In this episode of Beyond the Paycheck, Paula and Jon are joined by Bob Bernotas, a franchise expert with over 30 years of experience in the field. Bob shared his journey into franchising, starting with his first venture into West Coast Video back in 1986. He recently acquired a men's health franchise called Gameday Men's Health.
We go into the process of purchasing a franchise, emphasizing the importance of selecting the right franchise that aligns with your goals and values. Bob highlighted that franchising has evolved, and it's not necessarily difficult to enter a franchise if you find the right fit.
Bob discussed the qualities that make a good franchisee, focusing on people skills, basic business acumen, determination, and financial capacity. He stressed that passion alone may not lead to success in franchise ownership, and it's crucial to choose a franchise that matches your skill set and goals.
We also explore the trend of semi-passive franchise concepts, which allow individuals to start their businesses part-time while maintaining other commitments. This trend has made franchising more accessible to a wider range of people.
In conclusion, Bob shares that the key to successful franchising is finding the right fit, ensuring that both the franchise and the franchisee are a good match. He encouraged anyone interested in franchising to reach out and explore the possibilities.
If you want to learn more or get in touch with Bob Bernotas, you can visit his website at franchisewithbob.com or contact him directly at 610-506-0002.
To reach Paula Christine, email her at paula@paulachristine.com or visit www.paulachristine.com
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Paula Christine: Hi, and welcome to Beyond the Paycheck. I'm Paula Christine. Today I've asked Bob Bernotas, I hope I said that right, to join us, who's a franchise guru. He's been in the business for over 30 years. He's going to talk to us about how to go about purchasing a franchise, how ownership looks, and all the steps in between. Welcome, Bob.
Bob Bernotas: Thank you, Paula. Appreciate you having me.
Paula: How did you start in franchising?
Bob: Oh my goodness. As you indicated, it's been over 30 years, actually in 1986 is when I first broke into franchising [crosstalk]--
Paula: Oh, when I was born.
Bob: Yes. How about that?
Paula: I'm kidding. [chuckles]
Bob: You know what? [chuckles] I was at a conference I was asked to present at on Saturday, and they asked me to give some of my background, and they said, "Oh my, you have a lot of experience." There's another word for that too. It's called old. That's how they made me feel, but all good. Yes, so West Coast Video was actually my first franchise concept. If anybody remembers the video industry, it preceded Blockbuster, actually. Opened my first one in December of 1986, and that January, fortunately for me, that became the top unit in the chain, which allowed me to open multiple units of that concept. I've owned multiple franchise concepts and multiple units with each that I've built over the years. I was CEO of a national chain, and I've been consulting for a couple of decades, so yes, I am a dinosaur in the industry.
Paula: Do you still own franchises or you're just in consulting?
Bob: Well, great question. I just bought one, I think it was six weeks ago.
Paula: Can you tell us what it is?
Bob: I still get high on my own supply.
Paula: High on my own supply, I like that.
Bob: It's a men's health concept. Gameday Men's Health.
Jon Gay: Bob, you and I think alike, because when I do consulting for podcast clients, the first call is always free. I always tell them the first hit is free, just like you get high on your own supply.
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Paula: Okay, so a lot of marijuana references going on right now. How hard is it to get in to purchase a franchise? I mean, how does it work?
Bob: It really depends upon what my candidates are looking for. I mean, purchasing is not difficult at all. The difficulty comes in purchasing the right franchise because it's really, really easy to make a bad decision, get in the wrong franchise. Honestly speaking, there's over 4,000 different franchise concepts out there. I would suggest that 60% to 70%, I wouldn't go anywhere near. Then again, there's some great franchise concepts out there and some ones that stand out above those.
In terms of getting into a franchise; with the better franchises, it tends to be a little bit more difficult because they have to approve you just like you have to approve them, but if you get through that process and everything works out properly, then it's not difficult.
Paula: What makes a good candidate?
Bob: Really, several basic things that I look for and most franchise companies look for in a candidate. Number one is people skills above all else. If you go back 30, even 20 years ago, and often what franchise companies were looking for are people with specific skill sets. That is no longer the case. They're just looking for people skills, basic business acumen, determination, and the financial capability to execute upon their model. If you go back 30, 35 years ago-- and I'll give you one example, a company like CertaPro Painters. I don't know if you've ever heard of them [crosstalk]--
Paula: I've heard of them, yes.
Bob: -but it's a painting franchise, as the name would indicate. There's about 1,000 franchisees around the country. Very, very, successful franchise. They originally started out 35 years ago, they were looking for painters to make franchisees. Well, after experimenting with that model for a bit and finding out that in general, painters make really bad franchisees or business people, they did a reset and they just started looking for smart people, basic business acumen, people skills, and the financial capability to execute upon their model, and the rest was history. That is one of the more successful franchises in the franchise world.
Paula: Just because you know something doesn't mean you can actually run a business. Being a painter doesn't mean you understand how a business operates.
Bob: That's exactly correct. All too often, that's what happens and some franchise companies that haven't learned that lesson yet make that mistake, but most companies now, they've adopted that CertaPro model.
Jon: Bob, Paula asked you the question of what makes a good candidate for a franchisee. Let me flip it around. You said some franchises are much harder to get into than others. Do you find the ones that are more picky and selective are the best ones to be a part of, or do you feel like there are other criteria that you should be looking at when you're deciding what kind of franchise you want to get involved with?
Bob: The answer to that question is yes. The ones that are the better concept, as you would guess, they have people lined up to try to get into their concept. The concept that I bought six weeks ago, I believe it's the fastest growing franchise in the country right now. I've been at this game for a long, long time, and I can't recall watching one grow as quickly as this one. The flip side of that is they have so many people trying to get into the concept that they can be really, really selective because people are fighting over the same territory all over the country with that concept.
Paula: Let's say you like a concept, let's say it's the men's fitness that you were talking about, and then I sit down and meet with you, and then I want to go to the next step. Is it then meeting with the-- I'm not sure if I'm going to use the franchising company-
Bob: Yes, franchisor.
Paula: -or do you have to look at financials first before you even get to that step?
Bob: What I do is I prequalify people for the franchise concept, and I'm prequalifying franchise concepts for the clients that I'm working with, so it's a mutual relationship. My process is as follows. The first step of my process when I initially engage with a potential client is first to try to ascertain whether or not franchising is going to be right for this individual.
Generally, I engage in about a 30-minute Zoom call with someone, and we just have a casual conversation. I'll have a lot of questions for them. They'll have questions for me to understand what they would potentially be getting into. That gives me the impetus to go forward knowing that they've checked the boxes that are potentially necessary. I haven't checked all the boxes at that point, but at least I know that franchising may be a fit for them.
Paula: What would be two or three of the boxes that you would have to check?
Bob: Are they someone who is going to be able to put the time into a franchise? We can talk about semi-passive franchising, as more and more models are introducing platforms to support franchisees on a part-time basis to start with. That has changed pretty dramatically. I'd say it's anywhere starting at around 10 hours a week to 20 hours a week for a semi-passive franchise, a full-time franchise that you're going to jump into on a full-time basis from day one.
Paula: You can actually have a full-time position and start your franchise before you walked away?
Bob: That's correct.
Paula: Wow, I didn't know that.
Bob: That's the trend in franchising, what has really emerged in the last 10 years, especially. More and more brands have smartened up. They've decided that they want to cast a wider net because they're only dealing with a very small part of the population if their model is, hey, you have to jump into this and do this on a full-time basis. That's going to eliminate so many potential people because they're not willing to walk away from their full-time job. Maybe they're making really good money. Maybe they just want that lifeline to a job. Maybe the benefits that they're getting, they don't want to walk away from.
Closer to 80% of my clients are looking for semi-passive concepts, something they can get into on a part-time basis, start building an off-ramp, if you will, from corporate America. Whether it be a rapid off-ramp or whether it be years down the line, they have something built that maybe has met or exceeded what their job income is, and now they're done with the 60 hours a week, so they step away from that and lean on their business.
Paula: That just opens up a huge opportunity for a lot of people. Because I would have thought that you would have had to have a couple hundred thousand dollars just to invest, and then of course have that in the bank because you're not likely to make money right away as you're getting set up before you could even think about owning a franchise.
Bob: Well, two things that you said. Let's address each; a couple hundred thousand dollars each in the bank, and then you have to wait until you make money for a year or two or whatever. Yes, for a lot of businesses, but there's plenty of businesses that you can get into that aren't going to take that long. There's actually franchises that cash flow positive month one. We can get into why later. I'll give you one example. Certain boutique fitness concepts that are membership based. Memberships can be pre-sold prior to the doors ever opening for a couple three months, and then you open the doors and you're cash flow positive, so you're not bleeding.
The other thing is in terms of the cost of a franchise, there's plenty of concepts that-- I'll give you a realistic range. Starting at about the $125,000 range. There's concepts that are pretty solid franchises that you can get into for about $120,000 to $130,000. Typically, what I suggest that you need is about $50,000 of liquidity to put into a business. Most companies want you to pay at least a franchise fee upfront, the rest can be potentially borrowed if you have decent credit.
We can talk about lots of different instruments for borrowing; be it SBA business loan, ROBS, the 401(k) rollover, a HELOC portfolio. Lots of different options for, potentially, lending. If people are comfortable with, let's say, $50,000 to $100,000 from a cash standpoint investment, and they're open to leveraging-- I work with all the top financing sources to the franchise industry, and it's very specialized lending. It's rare that I can't get somebody financed unless there's some issue.
Paula: I have to have some cash upfront, and then I sit down with you and we work through the process. Like you talked about yours and men's fitness. I could have no interest in men's fitness, but still find that that's a good concept and it's a good-run franchise, and that would make sense for me to maybe invest in that.
Bob: That's a great point. I often have this conversation with my clients. It's evaluating what their drivers are, where they want to be, what they want to accomplish with this. Because often people, they're not sure what they want. They want to be successful 90% of the time. It's amazing to me that some, they're more ideologue-driven, they want to be in a certain concept.
I'll give you an example. I always ask the question of all of my clients upfront, "Where do you fall on the spectrum of people?" Let me explain that. On one end of the spectrum of people that I deal with, I have what I call, for lack of a better term, ideologues. These are individuals that have a passion for something. Could be for baking pies, so they want to be in a pie-baking franchise. It could be people love their pets, so they want to be in something that is a pet-related concept. By the way, it doesn't matter to them if they make much money or not, okay?
On the other end of the spectrum, I have what I term as my show-me-the-money people. Again, for lack of a better term.
Paula: That's a good term.
Bob: [chuckles] I think I stole that from a movie.
Paula: That's okay.
Bob: These are people that are interested in ROI, earnings. They don't give a damn what the widget is, as long as it's something that's ethical, provides a valued service to the community. 8 out of 10 times, they're looking for semi-passive, which is mainly the sandbox that I play in because that's what most of my clients are looking for.
I always lay that scenario out and ask the client, "Where do you fall closer to? In the middle, skewing towards the show me the money, skewing towards the other end of the spectrum? Where do you fall on that spectrum?" Because that tells me a lot. I will tell you also, the vast majority of people skew towards the show me the money. I appreciate working with those people because I always counsel people, "Look, you can get into something that's your passion, but if it's your passion, make it a hobby. Unless it's something that aligns with profitable businesses. Otherwise, make it a hobby because you will learn to be not so passionate about whatever that passion is if you're not making money doing it and you're working a lot of hours."
Paula: Yes. We had a woman, she was on the show a few months ago and she talked about that also. That just because you're passionate about it doesn't mean that that's what you should do for the rest of your life.
Bob: Absolutely. Couldn't agree more. I always suggest to my clients, leave passion aside for a moment. Look for things that are ethical and of course are profitable, and that's where we really should start to search. If someone is independently wealthy and it doesn't matter to them and they want to pursue something that they may not make much money with, that's fine if you want to pursue your passion. Overall, you're not going to love what you're doing long term if you're not successful at it.
Paula: Correct. I would imagine that the franchises have rules and business plans and things that they want done a certain way. Is that correct?
Bob: Yes, correct.
Paula: You also want to look for somebody who is going to follow that plan. If they're a real independent thinker and think that they know better, that's probably not a good candidate.
Bob: They may be a great candidate for starting their own business from scratch, but they probably wouldn't be the best candidate for franchising. Franchising, just to break it down to its most simple essence, it's a paint-by-the-numbers type of business. They've proven a business model, at least the ones that I work with. These are companies that have proven a business model over and over again with their franchisees, and you simply plug into the business model and follow the business model.
Far more franchisors fail in the early stages than independent businesses. Franchisors, I said, not franchisees. The reason being is because starting a franchise organization is exceedingly difficult. The companies that are doing it today, they're capitalized well. I will submit to you, the widget isn't the most important thing. Whatever the service is, whatever the product is or the combination of product and service is, a lot of people can create something, as evidenced by the fact that you have a lot of independent businesses out there that are successful, but making that duplicatable, making it work for the lowest common denominator, that's where the real talent comes in and the difficulty comes in.
Before I ever work with or show a client any brand, there's some boxes that I have to check. Is there something larger behind the company? Because if it's an independent, a couple of people started it, they have a few franchises, no way in the world I'm going to show that franchise to a candidate. I feel there's too much risk.
Paula: I would expect if I'm hiring you that you've done your due diligence on your side and are recommending the best franchisee-- I don't know if I get the franchisee, franchisor correct?
Bob: Franchise opportunity, exactly. If years in the business or age has anything to do with it, yes, I have a lot of experience. There you go.
Jon: Seems like it's come full circle here as we get ready to wrap up.
Bob: Oh my goodness, yes.
Paula: How does someone get ahold if they're interested in opening a franchise?
Bob: What I will help anyone do is, first of all, we have a brief call, Zoom call, again, 20, 30 minutes just to assess your situation to see if it makes sense for us to work together. If you're a candidate, if you're interested in working with me, if I'm interested in working with you, they reach out to me. You can go to my website at franchisewithbob.com. Pretty easy, franchisewithbob.com. If anyone wants to text me, and I'll connect you with my assistant and she can get you on my calendar. Am I allowed to give out my phone number?
Paula: You can give it out whatever you want.
Bob: It is 610-506-0002. Just text me and let me know, and I'll be happy to spend some time with you and we'll see if it makes sense to work together.
Paula: It's a lot different than what I thought it was going to be. I just assumed it was a little bit more difficult. I'm not saying it's not difficult, but--
Jon: That's why Bob is here. He makes it easy.
Paula: Yes. Well, I was just, you needed a ton of cash and you needed to feel-- if you were going to get into an automotive franchise, you needed to at least know about cars or-- but you really don't.
Bob: No, you don't. Just people skills, basic level of intelligence, basic business acumen, the drive to really create something, and the financial ability to execute upon the model. If someone is in-- the starting point might be $50,000 in cash, maybe a net worth of a quarter million dollars, that's a starting point. Many people I'm working with from that point-- most of my clients, I would say, start at that point and go up to maybe about $2 million in net worth and maybe a couple hundred thousand liquid that they're willing to put in. Then I work with my franchise investors too who are $50 million, $100 million wealthy and they own other franchises. They're always saying to me, "Bob, show me the next great thing, the next major run with a franchise that I can get on."
Paula: Yes, it seems pretty cool. You see franchises everywhere.
Bob: You have no idea. The things that you would never imagine are-- anything that could be a business, also 99% of the time can be franchised. What is, I found, really interesting; the trend in franchising, like I mentioned earlier, is to semi-passive concepts. More and more have been stood up. It simply means these companies now have smartened up, they're developing platforms to do a lot more for their franchisees so their franchisees don't have to put 40, 50 hours at the start.
Any franchise, even if it's a full-time franchise that you're starting full-time, will eventually become semi-passive over time. It's all about leveraging other people, people that you bring into your organization and they obviously help you do that. There's franchises that are linear models, consulting type franchises where you are the product. To me, that's not a business. You're a consultant. I do this because this is my passion. I love taking somebody from inception, getting them into a business and watching it change their lives and watching them have much more family time and create legacies for their children, things of that nature.
Paula: It has been my pleasure to talk with you today.
Bob: Likewise, Paula, thank you.
Paula: If anybody would like to get ahold of me, you can reach me at paula@paulachristine.com, or you can check out my website at paulachristine.com. Thanks again, Bob. It's been fun.
Bob: You're very welcome. Thanks, Paula and Jon. Have a good one.
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