EP 14: Josh Brown - What Makes a Franchise Valuable?

Josh Brown  1:12  
Well, thanks, Dad. First of all, thanks for having me on. Really, really appreciate it. Always love talking with you. And look forward to talking with you today about the franchise world. I'm a franchise lawyer been practicing for a little under 14 years, and with about 10 years in the franchise space and I'm based in Indiana, but actually do franchise work all over the country. And in addition to that, as you all know, I started my own franchise podcast about six and a half years ago, called franchise euphoria. That's a weekly podcast where I interview franchisors and franchisees from, from literally around the world, and hear their stories, their challenges, their the obstacles they've overcome, really from the purpose of providing good, free, valuable information for people who are in and around franchising. So the combination between my law practice, the podcast, and everything else keeps me keeps me quite busy.

Ed Mysogland  2:12  
Well, I'll tell you, you're you are on the shortlist for anything franchise related. I know I know where to go. I appreciate that you've always been so generous with the information you've shared with with not only my colleagues, but also the people we've sent over. So again, thanks so much for doing that. So as we get started here, you know, franchising and unemployment have historically been positively correlated. And when employment rises, people look to franchise to the franchise system as a means of buying a stable job. But, you know, in this robust economy that we have, it seems that there's there's more and more franchises, but not as many buyers going after the new franchise startups, but instead are favoring more toward the resales. Why do you think that is?

Josh Brown  3:03  
Well, I think there's a couple of things behind that. I think it's a really interesting statistic. I think it's true. I mean, I think people have in their minds, this notion that franchising is a more stable industry than just going out and opening up your own shingle. And I think, in certain context, it may be but you know, statistically speaking, you know, you have a very high likelihood of failure in a franchise just as you do in a in a non franchise business. But I think one of the things that we're seeing in terms of people who are buying franchises looking towards other franchise systems to buy on a resale, as you mentioned, as opposed to just buy something new. It's a couple things. I think, first and foremost. There are so many offerings out there now. I mean, it wasn't that long ago where franchise is, you know, we're relegated mostly in the restaurant space and a few other service areas. Now everywhere in our economy has been franchised. I mean, there's not an area that hasn't been franchised so, so there's lots of opportunities. And so I think it's hard for people to discern and sift through all of these different opportunities and think about what they can do to start fresh, it's much easier for somebody to go into a business that's already up and going, and especially if they have a good corporate background in operations, or management or combination thereof. If you could go and find a franchise business that's not being run properly, or, you know, there's something else that's going on and you can identify the one or two things that you need to do to tweak it. You have a much better opportunity, I think, for success. To look at taking over that business. It's up and going with customer list already in a location you don't have to deal with finding real estate which is becoming harder and how harder to find. And so you have a lot of variables that you still have when you buy a franchise a new that you can kind of not deal with if you're looking if you're looking at a better resale, and I think there's just more and more of them out there over the years, and it's sort of been a combination, that there's just more opportunities for people to go in and, and find a good resale that might meet with their qualifications and experience

Ed Mysogland  5:28  
with, you know, the funny thing that we're seeing, like, for example, home health care. I mean, there, there is a new franchise popping up all all the time. And one of the questions we always get is, what's the difference between these 15 Different same service providers? And so why are we seeing so many new franchises is because I got to assume it, it's just as hard with the exception of more information, I have to assume that it's just as difficult to get a franchise out and into the economy, as it's always been.

Josh Brown  6:04  
Yeah, I mean, it is. But the thing is, the I think this the the number to look at is not the ones that are starting the franchisors that are starting, look at the ones that are around five years later. And that's the thing, that's the telltale, I mean, you said, the home health care, I'm very, very familiar with that space, I've done tons of work in that space. In fact, the statistics in franchising will tell you that, aside from restaurants, which always are going to be the fastest growing because they're just it's just a biggest segment of the franchise market. Outside of restaurants, health care related franchises are the fastest growing segment in franchise. Of course, that's because in large part, the market opportunity, you know, the baby boomers, the seniors, so forth. But the thing is, is that a lot of folks have a false sense of what it takes to franchise. And so I run across people, and I get calls literally every week, from people who want to franchise their business. And add I'm not exaggerating, I won't say names, but I've I've gotten real calls from people who will literally they've been in business for a month, and they want to franchise me, that's absurd. I mean, it doesn't even make any sense. It's like you and I would look at that and say that's the most that's, that's ridiculous, but people are serious about it. Because in their own mind, they think oh, franchising is literally just me, you know, slapping some systems in here and selling it to a bunch of people and I can get off and running. It's not that easy at all. It's a very involved process. But I do think what's different, is not that it's easier to franchise, you still have to go through the same stuff. But it's easier to learn about franchising, because obviously of the internet, and just going online and learning and trying to you know, Google everything, you can learn more about those opportunities. And so the information is more readily available, which then leads to people who have natural entrepreneurial tendencies to think, oh, I can do this. But the house sales, there's nothing, there's no big deal about doing that. And the challenge is, is that you got to look at what's around after five years of lodging, because the the, there's a significant drop, and franchise companies that opened versus are still in existence five years later.

Ed Mysogland  8:30  
Yeah, and no, and we see the same thing that, you know, just because the service provider that in this case, the franchise or has the uncanny ability to buy clicks, and be at the top of the search, and so on and so forth, that that does not necessarily make the opportunity, a great one, it just means that you know, that they're Google AdWords are doing great.

Josh Brown  8:57  
Well, it means they're good at marketing, right? I mean, but marketing is only one aspect of your resume. Think about this with if you're in a franchise or a non franchise, and you have great marketing, but you have operations that can't support your marketing, you've got a disaster brewing. And, and that's what happens in franchising, except it can be worse than in non franchise businesses, because in a non franchise business, if you have great marketing, and you have bad operations, then internally, you need to make those tweaks and yes, you're dealing with those internal stripes from stripes from a corporate perspective. But from a franchise perspective, if you have great marketing and bad operations, that means you've sold a lot of franchises. So people have invested their hard earned money in various locations, but now they're not getting the support or seeing the return of what they invested in it. And now you've got a real big problem because now you've got people who've invested their money and aren't happy. And that's the recipe of lawsuits right.

Ed Mysogland  9:59  
Well, in In our world, you know, it's actually just in our world, but in the entrepreneurial space, you cannot be the business it is it needs to be more of you, in order to make it a saleable type business. I don't, I don't necessarily agree with it, I think as long as you consciously understand, you know, some of the risks associated with, with being, I don't wanna say the one man band, but that the value is centered around that may impair value down the road, but it's okay. The point of the, this little rant is, you know, what do you see? Do you see business owners in the franchise world that it's based on lifestyle or legacy? I mean, are they looking at building a true business? Or are they looking at buying themselves a job? I think it's probably the latter. But nevertheless, you're in the space more than I am.

Josh Brown  10:51  
It's actually both. I think that I think that there's a whole lot of people who get into franchising for the lifestyle that they think it's going to be. But and when I say think it's going to be is, they really don't know, oftentimes, I mean, there's a lot of people who think, Oh, I'm gonna go buy X franchise, because then I'll just hire workers, and I'll never be there. And they'll just print money, and I'll be sitting on a beach somewhere, you know, in Hawaii, it just doesn't, doesn't work out that way. Now, it can work out that way. But it takes years and years of getting a management team in place having multiple units opened. And, and just like with any business, it takes a deliberate strategic focus. But I think there are a whole lot of people who are going into franchises because of a lifestyle that they're chasing. There's also, I talked to a whole bunch of people who get in for legacy, I mean, you know, they, they've been working in a corporate job, their whole career, and they want to leave something to their kids, right. I mean, they, they, their kids are older, maybe they're off in college, and, you know, they're studying business, and they have a corporate nest egg, that and, or maybe they've been downsized, but they they want to go give it a run, you know, they've, they've wanted to their whole life, but life circumstances have have come in and, and prohibited them from doing so. And now they're in that in that position, where they can leave something and teach something and work with their kids, I hear that a whole lot where people. So in that kind of situation, sometimes they just want to look at, you know, one or a few locations, just to get it going and then pass it on to their kids. So you, but what I find is interesting about it is that most people don't really know. I mean, if you if you ask them, like your why they were getting into what they were thinking about, you know, you get a whole bunch of answers. But you know, I don't usually hear usually don't hear the legacy or lifestyle right off the bat until you probe a little bit, you know, and you say, Well, why are you really doing this? Oh, well, I really just want to do something with my kids, right? Or, gosh, I'm just tired of working for the man, you know what I mean? You hear that a lot. And it's like, I just want to have a better lifestyle balance with the family and so forth. And, you know, the reality is you can have that, it's just you got to be, you have to know really what you're buying. into. I mean, you know, and so, you know, some people might think, oh, I want to have a Chick fil A, which, you know, Chick fil A is fantastic. I mean, they're one of the most profitable franchises out there. They're they're routinely do do very, very well. But you have to know that when you buy into a Chick fil A, you, as the owner operator are going to be there and you're going to be there a lot of hours, even though they're not, you're not going to be open on Sundays, you're going to be there a lot of other hours. And you have to make sure you're okay with that. So the lifestyle that you think it might be creating might not be the lifestyle, it's actually creating

Ed Mysogland  13:56  
wealth. So on the legacy side, so building the, let's say, multi unit, building an infrastructure building a business that can run without you. I mean, the franchise model in general, doesn't normally support that type of endeavor, or is it more look, this is a one, one or two unit acquisition. That's what our typical franchisee

Josh Brown  14:21  
is. Yeah, it's so the whole notion of a business in a box that people often correlate with franchising. I'm not a subscriber to I think that every business whether it's a franchise or a non franchise, the owners have to be present, they have to be there, they have to be involved. They may not have to be there for eight hours a day, but they have to, they have to be involved in terms of number of units and operation. I will tell you this, there are as a percentage. There's always exceptions and I know numerous exceptions, but as a percentage. I believe that there are very few franchise opportunities, where owning just one is going to be satisfying? You know, I don't think owning just one is going to be the, you're gonna get the return that you could see with owning 2345 10, and so on. But it depends on the franchise system. I mean, like I said, there are so many different opportunities, but as if you as a general proposition, I think in franchising, you need to be really paying attention to the unit economics before you buy in, and that will help you determine how much you want to expand with that franchise.

Ed Mysogland  15:43  
Yeah, I'm with you. And I think a lot of the business owners that we see, you know, they go in, and instead of one plus one equals three, it's one plus one equals a half. And they don't, they just don't understand, you get one working the way it's supposed to be run. And then you add rather than let's go add, and let's figure out how to how to make them work together. And that's, that's a lot of what we see when they're showing up saying, yo, I don't want to eat cheese, just get

Josh Brown  16:14  
me out of the trap. Well, it's interesting, because, you know, as you know, when in franchise, you gotta be careful too, because if people, a lot of people go in with the idea that they want to be multi unit operators or area developers, in other words, they want to either own a bunch, or oversee other people owning a bunch, but they have to do it under a schedule. And usually it's a it's a schedule that's within the contract. And so what happens is, if everything doesn't go perfectly, this whole strategy can go up in smoke, because you can be in violation of your schedule within your franchise,

Ed Mysogland  16:51  
and then what contract but then what happens is, say, let's just say that you you aren't able to comply with the terms and conditions of of the contract to put in 15 units within within the state.

Josh Brown  17:05  
What happens? Well, this ties into it being so important know who the franchisor is, what happens at that point is technically you're in default of your contract. Okay, so you're in default of your contract, assuming it says that, and most, if not all of them are going to say that. If you're in default of your contract, then it really comes down to what's the franchisor going to do. And that's where it's so important to pay attention to who you're quote unquote, getting into bed with, right? I mean, who is the franchisor? What are their values? What is what's their makeup, because what you see sometimes is that the franchisor really wants to work with the franchisees. And so they'll say, hey, look, look, you know, you're technically in violation here. But we understand is because of these for different reasons, what can we do to help out and let's just kind of keep this train going. The other side of the equation is, is that if they're not like that, and for either one or a variety of reasons, they decide they want to put the squeeze on a you can be in a world of hurt because most of these franchise agreements unless they're negotiated out, have what's called a cross default provision. And across default provision says and most of the franchisors have this in their agreement, that if you're in violation of any of the franchise agreements, you're in violation of all of the franchise agreements. And so therefore, we can terminate all of them. So let's say you've got eight stores open on a 15 unit deal, okay, and something's gone bad. Then you're in violation, let's say one, but under the contract, you might be in violation of all of them. So it can be absolutely devastating to a franchisee

Ed Mysogland  18:51  
So, when we look at the franchisee, you know, that everybody wants to talk about business value? So in a franchise, where, where do you see the value? Where is it create and not necessarily where it's created? Where's that housed? Is it is it inbred in the branding? Is it in the process? Is it in the location? And I know, it's a loaded question, because you're gonna say, yeah, it's all of that. But I think that certainly some of the newer franchises, it may be branding, but there has to be a core of where the value is. And I guess where do you see it?

Josh Brown  19:31  
Well, I think it shifts I think, what what I mean by that is, I think when you start and when you are a newbie in the franchise, it the value is more heavily focused on the brand, the process, the location, all of those things. Obviously, the brand, the location are things that are prevalent throughout the term of the franchise, but what becomes more valuable and highly valuable in the franchise is, what is it that the franchisor is providing two years into a 10 year deal, because two years into a 10 year deal as a franchisee, you're gonna be thinking to yourself, Okay, I know how this works, I can do this. I've been doing this for two years, I've been working 60 hours a week, I've got this down. Why am I continuing to pay this royalty and tech fee and management fee and all of the above? Well, franchisees always ask themselves that question, it's usually two to three years in, okay, assuming that, that all goes well. And so what as a franchisor, what I tell my clients is you guys have to be thinking about what is the ongoing value, and this is where I say the shift comes in, because now on an ongoing basis, the system really isn't, as it's certainly important to the business, but it's not as important to the franchisees mindset, because they're like, Okay, I understand, I understand how this works. And so, the, on top of that, what, what you find in a lot of these franchises now is that the real ongoing value occurs with the POS systems, or the software, or the proprietary systems that are continuously being developed and evolved by the franchisor. And that's something that to the average franchisee is tangible enough that they can say, Oh, wow, I get this, I really can't do this without them, because they've got a whole r&d team that's focused on, you know, the next wave of technology that we're going to need for this franchise. I mean, that's a real important distinguishing characteristic of a good well run franchise, versus, you know, a mom and pop business that really isn't going to be able to compete with that franchise business on that front.

Ed Mysogland  21:57  
Yeah, I agree. I think the process and being able to add value to the service or product that you're providing, on an ongoing basis seems to be superior to I don't want to say the brand. But, but I think I do. But what was interesting, is like take for subway, for example, the whole Jared debacle, you know, those subway owners didn't do anything, they were just they were just hitched to to a name, that same sandwich same same everything. And yet the values for those sandwich shops took a took a substantial hit. And, and why do you think that that is?

Josh Brown  22:44  
Well, I was just gonna say I mean, you know, because again, it's like that double edged sword like the the horseshoe ride you ride in on you better make sure is a damn good horse for the for the long run. And the and you just don't know that. I mean, really nobody solid, Jared think I mean, and you could say the same thing about Papa John's right? I mean, you know, you have you have that until you have you have those are always inherent risks that obviously are more prevalent in the franchise space because of the branding component that's out of your control. Right? I mean, you know, you that is the Pat brand, when you're talking about a brand at that level, there is a there's a huge hit that the company takes because they have become so well known within just the everyday world of everyday Americans, right. I mean, there's, there's 1000s of franchises out there that nobody's ever heard of. But there's not that many who haven't heard of subway, there's that many who haven't heard of Papa John's? And, and so would you have that you have a disproportional negative impact when the brand leader does something that impacts the brand, but if, ironically, if you're not well known, and something happens like that, you won't take as big of a hit.

Ed Mysogland  24:04  
It just seemed so counterintuitive that, you know, that Joe's sandwich, Joe's Subway sandwich shop on the corner, you know, he's talking about his revenue being you know, 30 40% down because of Jared sins. And it just, you know, as a as a

Josh Brown  24:25  
forget even that, I mean, you know, even 30 40% I'm you're you're talking about in this space, like with pizza or other places, I mean, a three to 4% Hit can be the difference between profitability and not being profitable at all

Ed Mysogland  24:38  
right, but that that was what I was, what I was getting at was that the, you know, the franchisees are those that are that are in this space, you know, the inherent risk is and you alluded to it already is, you know, be sure of who you're getting into bed with and No, no one could have seen the getting blindsided by Papa John's or subway, but boy, that that is a scary thing when your franchisor commands that type of value impairment based on something that they do?

Josh Brown  25:17  
Well, it really is. But if you think about it, it's no different than any business. I mean, there's, there's no way to take the risk out of business, right? I mean, you know that you've been doing it for a long time, there's, there's no way to take to say to somebody, okay, you're gonna, you're gonna have this great opportunity, where you can make a whole lot of money, and there's going to be no risk. I mean, there's just not it, that's either a scam or it's not real. Now, what you can say to somebody is, hey, there's an opportunity, it's probably going to be okay. But there's very low risk here, you can do that. But if you're, when you're talking about buying into these kinds of franchise systems, people in large part are doing it because, you know, they obviously want to own businesses, but they want to make money too, I mean, then they want to have an opportunity to buy something, build it up and sell it in part off of the brand, which has helped them grow it and help them really engage into a market more quickly than they could otherwise Well, part of the risk is, you know, something could happen in that brand that actually hurt you the other way, you know,

Ed Mysogland  26:26  
one of the and this is this is totally self serving, but we get people that walk in our office, and they're talking about their business, and we start talking about value and and they have over, believe it or not, they have overinflated ideas of value. And one of the interesting things that follows that is this business can be franchised. I'm not doing it, but the next guy can and he'll he'll make a fortune. So can you tell me tell us? What does business have to look like? That's a good candidate to be franchised?

Josh Brown  27:05  
Well, I think that, you know, as a as a general proposition, okay, what I tell folks is, is that, if you've got a brick and mortar type business that has a retail component to it, you need to have at least a couple locations up and running, you know, you need to have a model proven out, you need to, well, what's nice about having at least two and having more is even better. But at least having two locations up and going is that now you've experienced what it's like to run two locations simultaneously. And that's hard to do. Because going from one to two is harder than going from two to three, two to four, you know, that sort of thing. Because by that point in time, you've, you've fine tuned your system. So you really got to make sure that you've got your systems together, you've got your processes, you have to make sure that you haven't protected. Mark. I mean, I can't tell you the number of people I've talked to who want to become a franchise, and I asked them to send me over their trademarks. And they're like, What are you talking about? Like, Well, do you have you know, have you protected? Have you registered your name, your marks your logos, now haven't done any of that. So we'll do that, right, because I'm like, and so you have to have sort of what I would call a baseline franchise foundation. Before you can franchise, you got to have a really, really good operations manual, that's good for franchising, that not only tells people, you know how to run the business, but tells them about the business trains them well into the business. So you have to have a really good training protocols. And I really think at the end of the day, you have to have a good strategy for how you want to try to grow. I see a whole lot of people make the mistake of getting enamored with franchising, and they go through this process, and it's expensive, and it takes a long time. And then at the end of it, they're like, Okay, now what that's like, well, you should have been thinking about that all along. I mean, the idea that you would franchise your business, and not have a clear strategy of Okay, once this this franchise, you know, we've got it set out so that based on market studies, you know, we believe that there's five locations in this community, there's seven locations here, we think we can expand out from there. I mean, really putting some thought into it is a real big mistake, because at the end of the day, when you're franchising your business, that is a long term strategy. You're saying that you want to utilize other people's money to grow your business. You don't want to just grow it corporately? Well, if you're going to do that, you better think long and hard of what those people look like, who they are, where they're located. Where, where should you not go, Where is your market limited? Is it limited at all? I mean, these are all things that have nothing to do with the The legal structuring of your business, but have everything to do with the opportunity for success after you franchised.

Ed Mysogland  30:10  
Yeah, you know, the funny thing is, and this was it segues right perfectly into my next question, which is private equity groups. So his historically private equity groups, you know, they, they buy a good business, not necessarily a floundering business, and they add gas to it, and they fix processes and and then take off from there. And what's so interesting is that there's a lot of private equity groups that are targeting either groups of franchisees, or the franchisors themselves. And it seems to me that we're seeing more more PE groups are looking for opportunities. And I guess I'm curious to know, why that might be or have you? Do you? Do you have any experience with with with that? Well, I

Josh Brown  31:01  
think, yeah, I mean, on the PE side, the private equity side, I mean, I think what you have is, you know, private equity, investors are looking for one thing, and one thing, only, they're looking for a return, okay? And what they see in franchises, is an opportunity of a return at a larger scale level. So we can buy into a system that already has 250 locations, and we can tweak some things and take it from 250 to 600 faster than they can take it from 250 to 600. And by doing that, we can increase the unit economics of each one by x percent. And therefore, we can generate a return of y. And I mean, it's very, very calculated, what, what you're seeing a little bit of our private equity firms that have had success with maybe one transaction like that, and now, they think every franchise transaction is like that. And that can be a mistake. I mean, because going into just because you've done it with one franchise system doesn't mean you can do it with every franchise system, because there is a culture, there is a soul to do a franchise. And if you go in, as often happens to some of these PE firms, and they change everything. Sometimes you kill the golden goose, right? I mean, sometimes you kill the things that really helped make it special, and you take something that once was special, and now you destroy it. I mean, you know, I don't I don't want to say that. This is what's happening. I'm not trying to disparage anybody. But if you look at kind of what's happened with steak and shake a little bit, you know, when you see how that brand, I mean, that Bran has been around for a long, long time. And it's to say it's going through some changes right now would be an understatement. And they're having major, major challenges. Why I think there's an argument that the individual or group that took over steak and shake really didn't have a good sense of its culture of its soul, or really didn't look at what made it special and rather just looked at, hey, how can we just turn a quick profit on this? It's

Ed Mysogland  33:23  
funny you say that because I drove by one of the locations and to get into that franchise now. It's a $10,000 downstroke and 50% of the profits

Josh Brown  33:38  
I got worse, like, that's what kind of what Chick fil A does. I mean, it's a it's a play off of the Chick fil A playbooks. I mean you you get into a Chick fil A franchise for $10,000 and, and then you split profits and I don't know if it's 50% profits, but you do you share in the profits. Now, trying to compare Chick fil A steak is there's no there's no comparison. But I think that that my guess is that's where the model came from. But my also I also am guessing that it came out of desperation because you're one thing you've seen it steak at shakes is that their service has gone way down. They the cleanliness has gone way down. The level of attention to detail has gone way down. And to me that's a direct reflection of culture. And and so you know, you've seen over the years where they've tried to make steak and shakes smaller or they've tried to do these value meals where you get, you know, seven hamburgers for $3 or whatever the case may be. I mean just it's like a race to the bottom on pricing. And I think they kind of lost their way and now their appointment out Yeah, I drove by one the other day and it was like it was closed with a big sign on it said you know franchise opportunity. 10k and 50% profits. I mean, that's the, that's the side. So, I don't know how that's gonna work. It seems a little bit desperate to me. But, you know, there's always folks who come in and, and take take advantage of that opportunity. I mean, I think if I look at a model like, like a Freddy's steak burgers, and again, I don't know anything I don't know the owners or have any personal connection with them, but I just know as a consumer to me, Freddie's is doing pretty well. And they remind me of what steak and shake used to be. Baba better.

Ed Mysogland  35:37  
But I agree. I think that I think they they cited the the decline in in steak and shake in the end they came in and put their foot right, right in the middle of the market. I think I think you're exactly right.

Josh Brown  35:53  
Yeah. And it's great. And you know, people go there and not. Every time I go there, the place is packed, the drive thru is packed. But inside, it's packed, it's, it's kid friendly. The people are nice. It's good quality, you know, but it's like, I'm not going in there saying, Oh, gee, how little can I spend? I go in there because I'm like, Oh, wow, my kids really want to go get their burgers and shakes and fries. And let's go and get it. You know what I mean? And they, they focus on the quality of it, and quality of the experience. And they they have a much they have a very good culture, I think along with, they really know what lane that they belong in.

Ed Mysogland  36:30  
One of the things that that I saw in researching for, for our visit was that, according to Fran data, there's almost 16,000 unopened franchise locations due to lack of suitable space. Is that a true statistic? I mean, how is that possible? That there? Isn't there isn't availability out there? Well,

Josh Brown  36:56  
I'm not sure that there's not availability. I think it's right, though, that it's become much harder. I think the right kind of availability has been challenging, I think. I've seen a lot I know myself, for people who are looking for locations that you can find land sometimes, but you can't find the right zoning. And so that, you know, you have to go through a whole process. For that, I will tell you this, so you're seeing a whole it's interesting to me, because it's, you know, you talk to a lot of franchisors as I do and, and you'll get well, we've got 50 locations open and another 150 signed. And I'm always wondering, and you can see this in the FTD but uh, you know, it's like, wow, 150 that are signed, but not open. I mean, what's that look like? I mean, that's, that is, you see that all the time. Now, obviously, in a good economy, like we're in right now the demand is there. But I think a challenge for some of these franchise ORS is that, you know, most of the franchise agreements, give a period of time, you know, it can be 90 days 120 100 me it can be a variety of time period, to go and secure the real estate that you need for your franchise. But if I'm a franchisee, I'm gonna have a pretty doggone good idea of where I want to be, before I'm gonna pay that franchise fee. To me, it doesn't make me I'm not saying you, you're going to know exactly. But as you and I both know how important location is. Yeah. And it seems backwards to me that you would pay your 50,000 franchise fee, pay for your lawyer for your account, go through this whole process. And you don't even know where your place is gonna go? Well, right,

Ed Mysogland  38:49  
I look at I look at it from the standpoint of from a risk aversion standpoint. You know, it's almost, we're almost to that point where we're ready to go. And you know, what, it's just not perfect. This this, and then they they abort the process to go find a new suitable space. And yeah, I don't know. I mean, I think like I said, I think the challenge for me is that I look at it, and if I'm a prospective franchisee, and I see that there's 100 Signed, but they haven't pulled the trigger. I have to wonder why. I have to wonder, you know, what do they know that I don't?

Josh Brown  39:33  
Well, I tell people, what kind of this kind of aligns with that. I mean, sometimes people say, hey, what's the hottest franchise? And that's the question I get all the time. And, and I'm always like, well, just I can tell you a lot of franchises that are going really well and they've sold a lot but that doesn't necessarily mean you want to buy into it. It's like if I said, What's the hottest stock? Well, it may be at its peak right now. And so you may be doing the opposite of what smart which is buying when is the hot As you're gonna sell when it's. So there's a whole bunch of factors you have to look into. But you're right. I mean, the nice thing is about the franchise disclosure documents, you know, that are registered that are regulated under federal law, and then many different state laws is that, you know, the tables contained within the FTD. They'll show you how many are open, how many have been signed, but aren't opened? How many are corporate locations? How many are franchised locations? And there's a lot that you can take from those numbers, right? I mean, and those are great questions, to then go back during a discovery day with the franchisor and say, Hey, listen, you know, it sounds like this is great and everything, but I'm just kind of curious, you guys have 50 locations open, but you got 150 that are signed up and aren't open, what's going on there? And you know, might be a combination of well, we're just, it's a, it's a hot business right now. And we're just signing people up left and right. To, you know, I'd want to know how long you know, what's the average person taking from the time they sign to the time they open? How long in the process? Are these folks who are not open? Have they been searching for a location, those can tell you a lot of different things, they can tell you how efficient of an operations and assistant team, they have assistants team that the franchisor, as it can tell you how much assistance they're actually giving you to go find properties. And sometimes you see where you see the sign up for the for the franchise. And it's like three months later, four months later, it's still not open. I say, Well, what's going on here? Yeah, right. I mean, it's like, well, you know, part of a good franchise system is that they should have that down mean, you know, if you've got a retail location, you should, you should have a retail specs of what you're building, you should have a contractor that's going to oversee that process, or go out and oversee it. I mean, that's to ensure that it's done, right, but also a little bit faster than the typical process. And so when that's not happening, it does raise question marks,

Ed Mysogland  42:18  
it does. So moving over to your practice. So I'm either I'm a I'm a business owner, that I want to be a franchisor How do I know when to call you? And conversely, I'm looking at a franchisee whether it be new franchisee or resale, I mean, when should a business owner or prospective entrepreneur be looking to someone like you for for counsel,

Josh Brown  42:46  
but I think if you're a on the franchisee side, if you get to a point where you're down to one or two, that you're really, really interested in, that's a really good time to call me certainly before you go to a discovery day, if possible, but definitely before you sign anything, but usually if you've got it down to one or two, you know, usually it's a good time to give a call on the franchisor side. If you are contemplating going the franchise route, at that point in time is a great time to call me because, you know, I do a lot of work with folks and educating them on what franchise is and isn't the difference between franchising and licensing? Do they really want to become a franchise? What will it take for them to become a franchise things they can do and not do during that process, and kind of walk through a whole lot of other aspects of it. So it's kind of interesting, if you're on the franchisor side, you probably want to contact me sooner rather than later. If you're on the franchisee side, and you're looking at 10 different concepts, you probably want to contact me when you narrow down a little bit. But, you know, if you have questions on how to narrow down or want, you know, referrals to good, good consultants or anything like that, you know, obviously, you know, folks like you and people at the Indiana business advisors are great folks to help with that. But typically, in terms of the legal services on the franchisee side is usually better when it's narrowed down to one or two.

Ed Mysogland  44:17  
Well, I've been accumulating one piece, one piece of advice that would give the most immediate impact on business value. So if you had one piece of advice to give to our listeners that would have the most immediate impact on the business, what would it be?

Josh Brown  44:34  
Yeah, there's so many things that you can that you can do in a business. But if you're talking about true business value, I know for myself, and again, I don't think this is the has to be the same answer across the board. But I look at the people you got to have great people who keep the thing going and are fully vested in it. And you've got to be in a business and in a market But that has potential for the age that we're living in. So in other words, you know, the, I really think you guys, I really think more and more business folks, you know, they can look and see what you're doing today. But if they can see where this thing's gonna go 10 years from now, I think you've really increased your business value, you know. And so obviously, along with having, making sure that you're focused, you're profitable, you're making sure you're focusing on the things that are working with you, those are all obvious things. But one thing I consistently hear from people is they place higher value on businesses where they say, you know, what, I think I can make a tweak here and there, and this thing is primed for the next 10 or 15 years, or primed for an opportunity to be purchased with the next 10 or 15 years in mind.

Ed Mysogland  45:47  
Perfect. Know that, you know, the you had mentioned employees? And I'll tell you one of the things and I don't know, if you're seeing the same thing in your space, but I'll tell you what the employee challenge is real out there that, you know, finding good employees and retaining them, you know, not that it's not necessarily been the same, you know, 20 years ago, but it's it certainly seems amplified these days.

Josh Brown  46:11  
Oh, it's hard. I mean, you know, the, we're in such a tight market right now that it is I routinely hear how hard it is to find and keep good people. And so, I think that I think that's always a challenge, even in a market where the unemployment is higher. But I think it's a real challenge now, and that, you know, a lot of the folks are employed. So I think what, what happens is, is, you can't just say that and just let that be an excuse. Well, that, that then has to lead to the entrepreneur, the business coming up with better and creative ways to satisfy the employees, because just because these people are hired, I mean, it sounds bad, but doesn't mean you can't go get them from somebody else, right? I mean, if you offer a better opportunity, in the same space are probably going to come to you. Right.

Ed Mysogland  47:00  
Right. And and we're talking home health care early, you know, we talked to home health care business owners, and that they're losing people, you know, for a quarter an hour or more,

Josh Brown  47:11  
I routinely hear that it's amazing luck to you, and I'd go, you'd really leave for a quarter. And then of course, you got all the issues with non competes and all that kind of stuff that they have to sort out with that. But the fact that somebody would leave for a quarter more an hour, but I will say this, it's not just about the money, it's about the environment. It's about the benefits. I mean, you're seeing a lot of people differentiating themselves on the healthcare side, know what kind of benefits they're offering, what kind of lifestyle be depending on the type of business you have. If you're looking for millennials, I can tell you that for a lot of them, just having flexibility, having better lifestyle form is going to make the difference. It has nothing to do with the money. It has to do with their lifestyle.

Ed Mysogland  47:52  
Yeah, we see the same In fact, one of our new hires, I mean, she's a millennial, and and it is interesting that that flexibilities is superior to compensation. So now we see the same thing. Amazing. So before I let you go, what's the best way we can connect with you?

Josh Brown  48:12  
Well, the best way is to just email me at he can email at Josh at Indie franchise law.com. You can also check out the podcast, just search in iTunes or wherever you listen to podcasts and go check out franchise. euphoria, we can always connect that way but typically by email is the best way.

Ed Mysogland  48:36  
Okay, well, I'll certainly link everything that we've talked about as well as your all your contact information to put it in the show notes and we'll go from there. It's been a pleasure talking with you. Oh, man, likewise, I I've been looking forward to this one and you certainly didn't disappoint. So I do appreciate all your time. Keep up the great work. All right. Thanks so much, Josh. Thank you for joining the defenders of business value podcast. If you're preparing your business for sale, visit legacy transition advisors.com or text exit to 35 893 to begin your journey to maximum saleable value. If you want more episodes packed with strategies to transfer maximum value in your business visit defenders of business value.com better yet subscribe now so you don't miss the future episodes. This program is copyrighted legacy transition advisors LLC. All rights reserved.