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Franchise Empires with The Wolf Podcast Interview: How FranShares is Lowering the Barriers to Franchise Ownership

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Podcast Transcription

Kenny Rose:

When you invest, you get equity in the company. It’s not just cashflow. You get equity. That’s a big plan of ours going forward with a lot of our growth funds is that we want private equity to be a [buyer 00:00:10] from us. And basically, if you’ve got 10 plus locations, they tend to snap them up and they’ll overpay, too, because they typically just have to beat market rate.

Kenny Rose:

And I’d love to be a supplier for them. So when we have an exit of a portfolio, all the investors in the portfolio get their shares worth of exit value from there. So it’s almost like if you owned shares of a publicly traded company and they got acquired, you get a pay out, it’s the same type of thing here. It’s already set up for the first portfolio.

The Wolf:

Welcome to Franchise Empires where aspiring entrepreneurs learn exactly what it takes to become a successful franchise owner, from one location to 10 and beyond. I’m The Wolf of Franchises.

The Wolf:

Hey guys, it’s The Wolf. We have a bit of a different vibe coming your way in the show today. My conversation this time is with Kenny Rose, the founder and CEO of FranShares. If you’ve listened to this podcast before, you’ve probably heard the advertisements that we’ve done for them, but this is a candid conversation with Kenny, where we dive into how exactly FranShares is able to give access to real franchises at just $500 a share, and what that can mean for you as an investor.

The Wolf:

We also discuss the ultimate roadmap for FranShares where Kenny foresees a future in which you can be dining or working out at a local franchise, and with a simple scan of a QR code, invest some money right then and there to have ownership in that business. It’s a super cool business idea. And I think you’re going to love hearing from Kenny.

Speaker 3:

The Wolf of Franchises is the CEO of [Wolfpack 00:01:40] Franchising, as well as a creator at Workweek Media. All opinions expressed by The Wolf and podcast guests are solely their own opinions and do not reflect the opinion of Wolfpack Franchising or Workweek.

Speaker 3:

This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. The Wolf, Workweek and Wolfpack Franchising may maintain positions in the franchises discussed on this podcast.

The Wolf:

How much do you work on FranShares? It’s a startup, and I know you have an employee now, right?

Kenny Rose:

I have a couple employees and they give me crap all the time because they check my calendar. They’re “I can’t book time with you.” Because honestly, especially now we’re doing, on top of all the normal stuff I have to do, we also do user interviews. I’d be making assumptions if it’s “Oh, here’s what they don’t understand. And here’s where we need to educate them. Here’s why they it.” You don’t really know until you actually start talking to them.

Kenny Rose:

And so we started originally, it was just as people signed up, it was part of the regular onboarding. So it’s, “Hey, do you want to talk to the founder for 15 minutes?” And I’ve done, I’ve lost count. I can go in our [inaudible 00:02:48] check, but I’ve probably done 400 or 500 of them now. And I’ve done 30 already this week.

Kenny Rose:

And I probably have another 40. It’s also when we had our influencer stuff start going out, waitlist exploded. So my calendar just immediately gone, booked with everything. So my girlfriend gives me crap because she’s “You need to schedule lunch in there.” Because I’d literally be, especially if they’re 15 minute calls. I’ve had days where there were 30 in a row. And I’m just.

The Wolf:

Holy crap.

Kenny Rose:

Sometimes you’re hoping people cancel on you. You’re “I need to run and go do something for a minute.”

The Wolf:

And that’s just kind of letting them ask any questions they have about the platform?

Kenny Rose:

So I usually structure it along the same way where it’s “How’d you find out about us? Why’d you care?” And we really go on that. I learn more about them. And then it’s okay. Well, I always ask if they read the whitepaper yet. And shocking amount have not. And I tell them, “When we hang up, you need to go read the whitepaper because we want to educate everyone, but it doesn’t work if you don’t read.”

Kenny Rose:

And also, it let’s them understand? Hey, I’m not going to I just tell them it would’ve gone a lot better if you had already read. So it’s all right, what questions do you have before you read that because you’re going to get a lot more information out of there than I can give you in 15 minutes. So and then it’s been so busy that we now we’re doing weekly webinars and for certain people we’ll still do one on ones, which obviously there were a lot of certain people this week.

The Wolf:

Wow. It’s a lot, that’s, it’s kind of Paul Graham, do things that don’t scale.

Kenny Rose:

Yeah.

The Wolf:

Seems like a good playbook for any startup founder is just in the early days, get to know your customer, learn from them, see what you could do that makes your product better early on, so.

Kenny Rose:

It’s amazing the variety people that you get on there too, it’s everyone from the, oh, I might do 500 bucks, but it’s a lot to me all the way too. I’m probably going to do half a million, but I might do some more. We’ll see. And then on top of that, it’s just how they treat you too. A lot of people think they’re really appreciative and they’re, hey it’s great to connect you. I didn’t actually expect to be talking to the founder. I thought it’d be someone else.

The Wolf:

It’s cool.

Kenny Rose:

And then they’re some people who just treat me like a complete piece of garbage and they’re you’re trying to earn my money. Okay, let’s see, let’s get some answers. I’m like hey, I’m going to answer everything. But I’m not your stock broker, I’m here to help you if you want to do something we got over 20,000 on the wait list. I don’t have to give you time.

The Wolf:

You’re not desperate here.

Kenny Rose:

Yeah.

The Wolf:

That’s funny. No, that reminds me back to my past life as a franchise salesperson where right from the get go, you get on the introductory call that they booked to learn about your franchise. And it’s just right off the bat. It’s very, almost confrontational as if they’re automatically expecting that you’re trying to rip them off. And I’m, hey, you booked this call and you’re asking me questions.

Kenny Rose:

So I would actually, when I was running my brokerage Semfia, I would address that head on and first call be hey, just so you know there’s a 95% chance that you’re never going to do this, but I’m here to help you go through the process and see if you want to, here, there’s a ton of reasons why probably won’t work out for you. But if it does make sense for you, then I’m going to make sure we do everything to get you there.

Kenny Rose:

It was a couple reasons for that. I wanted people to know that I’m not planning on closing them, odds are, I’m never going to make money off this, but I tell them, I want you to learn all of this. And also you’re going to end up referring people to me down the road, if it’s not a good fit for you.

Kenny Rose:

And I think it was, they were very comforting in that. And also I wanted to test them too because some people are just looking into franchising for all the wrong reasons. And as a business owner, you’re going to get kicked in the face. I don’t care if it’s franchising or startup, you have to grind and work your way up. And so I wanted to be that to be the first pushback. It’s well, if they hear that, are they going to be done? Because great that’s what they needed to hear then. And they should not go into this.

The Wolf:

No, definitely. That was part of my initial thing on the intro call as well was just, I call it setting the upfront contract. It’s hey, this is the process. If you make it that far, chances are you’re not, you’re going to drop out for one of X reasons and right. You and I too were different in that you’re a broker, how many brands did you represent?

Kenny Rose:

Five or 600.

The Wolf:

A couple hundred at least. Okay. Five or 600. I was working for a development firm that had five or six brands at most, at one time. So I would say I’d be, look there’s tons of brands out there. If this one isn’t it, that’s it our relationship is over.

Kenny Rose:

Thank you goodbye.

The Wolf:

But it would usually help to build trust, but I also just kind of disarm, hopefully those ones who come in hot who think you’re trying to steal their money or something.

Kenny Rose:

And I like that you said that upfront contract, kind isn’t that [Sandler 00:07:40] sales training.

The Wolf:

Yes, Sandler baby.

Kenny Rose:

[crosstalk 00:07:43] it’s also a franchise, franchises for everything. I love it.

The Wolf:

Sandler is great. Great sales training. Oh that honestly, I don’t want to sound dramatic, but it changed the trajectory of my career because I was working for a franchise, this before the development firm. And so this is the first job I had out of college, territory manager for this it’s a HVAC supply house franchise. And so I was selling to, I was a territory manager selling to residential and commercial contractors and I was getting groomed for it.

The Wolf:

But long story short, salesman passed away who was older unexpectedly. So I was going to replace him in a few years when he retired. But they’re like, all right, hey you’re in, it’s time to get in there. So, and I’m, I have no idea what I’m doing sales wise. And luckily the manager there just sent me to a Sandler class. He didn’t really want to, I don’t think, but I don’t even know how it happened, but thank God he did that because I learned so much. It was awesome, man.

Kenny Rose:

That’s really cool. I because especially in the FranNet days, we’d sell Sandler everywhere. And so they’d actually want to make sure that we both did a great job and sold them specifically. And so they’d give us some trainings, conferences and stuff, which was really cool.

The Wolf:

Oh that’s kind of cool.

Kenny Rose:

As we get for free because honestly I was technically an independent contractor, so my bosses were paying for it. So I’m like great. I’ll take the free stuff.

The Wolf:

No definitely. And so brokering was, and for people who don’t know, being a franchise broker, sometimes they’re referred to as consultants in the industry. But the reality is they’re brokers. They represent hundreds of brands and they function much like a real estate broker would, right.

The Wolf:

They help you find a franchise. You don’t have to pay for them. They get commissioned by the franchise if you end up purchasing one of their brands, that was your introduction, right? To the franchise world, or were you doing something?

Kenny Rose:

No, that was it. And I love that you said the same stuff about brokers that I do is that I use the term broker all the time, especially with my last company was Semfia franchise brokerage. I threw it right out there because I find the term consultant very misleading. It’s consults usually you pay them and they give you advice on how to change things for the benefit.

Kenny Rose:

And it’s really, it’s you get paid if you close, that’s a broker. And so you, [crosstalk 00:10:04], I think broker, they thought broker has a negative connotation, but I wanted to lean into it and be that’s what I am. people come to brokers when they needed a specific service. And so I wanted to be upfront and honest, that was, I think calling it anything different, I felt misleading.

The Wolf:

No, I love that. I think I wish more people did it because I’ve definitely spoken to candidates who got a bad taste in their mouth from brokers because maybe they weren’t sure of how the what the incentive structure was.

The Wolf:

And then all of a sudden they looked back and they’re oh well now I know why they were pushing me hard to a few brands that I made clear I wasn’t really that interested in. And I think there’s definitely there can be issues with that model. Well, what was your whole first impression of just the franchise industry when you got into it?

Kenny Rose:

So funny, it was actually my ex girlfriend’s dad introduced me to franchising, great guy. So I’d known him for years and he was the CEO of a company that coaches, CEO. So I’d always known him as that. And after college he’s hey, I got a ton introductions for you. I’d love to get you a job.

Kenny Rose:

So I’m hey, I worked hard to get into Merrill Lynch, I’m going to go get a job there because I’d intern for two semesters. I’m that’s my career path I set up. And so I went there, got the job, was there for a year or two, hated it. I was I need to get out of this immediately. And I started talking, I’m hey Jim, I’d love to start taking you up on your offer. And he threw me an absolute curve ball and he was what do you know about franchising?

Kenny Rose:

Franchising? What do you know about it? I’m thinking McDonald’s, Subway, KFC, literally everyone listening originally was like. And he is, did you know my company’s a franchise? I’m like you’re a franchise. He’s, yeah. I didn’t know that was franchise. He says they have franchises for everything. And he’d been working with FranNet for years on the brokerage side.

Kenny Rose:

And so he said, I want you to meet a couple guys. And they were my mentors in the franchise industry and they owned the Southern California territory. And so I started off in business development for them, but it was kind of when I had my first interview to actually be an intern at Merrill Lynch, it was just I didn’t know what it was and I’ve gotten inquisitive mind. So I asked a hundred questions and I think they saw me connecting with it very quickly because my dad’s always been an entrepreneur.

Kenny Rose:

I would’ve loved to been an entrepreneur back then, but I didn’t have a specific idea. It’s hard to have the idea that’s going to really carry or have the systems in place. So I’m hearing this and I’m like man, this is great and funny enough, like I said, they’ve a franchise for everything. FranNet is a franchise too. So it was a franchise brokerage franchise.

The Wolf:

That’s the most meta thing I’ve heard. Wait, so he was the CEO of his own FranNet franchise?

Kenny Rose:

He was the franchisee of that territory.

The Wolf:

Okay. Right.

Kenny Rose:

I get into a little loose area when it comes to being the CEO of a franchise when it’s your franchisee because I know there’s some people who mislead others by saying they’re the president of the company, the CEO of that. And it’s just well, you got to be specific about that. You were of that territory if you-

The Wolf:

No, for sure. Oh, interesting. Okay. So I didn’t know that. So where do you go from there? You’re a broker for a few years and obviously you went to Semfia. So you just figured I’d rather be the top deal maker versus working within the system of supporting another broker?

Kenny Rose:

Well originally I started off doing business development for them and so I was going to a bunch of networking events, driving all over Southern California and then they brought me up and made me a full fledged broker. And then I was starting off helping out in orange county then eventually took over half of LA county forum.

Kenny Rose:

And I was doing it for, I don’t know, a year or two of running that territory. And then got to this point of where it was my lease was coming up and just was thinking about life I had moved to Redondo beach in south bay of LA and I always said, I’d never moved to LA, but I was it’s an opportunity I couldn’t pass up. But my first year’s coming up there and I’m okay, well what’s the next move.

Kenny Rose:

I got to be thinking long term because I can’t buy this company. They are the franchisees, they’d been the franchisees for 30 years, they were not selling it. And so I was what’s the next move? And so I’m thinking about reflecting and it’s all, they would do two conventions a year. And I felt every convention I was going to, they’re doing a new seminar on something that I’d come up with pretty much.

Kenny Rose:

And then they were expanding on and teaching it to everyone else. Then it got to when I went to one of the broker trainings for them and literally flip open the training manual, I’m these are my emails. Why are my emails in your book? And I was oh, I didn’t get paid for that. Okay. And then also this other thing, this book here is I’m a, one of the 15 business thought leaders in an Amazon best seller.

Kenny Rose:

And I actually had to pay to help them get it published. And it is a Amazon best seller and I do not get royalties on it. So I’m okay, I think I’m helping you guys more than you’re helping me at this point. And between that and all this stuff, I was I’ve learned it all. It’s been five years about I’m going to go out and start on my own.

Kenny Rose:

And so I moved out to Chicago, started my own and I wanted a very different focus because normally it’s they’re all consultants. And they work with people in career transition. Normally, it’s executives who get laid off, who are, they also get tired of finding a job a lot the time it’s oh I can buy this business and do it that, be an entrepreneur.

Kenny Rose:

It’s a great route. If you have the mindset, it’s a great way to get in business for yourself, but I realize that’s not what a lot of them wanted. A lot of them were no, I like corporate. I want a side business. I think this is the way to do a side business. Especially semi absentee franchises were up more and more because all the technologies there to have a lot of them run automatically, not automatically, but you can manage the manager a lot easier with all the technology there.

Kenny Rose:

So I was, I want to dive headfirst into that side of things. And especially coming with the Merrill Lynch background, it was okay I know how to sell investments and I know franchising, so let’s sell franchising as an investment. And so I really focused on that. And then I just had a big push on education too. Everyone here, we talk about it constantly. I did it with Semfia too. I want people to learn about it and then just kind of took off from there.

The Wolf:

Wow. Okay. What concepts did you either find the most success with meaning that candidates were interested in or just some of your favorite concepts. If you were representing 500 to 600.

Kenny Rose:

I worked with concepts in everything. I was very agnostic because every person’s very different. So you want to find the right one for them. But again, because I was doing a lot of semi absentee stuff, fitness was one that was especially just more common. I’d see that in hair care, came up a whole lot.

The Wolf:

Oh really.

Kenny Rose:

My favorite ones are the weird ones. The ones that people just do not think of as being a business, waste management, dryer vent cleaning, window, washing, there’s things that people don’t think of as and they’re all round. People just don’t see as oh that’s a business. And it’s those are the ones I like because people tend to like the more flashier stuff. And everyone always comes in asking about McDonald’s I’m why do you want a McDonald’s?

Kenny Rose:

And well it’s the golden arch, everyone knows it, it’s everywhere. I’m like well, there’s a lot of brands like that. What are you looking for out of it? And we start talking more. I’m so you want to make money? They’re like yeah. I’m like great. Well, one, McDonald’s is kind of harder to do that. They’re very expensive. It’s very tight margins.

Kenny Rose:

If you want 50 McDonald’s you’ll make money like you’re saying, but why not? For the cost of one McDonald’s why don’t you do five Supercuts. They’re I can do that. I’m like yeah. You don’t have as big of a storefront. You don’t have as many employees, you don’t have to build a kitchen.

Kenny Rose:

And they’re like oh, well that makes sense because it’s just that people don’t know about franchising. They have an idea and then when they start learning, they’re oh crap. This is actually, I was looking at totally different direction than what I meant to go in.

The Wolf:

It’s a pretty similar mindset to what I learned from being at the [Dev 00:18:14] firm was just that the best and the most successful multi-unit operators were the ones who, like you said, right? Just finding a good concept, that good unit economics, build out multiple than, right?

The Wolf:

The lower, the real estate was more attractive, less, labor’s always a good thing. And, or even just, if you can do a GM to a location, essentially a manager per store, and then you’re just managing the managers or even maybe you’re the first manager. And then after that after a few locations, you hire someone and kind of outsource it. But that’s definitely the play book that seemed to be the best with [Multinet 00:18:52] operators.

Kenny Rose:

So you really got to have that empire building mindset going into because lot people just try cheaping out right off the bat. They’re oh they recommend spending 70,000 on a GM. Well, you know what? I can find one for 50 and they’re going to be great. It’s like you can find one for 50. It’s not going to be a good one for 50. But That’s where people do is they start cheaping out in these different areas.

Kenny Rose:

They’re on the empire building mentality where it’s no, if I’m in empire mode, instead of 70, I’m going to spend 90 because I want the best. And I want the one who’s going to bring the best employees, crank out the best numbers and make my ROI higher in the long run. It’s like you can see 20 grand the short run, or what 20 grand gets you in long run.

The Wolf:

Exactly. The long term mindset’s key, right? Because you start getting turnover early on as you’re building new locations and you can just confine yourself in really tough spots and especially right if you’re going for that semi-absentee role where maybe you have a job still, it’s just [crosstalk 00:19:47].

Kenny Rose:

Just huge. And I don’t know why people always overspend, if you can. And if you can’t wait until you can. That’s how it should be.

The Wolf:

No, definitely. All right. Well, so when did you decide, and maybe it wasn’t that you tell me, was it that you got sick of, or just tired of the broker game or was it a push or a pulse with FranShares and how did that idea develop.

Kenny Rose:

Man, I got thrown off a cliff that I had to do this right then because I actually had the idea for FranShares right around when I was starting Semfia. And that was part of the reason of starting. It was, so this is six, seven years ago. I heard about Fundrise and there’s series A and I started diving all into Fundrise and I’m oh gosh, I can do this for franchise.

Kenny Rose:

It had a lot that needed to be fleshed out. And also I didn’t see myself personally as someone who was fundable by venture capital, I was I’m not there yet. So I wanted to get there. And I also knew that what people in the franchise industry tend to get in their tracks and they stay in their tracks and they don’t think, what can I do differently?

Kenny Rose:

So I was I don’t think no one’s going to beat me to this idea. And so I was okay, let me go build this other company, make myself extremely fundable. And then we’ll start FranShares. It wasn’t even called that then I didn’t have a name at the time. Then big part of doing what I did with Semfia was become a thought leader in the space.

Kenny Rose:

You’re already off to a hell of a better start than I did at it’s a sky’s the limit for you. But I started off just writing on Quora and answering questions and honestly, I had a big break on there where I answered one about how much a Chick-fil-A franchise cost. And it’s insane because when you write answers, you get people engaging and upvoting with it because I didn’t even know they’re sneakily one of the most visited websites, it’s 300 million users a month.

Kenny Rose:

So I answer a question and then people upvoted it and they see that it’s got good engagement. They’ll send it in they’re daily emails, they call it a daily digest. And so then it’s we just send your answer to 500 people. And I was oh my gosh, that’s awesome. And then they gauge how people react to that if they should send it to more. And so then it’s hey, we send it to a thousand. Hey, we sent it 20,000, every time, losing my mind.

Kenny Rose:

And then it was then hey, we sent it to a million and I’m oh my gosh, I’ll never forget. I was in an elevator actually, thankfully I had a reception. I think I was on my way to a party too. And it’s we just sent your answer to 20 million people and I just walk in, just my jaws dropped. They’re what’s going on? I just show them the notification I even opened it there, we all just lost our mind.

Kenny Rose:

So until they sent it to 40 million people and it just kept taken off from there, it got cited in a bunch of articles. I remember not long after this, I was reading the hustle. You’re a hustle reader too, right?

The Wolf:

Well the work week crew, so now that I’m working with them I’m and partner with them, with the content, the core, the founders are from the hustle.

Kenny Rose:

Okay. There you go. That makes sense. Especially when the hustle got acquired by HubSpot, I was so excited for them, but Yes. So, well hopefully Workweek’s not mad we’re talking about them. [crosstalk 00:23:02]. So I was reading the daily newsletters and one of them said, hey, we’re writing an article on Chick-fil-A, does anyone have any insights into it? It’s like reach out.

Kenny Rose:

And then they book a call with me and I’m talking to Zach Crockett. He’s the head writer for the Sunday stories. And he’s like this is crazy. I actually have your answer open in another tab. You’re the guy I wanted to talk to, I’m perfect. And so then they end up writing a whole Sunday story about it. And beginning of last year they sent out their, it was one of their top stories for the entire year of the hustle.

The Wolf:

It went viral, man. That was a sick writeup because I love that Sunday, they still do it. The Sunday edition is awesome.

Kenny Rose:

They always have such amazing things in there. You’re just why did you even think that this was a thing to right on? And then how’d you get so in depth on it.

The Wolf:

It’s incredible. Zach does a killer job. I’m curious, what drove more to Semfia the core, was your phone or email blowing up from that? Or was that much more an awareness?

Kenny Rose:

I’d say it was more an awareness thing. I get some coming from there, but also it was a combination. You have to start stacking up these different routes where people find you because another one is, have you ever heard of a hero? Help a reporter out?

The Wolf:

Yeah.

Kenny Rose:

So for those who don’t know it’s a, if you want to be a source for something, you sign up for it, they send you three emails a day and it’s broken on by section. And so for three years straight, three times a day, every day, I’m opening those up and looking for something about franchising and believe me, they do not write about franchising very much anywhere.

Kenny Rose:

But I manage to end up getting picked up in Forbes, American Expresses blog, eventually Business Insider did a whole article on me, which I thought I was just doing a quote, they’re no, the whole article’s on you. And you’re working the industry. I’m oh my gosh, it’s amazing. In total with all those, I reached 300 million people without any ad spend. And so it was they were just coming in from different sources and just kept stacking up over time.

Kenny Rose:

And so when you asked about how did franchise go? It was honestly I built a good brokerage. I was very happy with everything. It was a struggle to get there, don’t get me wrong, but I was very happy with where I was at the time. And then especially when quarantine hit and COVID’s first breaking out, I actually had a ton of deals that were going on still.

Kenny Rose:

And a lot of people were oh I especially they’re thinking long term. It’s not going to last forever. We could start building things up however, but then I read an article that people were gambling on the stock market because sports went on and I was just, Oh my gosh.

The Wolf:

[crosstalk 00:25:35] baby.

Kenny Rose:

I was just oh my gosh, I’m late. It was not even questions like shut Semfia down, get franchises going. it was just not even a question.

The Wolf:

So that was the moment you’re like now is the time?

Kenny Rose:

It had to happen. If this was already running, man, I could have gotten a billion in assets under management immediately, but I was hey, better late than never. And then I had a bunch of friends in the startup world, especially I got to give a shout out to Cody Barbo with Trust and Will, he was a friend from college.

Kenny Rose:

We were fraternity presidents, same time and he’d been through multiple fundraisers, different companies for good and bad. And so he just helped me get all the way here. And then Now we’re sitting with 23,000 on the wait list.

The Wolf:

So did you raised money, right? Once you were mid quarantine and you’re like I got to get this going. Was your first instinct build it yourself? Or did you know that this was going to need venture backing?

Kenny Rose:

Oh, I knew it was impossible to do without venture backing, legal fees, registering with the SEC is not a cheap thing. And especially I wasn’t looking at who would do it for cheapest. I was looking for who would do it right. And so I could have gotten it done for a fourth of the price, if not less, but I was I want the best lawyers in the country on this.

Kenny Rose:

I want to pay top dollar because it’s a security, it’s an asset. I want to make sure we’re doing this right. So it was, I had to go raise money for that. And also marketing, it’s important to, if you’re going to do marketing, right? You got to spend it, right. And so I knew just those two, I had to raise money for it.

The Wolf:

And so if someone’s never heard of FranShares, but maybe they’re interested to invest in investing and they have Robin hood. Maybe they have a few fractional trading platforms Rally Rd road or FUNDrives like you mentioned earlier, just from the product end, for the consumer, what’s the experience going to be like, is there an app and how is it going to work?

Kenny Rose:

The app will be coming later this year but it’s a pretty standard workflow in the fractional investing world because when you think about, it’s like just investing in stocks, it’s you need the ability to learn about the investment and deposit money. And then really the rest is the management side that’s done by the company you’re investing in. And so it’s a really smooth interface.

Kenny Rose:

If anything the only concern is you have to go through the, know your customer and anti-money laundering checks with everyone, which I feel people are I just want one click checkout. This is investing, I got to make sure you’re who you say you are. And it’s funny because especially in the world of crypto, they don’t even want to give your name. It’s like here’s my number. And so I think that’s the only part that people don’t care for.

Kenny Rose:

But realistically it’s a great interface to be able to go in learn everything about franchises that you’re investing in. I’m about over education so I want people to know everything about the franchises, the leadership teams, why we chose them what their locations make normally. How much they cost?

Kenny Rose:

Because I feel there’s just so little transparency going on that there needs to be something that is, and that’s a great thing about franchising is a, everything’s regulated by the federal trade commission. So a lot of our stuff we’re pulling from the federal trade commission filings and we’re Hey, we’re not giving you the numbers. This is the stuff that they put out that is regulated by the FTC.

The Wolf:

Oh, beautiful. So are you going to have basically information from the franchise disclosure documents in the app? let’s just pretend it’s, McDonald’s, it’ll say from McDonald’s FDD this is the average unit volume.

Kenny Rose:

So I brought, we couldn’t fit the entire FDDs because that honestly my own [crosstalk 00:29:21], not as long as those, but things like the item sevens for cost, item nineteens for returns. I want to show people hey, we’re not making up numbers for you. I want to use their numbers.

Kenny Rose:

Honestly, with the setup we have, we’re going to be beating average performance, but I wanted to show people average performance and make sure that they’re comfortable with that. And we’re stretching out the ramp up period and overdoing how much management costs are there because I’d rather under promise and overdeliver when it came to this.

The Wolf:

Definitely. And let’s dive into that as far as your setup versus a standard franchise owner, how does it differ?

Kenny Rose:

I think one of my concerns with, there are lot of great franchise owners out there, but there’s also some terrible ones and every franchise owner can tell you certain things that do it for them. And a lot of times it’s people not following the process or they’re not properly financed. They want to do their own thing on their own time. And so what we do is really bring more of the portfolio, a fund approach to it where we’re building out teams instead of hey, can this one person skillset transition over from corporate to the franchise world?

Kenny Rose:

And also can they personally do, can they deal with not being in office instead going to working in a small business, instead of doing all this stuff, it’s, let’s put in team in place that actually have already done it. And that they’re very well experienced.

Kenny Rose:

And so instead of one person doing 10 different functions from marketing and finance, even with the support of the franchise or it’s still a lot to do, but instead it’s, hey, if we’re doing 20, 30 locations of something, we can build out a team and instead of one person doing marketing and finance, we can have actual people that are designated for each one. And so they can be more effective in it.

Kenny Rose:

And so we bring a stronger foundation and that’s why franchisees have already been loving this. Some of the ones we’re working with are already talking to us about rolling up other locations. I’ve got man, the big names in franchises that have reached out already has been amazing because they see it’s what private equity does.

Kenny Rose:

But if private equity did it right, because a lot of times private equity’s they’re hey, we’ll overpay. We’ll strip things out because we just need to beat market rates. I’m held accountable by investors. So I want to destroy those market rates and private equity can buy our funds later for much more. And I thank you for it in advance.

The Wolf:

Okay. So what I’m hearing is basically this is not a slight towards franchise owners at all. It’s just, there’s good ones and there’s bad ones, but what you’re bringing to the table to the franchisors perspective is not only you’re not going to be a good franchise owner, you’re almost institutional, professionally managed franchises with legitimate teams. Behind all the locations that, a standard franchise owner just they realistic, you can’t afford that to do that from scratch.

Kenny Rose:

It’s kind of a good comparison to be if you were some, an individual buying a commercial property or if you’re a [inaudible 00:32:25] and you’ve got all those systems in place and you’ve got the capital, you’ve got the people you’ve got the operations. It’s, I’d rather go with those big guys because they have everything set up already.

The Wolf:

No. Okay. That’s a great comparison. How do you balance sort of this is more just, I don’t know, philosophical question. So you’re a startup founder, but you obviously know the benefits of franchises really well if someone’s hearing this, they might think, oh this is awesome Kenny’s founding FranShares and maybe they’re pulled towards a startup, but you also so much experience working with franchise owners.

The Wolf:

Where do you see as the pros and cons do, would you recommend one over the other, go start a company or hey, this is high risk, high reward. The franchise path is probably better.

Kenny Rose:

It’s the same thing as vetting anyone who wants to get into franchising anyway, it’s that there’s no one sweeping answer that’s right. It really depends on your goals. If you’re looking at franchising as just an investment and you’re I want to get return on investment from these tangible businesses we are the way to go.

Kenny Rose:

If you’re, hey, I’m trying to get out of the corporate world, I’ve got a great skillset and I’m ready to run my own business. I’ve got a driving need to do it, franchising is definitely a great way to we’re still franchising, but being an owner operator is a great way to go. And then if you’re comparing it to startup world, honestly, just the odds are so against you in starting from scratch and especially the startup tech world.

Kenny Rose:

And I got so many viral posts on LinkedIn, the last six months because I’ve been actually telling my story finally because there were plenty of years of struggle. I’ve invested 10 years to get to this point. And it’s a lot of people were man, how has no one done this? Oh you got to be so excited. I’m like there were no cheerleaders the last 10 years it wasn’t until now.

Kenny Rose:

And that’s part of how I was able to get funding was that I invested 10 years to get to this point to no one has ever thrown me a curve ball of a question on a venture call. They want to poke holes and whether it’s my experience, or franchising, or this model and I just knock them all the part I know I’m patting myself on the back really hard here, but after a couple hundred calls of it, I think you get a little grace to do that.

The Wolf:

No, definitely man definitely. I’m sure it’s been a lot of rejections to get to this point, but I do know when I heard, I either found out about it from a newsletter or I don’t know if there was an announcement or something, but I found out about FranShares that my first reaction, I said, how do you, why didn’t I think of that. It’s genius man. And I’m very much on top of all the fractional share platforms, I’m aware of them. I love it. I’m a big fan of FinTech. So to me being in the franchise world in here, I was, I missed that one.

Kenny Rose:

I’d been paying attention to it all for a long time. It just, it was honestly perfect timing for us. The market’s really matured and adopted to Fractional investing in alternatives. And there’s still so much more room for it.

Kenny Rose:

It’s actually still a small fraction of people that really think about fractional investing in real estate and artwork and soon franchises. So it’s not well known still, but yet it’s still a huge industry already.

The Wolf:

No for sure. It’s got a ton of room to run and I think part of it’s probably there’s ways where it can get integrated more into let’s call it traditional forms of investing, meaning you can allocate some of it from your IRA or 401k even. I don’t know why that shouldn’t happen. There’s probably a risk for a 401k to have.

Kenny Rose:

So it’s actually start to become so a big thing that happened with this was I think it was June 2020, the department of labor issued a letter saying, hey, because before it was about all about risk tolerance is that 401ks can’t invest in alternatives because they’re too risky. But then basically they start, they’ve been reviewing this the last couple years and then the department of labor came out and said, we’re going to start letting 401ks actually invested.

Kenny Rose:

There are some already that can do this, if you’re looking an Alto IRA or rocket dollar there’s ways to do it. But they’re the only ones soon you’ll have these big institutional funds that are opening up. So once you get the, hey it’s okay to do it, you still need a couple years to ease into the market so soon anyone’s going to be able to access out of any 401k. It’s just, it takes time for the market to get there. Especially when it’s around finances.

The Wolf:

No, definitely a lot of red tape to get through. And so as we’re recording this today it’s March 9th, the first fund is hopefully launching and let’s call it in like a month. And we can’t say the brands, right?

Kenny Rose:

No, honestly, when it comes to the SEC I just [inaudible 00:37:09] the side of caution.

The Wolf:

I would definitely do the same.

Kenny Rose:

It’s especially with all these user interviews I’ve been doing, there’s so many questions I get and I’m hey, I’d love tell you about this. But it’s technically soliciting an unregistered fund at that point. And so I’m just hands off.

Kenny Rose:

And luckily everyone’s been really cool with that. I think they get it, but it’s funny how much people love this and I get still, almost hate me. when’s this opening already? And I’m whoa. Calm down, I want it opening yesterday too.

The Wolf:

People are hungry for the franchises, but I guess just generally, there’s going to be what, 25 locations of one franchise, 25 of another to start for fund one?

Kenny Rose:

25 and 30.

The Wolf:

And if someone is throwing, it’s $500 a share, let’s just say they’re buying four shares of $2000. That’s just getting distributed equally across the fund. Correct?

Kenny Rose:

The way I saw it is if someone was first start getting into investing in stocks, you wouldn’t tell them to invest in one or two stocks, you’d say hop into a mutual fund, watch it, learn it. And then you can go there. So I wanted the same approach for this. So it’s a mutual fund of franchises. So you’re diversified by different geographies, different brands and different industries.

The Wolf:

I love it. Just not having it be sector dependent. I think that’s great.

Kenny Rose:

And a lot of people would ask, can I pick individually? I’m like you wouldn’t know what you’re looking at really.

The Wolf:

No, for sure. And as you grow let’s say this first fund, obviously been building a massive wait list. I would imagine it’ll be oversubscribed once you’re officially able to open it up?

Kenny Rose:

I think we can fill this fund four times over already.

The Wolf:

It’s amazing. As you add brands, is it kind of a rinse and repeat playbook? Just what you’re going to be doing for these first two brands. Just keep doing that for other brands or is there almost other financial products or as realms that you can go down?

Kenny Rose:

You’re getting there. That’s how I viewed that is that any financial product that exists outside of shorting stuff. I want to have a product for it. So this first fund is a growth fund, the next portfolio is going to be an income portfolio. And so they’ll have different objectives and structures based on what investor goals are because some people don’t want things like the first fund.

Kenny Rose:

And they’re going to want the second one instead, other people want to diversify across two and more so we have a lot of different ones going forward. But one of the big things I really want to get towards is this localization effect where I’m in Chicago, I want to own the things I go to everyday. I’d like to go get a haircut at a Supercuts I own or get my oil changed at a Meineke I own.

Kenny Rose:

Go workout at the Orangetheory I own. And so I think could people really get, it’s a power powerful feeling right there is walking around your town and going to things that you co-own. And anytime a friend of your says man, I hate my gym. You’d be oh, you should come over to this one.

Kenny Rose:

I’m actually a co-owner and they’re all of a sudden, they’re talking about their own investments and they’re bringing people to actually have an impact on their investments. You can go work out here and they’re making themselves money doing that.

The Wolf:

So at scale, this could be just, you could theoretically be segmenting by geography so that you can actually target and say, I want to buy the franchises in my town.

Kenny Rose:

Well eventually I want you to just scan a QR code and buy some shares of the place you’ve just eaten from.

The Wolf:

Oh, that would be sweet. And obviously right, we’re talking there’s steps that we need to build to this, but would it theoretically trade a stock market in the sense of there’s open market hours where you can trade your shares and there’s someone else on the other end of that transact action buying it from you?

Kenny Rose:

Even this first portfolio, we’re secondary trading platform. So you could start doing it with this one, but eventually I’d it to do on other levels where you’re trading other types of shares, other classes, stuff like that. But That’s well, I wanted to make sure because as a alternative asset, we can’t guarantee liquidity.

Kenny Rose:

So I want to do everything I can to help facilitate, having the trading platform there, having an extra wait list there. I want all these things in there. So we can really help as much as we can, but we tell everyone plan on a long term, five to seven year old, that’s what you should be planning on. And that’s how you’re going to see the most benefit. But I know happens and I want to be a helpful hand, not just a imposition on people.

The Wolf:

Okay. And from an investor standpoint, it let’s say there’s another growth fund. It’s an earlier stage franchise not a proven brand like a McDonald’s or an Orangetheory, but let’s say this franchise does really well. All of a sudden as an investor is the possibility that not only you’re getting monthly distributions from your shares, but could those actual shares increase in value that if you decide to you can trade it on the secondary market for higher than you purchase it.

Kenny Rose:

We’re already doing that for the first fund. When you invest, you get equity in the company, it’s not just cashflow, you get equity. So that’s a big plan of ours going forward with a lot of our growth funds is that we want private equity to be a buyer from us. And basically if you’ve got 10 plus locations, they tend to snap them up and they’ll overpay too because they typically just have to beat market rate and I’d love to be a supplier for them.

Kenny Rose:

So when we have an exit of a portfolio, all the investors in the portfolio get their shares worth of exit value from there. So it’s almost if you owned shares of a publicly traded company and they got acquired and you get a pay up, it’s the same type of thing here. It’s already set up for the first portfolio.

The Wolf:

Beautiful. I love that. And I think that just, I got to imagine the reception has been pretty easy then for investors, right? There’s so many comparables.

Kenny Rose:

Especially, and the higher level ones too. We’ve got a ton of family offices reaching out, institutional capital starting to reach out too. A bunch of private equity groups. So the demands there and we’re just excited to get it out there for people.

The Wolf:

Fantastic. And if you own a franchise this is a probably a smaller audience than just your everyday investor who could throw 500 to $2,000 into this. I feel that’s kind of your main target is just giving, lowering the bear to entry for them. But as a franchise owner, is there ever a world in which probably not at first, but later down the road, they can go to FranShares and let’s say they need growth capital to build locations. Is that part of the vision or is that more just not on the roadmap?

Kenny Rose:

It is part of it. we definitely want to have debt offerings. It’s just that you have to do it in the right way because I’ve seen platforms where they do small business loans, especially for startup costs. And the problem is that a lot of times, honestly the SBA back to loans are fantastic and that should be where you go generally. So it’s hard to beat those. And so if you’re not going there, typically people are charging too much interest and it’s just not beneficial for the franchisee.

Kenny Rose:

And frankly, a lot of the investors, it’s not enough pull form anyway. So it’s hard to find the right balance there. So we’re definitely going to see the best way to do that. But I think honestly, a lot of them are going to prefer to sell a little equity, get some chips off the table, but sell it to their local market.

Kenny Rose:

And so that way you’ve got more buy-in from what your community, and you’re going to have built-in customers. You’re going to have builtin, evangels telling people to go there. So that’s definitely a route I see us going, but I want to be able to benefit them in any way. Just that again, it’s hard to beat the SBA.

The Wolf:

I just love that community aspect though because you’re right. Just the buy-in is, it’s never been done before, right? It’s funny, my parents love buying stocks. My mom, especially she owns class, I don’t even know class Z of Berkshire Hathaway.

The Wolf:

But they own the world basically. So anytime she’s having a product that they own, whether it’s dairy queen or Coca-Cola, God knows how many companies that they’re owners of, she likes to pretend yup. She’s boosting her stock price.

Kenny Rose:

Those are harder to actually think of that too. A lot of people own Disney shares, they don’t watch a movie and they’re like I own Disney I’m contributing. Versus if you actually see the store walking or driving down, that’s very different. That’s tangible. It’s the tangibility factor, it’s really hard.

The Wolf:

Exactly.

Kenny Rose:

You can have shares of Walmart stock, we’ve drive by Walmart. You, most people just don’t really think about it. It’s also commercial real estate. It’s also usually not in their market at all. So you don’t go driving by oh there’s 400 West Wacker. Guys, get it, love it. So it’s things that you can actually be a part of and see.

The Wolf:

No. It’s a way more exciting and I think there’s just an element of fun to it. So that’s cool, man. I guess, anything I didn’t touch on that you’d want to get out, but I feel we’ve covered kind of the mission and just how it’s going to work for investors.

Kenny Rose:

I think we’re going to have many conversations in the future because I go on about a million things, but actually we got a little sidetrack. There was the actual funding of the company itself. If you asked me if I could have done this on my own, but that I didn’t. So you want to go down that road? We got time.

The Wolf:

Awesome.

Kenny Rose:

Because it was funny when I first started this, I was just oh, there’s so many companies that do fractional ownership of stuff, shouldn’t be a problem to get funding. And I reached out to three or 400 different venture capital groups and might have gotten two or three responses to be honest. And those were just friendly ones. They were typically Chicago based and was oh, you’re in Chicago. Sure. Let’s chat.

Kenny Rose:

And I was, it’s early. Good luck. And I was all right, well again, I saw the vision. I’m going to keep marching through. And so I actually started off, I did a little backwards. Normally you have a venture capital group lead the round and then you fill it with other investors. Since venture was talking to me, I went and found angel investors first.

Kenny Rose:

And it’s amazing how much that narrative changes when you’re talking to people who are closer to the industry or just on a more personal level where they don’t get the offers as often because I’m raising almost 600,000 in three weeks. Then I started going back to the venture capital groups. And it’s amazing when you say, hey, I have over half a million. They all set their tune changes a lot and they’re just oh let’s talk.

Kenny Rose:

And everyone was so receptive. It was great. But I got a lot of the same feedback. It was, this is a great idea. You’re definitely the guy to do it. I don’t know anything about franchises. And that was just always the nail hit the coffin. I’m just great. I got to find someone in VC who knows franchises. All right, here we go.

Kenny Rose:

And, but it was great because everyone understood where this was going, that they would at least want to refer you to someone that might be more in that space or especially sometimes they invest later stage and they’re you’re too early, but let me refer you to this person because they’re going to help you out. And then you’re going to remember me. And so then eventually I got introduced to Chicago ventures, which is great. They’re down the street from me.

Kenny Rose:

And they were coming off home run after home run, cameo, project 44, M1 Finance. They had six or seven companies turned into unicorns, a billion dollar valuation in the same year. And so I got introduced to them and I’m talking to a couple people from the lower level to get the conversations going.

Kenny Rose:

And then eventually I’m finally getting introduced to the founder or one of the founder, the fund Stewart Larkins and right before Stewart hops on my analyst, I was working with tells me hey, I just found out he’s actually invested in franchising before. I’m like what, how do you never mention this before? He’s like I just found out. I’m like oh my God. And so he hops on and immediately I’m just all right, I’ve heard you’ve invest in franchise before. Tell me about it.

Kenny Rose:

And he is, well, me and some partners rolled up 500 locations of, he prefers, I don’t say the name, but of a very major, fast food brand to become their largest franchisee and then sold it to private equity. And he’s, it’s one of the best deals I ever did. And I’m oh, so you get this. He’s like I get it. And right then I’m just deals done.

Kenny Rose:

He got it. We’re done. And they were just the perfect group to work with. And some of their LPs are large franchisees too. And so I just amazing connections coming out of it, it was just perfect. And so I couldn’t be happier to be working with them.

The Wolf:

That’s great, man. Franchisees is just such a, if you’re on the inside, you can see potential through there’s tons of ways to make money in the franchise world, but if you’re not in it, it’s always it’s just too foreign of a concept to really want to dive in.

Kenny Rose:

And immediately they think about someone stuck behind a fast food counter who hates life. That’s kind of the vision they get and it’s just the, that’s not, it.

The Wolf:

It’s like I credit to McDonald’s, but for how big they are. And, but it is kind of annoying, the mind share. They have the monopoly and the mind share of what franchising means to society, I feel.

Kenny Rose:

Well I have fear on why that is too because I hear that all the time too obviously. And what I say is that because franchising is about having the business systems in place to establish market dominance and also scale and all these things. And the thing is fast food is one of the most competitive industries known to man.

Kenny Rose:

So if you’re in one of the most competitive industries known to man, what part of the business system do you really need marketing? And so they’re the ones that are in the most competitive. So they have to market the most. So people hear about them the most, but then and then all the other ones, you just don’t hear about them because they don’t have to market as much. They win your business in other ways.

Kenny Rose:

And so I think franchise is going to change that. I think you’re going to change that I think franchising as a whole is going to have a very different decade or two coming up because I think people, people love the idea of working for themselves and being self-employed and making their own way in the world. But they think startup is the way to do it. And it’s just well, hey, we can accomplish all these same things.

Kenny Rose:

If you just release the idea of it has to be your unique startup idea, but you’re open to using an idea that’s already proven it’s already there and leverage their systems because then it’s hey, you want to make six figures around your own hours? All that stuff, yeah franchising can do that for you. You just have to suspend the ego and be, can I hop into a plug-in place system, which they were already doing in the corporate world anyway. So it’s, what’s wrong with it doing it here.

The Wolf:

There’s kind of two breakthroughs. It’s one that franchises are beyond fast food and McDonald’s, right? That it’s a whole wide world of different businesses that you could jump in on. And then secondly, that you can leverage them to actually make very good returns. I think people get caught up on either that it’s McDonald’s or bust and I can’t buy McDonald’s or they get past that, and then they’re like, I don’t want to pay a royalty.

The Wolf:

But the reality is that what that gets you, is a lot, you mentioned the proof of concept, it’s people, if you want to start your own small business, I’m not saying that you shouldn’t do that depending on the person. Maybe you don’t have the personality to work under a franchise or maybe you’re just incredibly talented, and can build your own amazing small business.

The Wolf:

But if not, there’s franchises out there at various levels of growth that have anywhere from 10 locations open to a couple hundred, that those are data points for you as an entrepreneur to say, okay, it works in X amount of markets. It’s average revenue is whatever the number is. And for you that’s, as an entrepreneur, that’s just a higher likelihood of success is what that translates to.

Kenny Rose:

One of the biggest things is a trend that I see coming is the last 10, 15 years especially have been really romanticizing the startup world. But with part of that is that you have this whole generation of people who, especially in tech sales, in tech sales, they work you to the bone and you’re aged out by 35 or 40.

Kenny Rose:

And so you’ve got this whole generation of people who are great at sales. They want to make six figures, they got to provide for their family though, need some predictability. And they’re like how do I put all these things together? It’s like you’re literally a perfect franchisee. You just need to let go of the idea that it’s not right for you and start learning about it.

Kenny Rose:

And because a lot of them they’re oh, I can move to a different company and sell this something else. But then it’s hard to get hired because you’re aged out. But it’s hey, why don’t you go sell something easier, own the business and go take over the market. And also it’s just being more part of the community. It matches up what people are looking for, they just have the F word of connotation stuck in their head.

The Wolf:

It’s the effort, man. There really is a stigma with it, which for better or worse I do understand part of it. But man, I do think what you’re doing is helping to kind of usher in hopefully a new era. So thank you for that. We’re rooting for you over here at [crosstalk 00:54:05].

Kenny Rose:

You’re doing it too. Your logos. Awesome. Your content’s awesome. You’re way better at social media than I am. I hope to aspire to be at your level one day.

The Wolf:

Well maybe we can trade secrets there at some point

Kenny Rose:

Deal. SEC if you’re listing, that’s not trade secrets. Just, we’re just trying to be funny on the internet with franchising. It’s very tough.

The Wolf:

Well all right, man, this was a good conversation. So thanks for coming on. And where can folks find you and FranShares? Whether they want to learn more about you Kenny or about FranShares, what’s the best places for them to research.

Kenny Rose:

So franshares.com or come find me on LinkedIn. I’m super active on there and really appreciate you having me on, this has been awesome watching you start from the beginning and get this up and going. I’m super excited to see everywhere. This is going to go, because it’s a big industry and someone need to be a voice in, I think I’m [crosstalk 00:54:58].

The Wolf:

Likewise, man. Appreciate it. We’ll talk soon.

Kenny Rose:

Alrighty.

The Wolf:

Thanks for listening to franchise empires. We’re coming it to you soon with actionable insights to take the next step on your franchise journey. So make sure to subscribe on Apple, Spotify, Google, or wherever you listen.


Visit The Wolf of Franchises here to learn more.

Emily Norwood

administrator

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