. There’s nobody to run ideas by. Franchising is collaborative. There’s so many people to run ideas by, right. And just solving problems and creating a bigger future outcome and scale, right…franchising affords all of that and in the right franchise from day one. So, I came back at 29. I came back to my franchising roots and I have been here ever since. So, you can figure out how old I am.
Yeah, so along the way, I was an average performing consultant for eight years. And then I made history in franchise consulting. I placed more people into franchising than any other consultant ever had. I’ve grown that number for the last 12 or 13 years, made history again last year in 2022. I’m just having the time of my life. I love helping people. I believe in what I’m doing. When I really look back, all the wealthy people that I meet, I’m blessed to meet. They are not employed by other people, right. They own their own businesses and they have real-estate portfolios. So, owning a business is the surest and fastest way to become a millionaire and even a multimillionaire. And if a franchise business can help you buy down that learning curve and get you the profitability that much faster and provide the leverage of the toolbox…again, the ability for the owner to work on it rather than in it, right, it just makes even more sense.
So, when I stand on my soapbox, it’s because I think there are so many preconceived notions. There’s people going getting MBAs. They think that’s what they need to own a business. I’m like, “No way. You do not need that here, right.” There’s people thinking it’s only food and retail. No way. We’re not even going there if you work with Kim Daly. Like, on my YouTube channel, I have interviewed people that have 5, 10, one guy a $21 million business and that was within 4 years. He went from 0 revenue to 21 million in 4 years. You are not doing that in brick and mortar.
Jimmy: Yeah. No, fair enough. Wow, a lot to chew on there. A lot of what you said resonated with me. I’ve never even done franchising but I grew my…well, created my wealth, grew my wealth personally through small businesses that I formed early on in my 20s and I’ve been unemployable since my 20s as well, Kim, similar to you. Really just…I’m curious now what are…well, actually, one other thing I wanted to kind of pick up on what you said there, Kim, was I feel like…is it fair to say that you’re not selling franchising opportunities as much as you’re selling dreams? Selling the dream of business ownership, selling the dream of passive income or extra income. I think those are some of the solutions or the features that you’re selling more than you’re selling actual franchising opportunities. Because I don’t know…like, you mentioned people don’t wake up one morning and say, “Hey, I wanna get in the franchising game.” They say, “I want more income,” or, “I want freedom of being my own boss.” Is that fair to say?
Kim: Always. I am 100% selling freedom. Franchising is just the vehicle to drive the outcome, personal, professional and financial, correct.
Jimmy: Good. With that, what are…and we already kind of went through some of the top reasons why investors consider owning a franchise, what are the reasons why they go into it but what are some of the options for investors or business owners who are looking at this path? And then alongside that, what are some of the risks of franchising?
Kim: So, when you say options, do you mean, like, specific brands or ways to invest? Clarify that for me.
Jimmy: Yeah, ways to invest and different types of businesses that are…I guess different ways of getting…like, what I meant was different ways of starting, different ways of getting involved from the get-go.
Kim: Yeah, so like any other…you know, like any other business, you can definitely be an owner/operator. Like, if you love the idea of coming in and taking that business on head on, do it. Like, that’s the surest path probably. But there also is the fulltime executive owner where you’ll have some kind of manager also to work alongside you. And then there’s the semi absentee owner which is about where you’re parttime but your manager is fulltime for you, right. Then in addition to that, there are things called regional development rights. So, a regional developer is like a sub franchisor. A lot of big brands like Massage Envy, I think even Orangetheory fitness came to market with regional developer rights. So, this is an opportunity for you to come in and, like, buy the whole state of…well, you wouldn’t buy the whole state of Texas. You’d probably buy…that’s a lot of people. You’d probably buy a population maybe that would encompass let’s say Dallas.
And then you would work alongside consultants like Kim Daly and the franchisor to find people to actually own and build out the individual stores. So, let’s say they say that Dallas can hold 35 stores of X or whatever. And typically, this regional developer strategy is more in a brick-and-mortar environment where there’s a real-estate component because it’s gotta be the right real-estate, right, and a construction component that needs to be overseen. So, the idea for the franchisor is we’re gonna award a regional person to own that market so they have an equity stake in helping the individual investors get…find the right location and get up and going because how well can a, you know, corporate office in LA, let’s say, manage your real-estate when you’re in Dallas. What do they know about Dallas, right? So, the regional developer kinda plays that local support role in helping get the market sold and open and successful. And for all of that they collect a portion of that royalty.
So, it can be a really nice long term annuity stream for someone that loves people. Maybe you’re in a corporate sales role like a medical device sales person. Oh, that would be my dream, right, because you have that understanding of how to help, you know, coach people and understand how to sell, if you will because you’re selling franchises. And then you’re supporting. But I always say that franchisees are like kids. Like, in the beginning, they’re super needy, right. But once they get a little taste of freedom, they’re like, “No.” You know, I have teenagers. They’re like, “Mom, you don’t know.” I’m like, “Okay, I don’t know because I was never 15 years old, right.” But that’s what happens with franchisees. You know, their ego kicks in once they get a little success. But whether they need you or not, you still get to make money. So, the regional developer right is a pretty fun role as well. So those are kinda the roles. Those are, like, the main roles that you get the ways to be involved. That was one part of your question. What was the other part?
Jimmy: You know, I don’t remember the other part of my question but let’s…I think it was…what was the other part of my question? I don’t remember anymore. I forgot too. Let’s move on to a more interesting question, though, because I know we’re running out of time also and I teased in the intro that franchising can be relatively safe, even in an uncertain economy. Now with the caveat of course that all investing involves some amount of risk, Kim, why do you feel like franchising is a relatively safe investment even in these turbulent times that we’re in economically speaking?
Kim: Yep. And I think that was actually, Jimmy, part of the question you asked me before. It had something to do with…like, so let’s answer that question. So, the whole reason to invest in a franchise is to be partnered with people so you’re not out there on an island trying to solve all of the problems of the business on your own, right. When you’re leveraged with people, that can come together collectively and put ideas together collaboratively…you have national buying power from vendors. Maybe you have access to even better vendors if you’re selling a particular product to keep your margins at the lowest, you know…your cost of goods at the lowest so your margins can be maximized, right. So, you know, you have people to lean into if the competition is changing the market. A recession can be tough on small business but not necessarily a franchise for all of these reasons because we’re working together just like the pandemic.
Like, I don’t have one franchisor that closed its doors forever because of the pandemic. I have fitness franchisors that continued to sell and open fitness locations in 2020. Not joking, right. How? That’s the deeper story for another time. I will share that with you. But it’s all leadership. Years ago, when I first got involved in franchising, my first mentor taught me that in good times and bad the franchise industry grows. What people invest in and their motivation for investing will change. But the outcome is they still invest. So, in a good economy, people want more of the American Dream. They’re putting their money, their wealth into businesses to create more wealth. In a bad economy…and they’re buying franchises. In a bad economy, there’s instability in the job market. There’s instability in the stock market. People want control. So, they may shift their thinking from the super sexy want base like fitness or like a day spa or things like that to things that are more essential like plumbing or laundry or, you know, roofing, right. Things that aren’t super sexy but maybe what makes it sexy at that moment or to that investor is how long term sustainable it is, right, how it’s not a fad, how we’re not gonna have to worry five years from now how are we gonna remain relevant, right.
So, every investor out there, there is a different investment for you. And good times or bad, there’s an opportunity to invest. Do not let the moment you’re in… that we’re in limit you from moving forward. Because here’s the other thing. If you plan to be a business owner, you cannot control the economy. So, if you get in at the hardest point…let’s say the recession. A recession makes it hard. Then okay. You learn when it’s the hardest and when it gets easier, you have all of that muscle and skill. And guess what? You’re free from ever worrying about what the economy does in the future. You’re like, “Been there, done that, started there, who cares, right.”
If you buy in when it’s good and you see things are going down, you don’t have to sit and worry all on your own. You have all these other people. If your franchisor was here in LA, they got your back. Franchisees that were here ’08, ’09, ’10 like Kim Daly will tell you we know how to get through this. We did it before. So, part of your due diligence is…and working with me will define what kind of risktaker you are and what really are the concerns that are on your mind. And I will bring concepts that number one can help match, right, where you are. If you’re risk averse, I’m not bringing you fitness, right. And if you’re looking for stability, I’m not gonna bring you an emerging brand where there’s really no track record or other franchisees to validate with, right.
So, these are the kinda conversations you and I are gonna have. And then when we get inside, I’m also gonna help coach your thinking, you know, to how you should be thinking about for your future what’s gonna be most important. Again, based on what you told me you were looking for in the beginning, building and selling or building and holding for long term sustainability.
Jimmy: Yeah, it’s much like just traditional forms of investing. There’s different risk return profiles that will make up each individual investor or even different portions of an individual investor’s portfolio and how that portfolio gets allocated across those different risk return spectrum. Kim, what if someone wants to get started with franchising? What’s involved? How do you get started? What do you need up front in the way of investment or cash?
Kim: Okay. So, if you’re working with me, one of the very first conversations we’re gonna have is money because it’s all about money. Money’s the reason you’re here. Money is the reason you won’t be here. So, we’re gonna talk about money. Early and often. Now there are all different types of investments in franchising. There are those that cost $30,000, $40,000, $50,000 and there are those that cost $3 million, $4 million, $5 million. So, before I ask you what you think is a comfortable level of investment for you, I’m going to educate you on what every franchise business costs and why. I’ve been doing this for a really long time and I saw kind of a formula, if you will, a correlation between money and time by owners. So really the short of it, Jimmy, is that money and time are inversely related. So, when you see a super low investment, it’s gonna immediately make you think, “Oh, that’s a really big owner time commitment from day one.”
Bigger investments that have more structure, right, more leverage, right location, right staff, right processes, right tools, they typically can require less time by an owner from day one. And then there’s a million shades of gray in the middle. So, we’re gonna talk very specifically. Once I know what your net worth is, I’m gonna gather that first. That’s the first thing you’re gonna do is fill out a questionnaire for me. Then we’re gonna get on the phone and outline your goals and why we’re talking in the first place and make sure that you’re aligned to what a franchise can afford you because not everybody is. Some people are too entrepreneurial. Better to know that in one call with Kim than to spend six months looking at a franchise only for you to realize, “You know what? I’m gonna go do it on my own, right.”
And so, once we really get into our first in-depth call, though, we talk about this money conversation and I can tie that to so many other characteristics as a business owner and I can’t make earnings claims because a good consultant will never make earnings claims but I can help you understand how money flows through different types of businesses like a brick and mortar versus non brick and mortar, right. One’s gonna feel more unlimited. One’s gonna feel more limited locked in by the location. So, once you see that, then you can say to me…and once we, you know, align this with your net worth and your liquidity and maybe your ability to be financed because we’ve gotta throw that in, then you can say to me, “Okay, well, I’m most comfortable then being that kind of owner who works in that type of an environment with that type of an investment.”
So, it’s kind of a tough question to answer in this format but know that if you work with me, I’ve totally got your back on this because if we can’t get past this, we’re not gonna have a conversation.
Jimmy: No, understood. There’s definitely no one size fits all formula for any type of investing really. Let alone franchising. Kim, we’ve run out of time. I really wanna thank you so much for sharing your insights with our audience. Where can our audience of high-net-worth investors go to learn more about you?
Kim: Yeah. Thank you so much, Jimmy. I’ve enjoyed your stream of questions here. It’s been awesome. The best place to begin learning about my process and even Kim Daly is on my YouTube channel at kimdaley.tv. I have over 500 videos. We release two new videos a week. I have a podcast on Apple, Spotify and iTunes but all of that content is…everything I’ve ever created is on my YouTube channel. So go to the YouTube channel and of course from there, all of my contact forms are there. You can reach out to me. I personally will respond to you within 24 hours of hearing from you and you will be working with me. That’s a common myth like, “Oh, she’s too busy. She’s not gonna work with me.” No. I will work with you. I am not too busy.
Jimmy: Just because she’s America’s top franchise consultant doesn’t mean she’s too busy to take your call. Kim, we’ll make sure that we link to you in our show notes for today’s episode so all of our viewers and listeners, please make sure to check out our show notes at wealthchannel.com. Kim, thanks so much again for joining me today. Really appreciate it.
Kim: My pleasure. Thank you.