Zero to Profitable Franchise Podcast Interview: Crowdfunding to invest in franchises
Podcast Transcription
Tariq Johnson:
Welcome to the Zero to Profitable Franchise Podcast. The best place for you to come to figure out the right franchise to buy and how to get and stay profitable. My name is Tariq Johnson and I’ve bought, grown and sold multiple franchises and got myself free from corporate America and now I’m on a mission to help you do that too. Here, you’ll find some of the most in-depth profitable franchise secrets, tangible strategies, and specific mindsets to help you create your dream life through franchising.
Tariq Johnson:
What if you could invest in a franchise for as little as $500. In this episode, my guest Kenny Rose, has taken crowdfunding and brought it to the franchise world with his company FranShares. If you like the idea of franchising but don’t really want to own one, then this is an interesting way that you can invest and still reap the benefits of a well run franchise. So stick around to learn about how you can invest, how the investment fund works, expected returns and the current franchise brands that they’ll be starting with in their first $25 million raise. Now, if you want to buy a franchise in the next 12 months, you can check out my free franchise masterclass @buyaprofitablefranchise.com. And if you want to work with me and my team on finding or buying a franchise or resale business, then you can go to tariqjohnson.com/consulting and we’re happy to see if we can help.
Tariq Johnson:
With that said, let’s jump into episode number 19 of the Zero to Profitable Franchise Podcast. Hey, before we jump into episode, if you’ve gotten value from any of the content I put out, it’s not easy and it really takes a lot of time to create this content. So if you’re watching on YouTube, please hit the like button and drop a comment, anything, even a smiley face, it helps the YouTube algorithm show the episode to more and more people. And if you’re listening on a podcast platform, please rate and drop a quick review. Both of these things are free and take no longer than 30 seconds. Thanks so much and I hope you enjoy this episode. Welcome to podcast episode number 19, I’m here with Kenny Rose, who is the founder of FranShares. Kenny, thanks for hopping on.
Kenny Rose:
Yeah, thanks for having me. I’m glad we could connect.
Tariq Johnson:
Yeah, likewise. So what you’re doing is very fascinating to me. Can you explain what the company is that you started and what it does because I think people are going to be blown away by this.
Kenny Rose:
I appreciate it. So the company FranShares allows anyone to invest into franchise ownership for as little as $500. So if you’re familiar with Fundrise or Masterworks and the ability to equity crowdfund into alternative investments, we’re doing the same thing for franchise ownerships. So we let people get passive income as well as equity growth from franchise investing without having to do all the heavy lifting.
Tariq Johnson:
That’s very cool. That’s very, very cool. So this is an interesting topic because I think obviously there are people out there that want to be involved in owning a franchise in some capacity but they don’t want to be involved in the day-to-day. Actually I just had, and I have to connect you with this guy. I just had a call with a guy yesterday who he had filled out one of our coaching applications to work with us. And when we got on the phone with him, he was like, “No, I don’t want to own one at all. I just want to invest in one. I don’t want to do anything.” And that was the first time that we had that request. So obviously there’s a demand out there. What are you seeing on your side of things as to how people are reacting to your fund?
Kenny Rose:
It’s been overwhelming. I love to see it. We’re actually about to 35,000 people on our wait list. And they come from all walks of life. You’ve got everything from your 18 to 24 year olds, they’re getting starting in investing, want to invest a couple 100 bucks to a couple grand all the way to your ultra high net worth that want to do seven figure investments. You get people who are already in franchising and want to diversify their holdings. But also people who’ve just been franchised curious over the years, they’ve always looked into it at some point, and then there’s always a reason why you don’t pull the trigger, whether it’s the financial outlay, you don’t have the right skill set, you don’t have the time, you just like the corporate life.
Kenny Rose:
And some people’s just like, “I just couldn’t pull the trigger on it.” And so it’s been a really great hearing all these different… I always love asking like, “What’d you explore? What was the research process like?” And then there’s a lot of people who’ve said, “I didn’t know anything about franchising other than I know it exists.” And they always have the dream of like owning this big business down the street but it’s very hard to do that. So this is been a way for people to just… It’s usually like a, “Oh, why’d no one do that before? I like this.”
Tariq Johnson:
Yeah, yeah. That makes sense, and all of those reasons that you stated. So how does it work? Give us a basic breakdown of, okay, if I’m someone that has some money that I want to invest into the fund, what’s the overall time period, what’s the targeted return and how does the fund work?
Kenny Rose:
Yeah. Well, for each fund, it’s going to be a little bit different. So I can definitely tell you about the one that we just launched that we’re in the middle of filling right now. So the way it works is we actually have one entire vehicle that people invest into that allows them to get diversified by different locations, different geographies and different industries. So this one, we call it the TNT Franchise Fund for takeout and trash because we have franchises in the takeout and waste management spaces. And so when you invest into it, you get ownership in 55 different locations. And this one is a growth and income fund. And so with that is that we are doing new locations of existing brands.
Kenny Rose:
And my ears as the brokerage side one of the first questions I’d always get is, do you have a resale? I’d always say like, “Honestly, if there’s a resale, I’m going to be sniffing out why it’s here first.” Because frankly if you’ve got a good business that you want to sell it, friends, family, or a customer usually buys it first. And then even if it is on the open market, you’re paying a huge multiple. So we wanted to give people how you truly create wealth in franchising, which is getting new territory and building up the business there. And we wanted to find brands that…
Kenny Rose:
Of over 4,000 brands out there about 15% have 100 or more locations. So looking at ones that are well developed where they’re past that 100 location mark, but they’re not quite at the thousands of locations where you couldn’t get any good territory then. So with the brands that we found, they had 350 and 600 locations, respectively. It had been really well proven out, but we could still go get major markets like Chicago, L.A., Seattle.
Kenny Rose:
And so when you invest in this fund, you get ownership in all of those different locations. And then we actually handled the operations either by, for part of it, we’re working with a franchise management team that already works over 10% of their locations. And then with the other half, it’s a brand that most owners don’t even work in it full time. They have a full time job elsewhere and they’re managing two to four employees on the site. So we want to actually bring infrastructure to this. So we raise more than we need to for what it would generally cost to do because we want to bring in the proper operators to really help oversee this thing and create more foundation that’s usually founded from other franchisees there.
Kenny Rose:
And so as you own, you get a combination of cashflow from the performance of the franchises as well as an eventual sale of the franchise portfolio. And for this one, I like to over prepare people and say, “Hey, we’re not paying dividends the first 18 months because we want to give proper time to ramp up the locations, not take money out of them while they’re growing.” And then at the end of at least 5 years timeframe, we’re planning on selling to private equity, because private equity if you’ve got 20 plus locations, they tend to want to snatch that from you immediately. And they’re also able to overpay because their goals are different, they’re not looking to maximize cash flow as much as they are beat what’s going on in the S and P.
Kenny Rose:
And so that’s the TNT fund, but future funds will do things where we’re investing into existing locations on a larger scale. Typically, you won’t have the equity appreciation part of it, but you’ll get the income side of it. And so we’re excited there’s a lot of different ways you can build portfolios and other franchise financial vehicles going forward.
Tariq Johnson:
Yeah. That’s that is very cool and so important to note. Okay, so it’s not going to yield dividends for 18 months, but that makes sense. So here’s a question, who would be an appropriate investor for this specific fund? And I think that you guys are taking only accredited investors for this fund, right? So can you explain for the people watching, what defines an accredited investor?
Kenny Rose:
Yeah. You nailed on the head, for this portfolio it’s accredited investors only, our next one’s going to be available to everyone. But accredited investor, there’s a couple different ways you can satisfy it. One is that if individually you’ve had an income of at least 200,000 over the last two years jointly, combined income of 300,000 over the last two years, you could also do it if you have a million dollar net worth. Another way is if you are a knowledgeable employee so you know people at FranShares. And then finally, if you hold a financial designation with FINRA, so it’s a series 57, 66 I believe, maybe 85. There’s a couple other ones in there.
Tariq Johnson:
Yeah. That’s a whole nother conversation, FINRA licenses, because you and I have a similar background, which is the financial advising space, which is cool.
Kenny Rose:
Yeah. From FA to franchising, it’s a very rare path that we both took.
Tariq Johnson:
Yeah. Yeah, for sure. Here’s what’s interesting. The very last corporate role that I was in, I was a director of sales and operations for an alternative custodian. And so that dealt with self-directed IRAs. So someone like a… What custodian do you guys use?
Kenny Rose:
Well, we use a couple because some people are coming from Alto IRA, they’re very big on specifically doing that. DriveWealth is our main custodian for it, but then we work with a couple other broker dealers to help facilitate both onboarding people and then we’ll have secondary trading. So we have to have another broker dealer for that.
Tariq Johnson:
Got it. Okay. Cool. But so this company that I had worked for, they primarily played in the self-directed IRA space so when people wanted to take their IRA and literally buy a piece of physical real estate, or if they wanted to lend money to someone, they could use their IRA loan money to someone who was buying real estate and use that as a note, which was interesting. This opened my eyes to that world being on the traditional security side of things, stocks, bonds, mutual funds, I didn’t know much about that world of things.
Tariq Johnson:
And so I oversaw all of the institutional department. And so the institutional department was, we worked with private equity companies, hedge funds, et cetera. And so onboarding their assets, they may have had REITs, non-treated REITs, et cetera. But one day I talked to a guy who had private equity firm and all they did was invest in franchises for their private equity fund. So they were in some specific markets, they were the largest franchisee for Buddy’s Home Furnishings-
Kenny Rose:
Oh, that’s the name I’ve heard in a while.
Tariq Johnson:
… as well as PODS. They had built up the market. That was the first time where my mind went, “Huh, that’s interesting.” And the seed got planted in my mind of, “Ah, one day raise capital and raise money to buy franchises.” And I had owned my franchises at the time. So that’s a perfect segue into how in the world did you get this idea?
Kenny Rose:
It was a combination of different things, but I love hearing about that because honestly, a lot of it draws on the type of companies you were working with there. Part of it was… I have to say, well, Fundrise was really the trailblazer for this equity crowdfunding into alternative assets. And so they did it for fractional investing into real estate. And probably seven years ago, I read an article that they just raised their series A of funding from a bunch of venture capital groups. And I was living in L.A. At the time working in franchising and I started diving all into this model and I was just like, “Wow, this makes a ton of sense.” Even for people that couldn’t afford to own real estate like that before, it was great for them, but also for the ones who could and just were getting access to new deal flow.
Kenny Rose:
I was like, “It helps both sides of the spectrum there.” So I was like, “I’m going to do this for franchising.” I think I called it the franchise investment fund back then. But I took a pretty big gamble at the time and I said, “I’m not ready to start this company yet.” I’m like, “It’s a big idea but professionally…” I knew a ton about franchising already but I was like, “I’m not there as a fundable founder yet.” So I took a gamble that people outside of franchising would not really think about franchising as somewhere that needed to be disrupted. And then people in franchising, a lot of them work for like a food brand or a hair care brand and they’re in their vertical, they don’t look at the greater industry.
Kenny Rose:
And so I said, I’m going to go start my own brokerage and grow that and really become a thought leader in the space. And so I moved out to Chicago, started my brokerage, ran it for last 5 or 6 years, had a big emphasis on educational content so I just started writing on Quora, reaching out to journalists and stuff on Quora. They sent one of my answers, it was about how much Chick-fil-A franchise cost. And they sent that out to 40 million people. I also got picked up by Forbes, ABC, had a whole business insider article of my work in the industry last year. All these things ramped up and I was like, “Oh, I built a good brokerage.”
Kenny Rose:
But then finally the pandemic hit and I read an article people were gambling in the stock market because sports were not. And I was like, “Oh, if franchises was going right, then we’d have all sorts of money and assets under management.” And I was like, “All right, shut down the brokerage immediately.”
Kenny Rose:
But another part that really helped spur this idea was because of a deal I lost on once upon a time. I was working in L.A. And I had this client who was very, very excited to be getting on board with this auto franchise. And we were literally the midnight hour of him signing on the franchise agreement. We had his territory, everything was done. Honestly, I’m pretty sure it was… We were just waiting for the franchise to send the documents for signature over. And they were like, “Oh, we want to get done by the end of the year.” I’m like, “All right, great.”
Kenny Rose:
And then I think it was on December 31st they called me and they’re like, “Hey, by the way, we couldn’t tell you anything because we had an NDA in place, but a private equity group just bought the rights for all of L.A. County, your deal is off the table.” So that was like, “All right, private equity is really played in the franchisee space and one day I need to get involved in there.” So it was a whole bunch of different things. And then also just the background in finance, that made me thinking about it more too. So just a perfect storm of things.
Tariq Johnson:
Yeah. Very interesting. And is there even anyone else doing this in the franchise space, the fractional investing?
Kenny Rose:
No. I think someone made a landing page for it a while ago, but from what I saw, they didn’t have any background in franchising. And so it’s hard to go anywhere when you don’t.
Tariq Johnson:
Yeah. Yeah. That’s interesting. Well, cool. So here’s an interesting point to me, which is a whole another avenue to go down, which is a lot of people watching this podcast are people that have a dream to become an entrepreneur and they’re not happy in their job, the typical sort of candidate that may be looking at a franchise. And so from another perspective, what was that like for you to take something that you were doing, that you were having success in, give it up to pursue this dream of yours to start this business which was a pretty significant amount of risk? What was that like for you? And what has that been like?
Kenny Rose:
Well, it was terrifying let me tell you. But also I was fortunate to where I’ve watched my dad do the same thing, where I’ve watched him make it all and lose it all multiple times over. It’s also why I’ve always taken my job very seriously. It’s like once upon a time we owned a restaurant as a family and it went bankrupt and it ruined us for years, led to a divorce. I know the bad side of a business going wrong, but I also can see what happens when you take a big risk, just completely start fresh. It was maybe 10 years after that, the restaurant failing that my dad started a solar company, residential solar company in San Diego from scratch. And literally just start off just hanging door hangers up. And eventually he grew that up to a 30 million a year business.
Kenny Rose:
And so we called them these days where we were using plastic wear until they were down to two prongs. I think that’s what made me comfortable is like, “I’ve been there before.” And I know how to eat ramen to survive and I’m like, “I will grind it out because that’s what I was raised to do.” And it was also I’d done the same thing to leave my previous job in the franchise space to start my brokerage. Obviously I’d known that a lot better. It was something that existed so it wasn’t as big of a leap, but I’d already made these smaller leaps.
Kenny Rose:
And also I’d been thinking about this for 6, 7 years. I had to do it. I think that was things I had that burning drive and desire for it. And so failure wasn’t really an option. And I think also when you believe in it like that, people understand it and believe with you. And so when it came to fundraising for the company itself, I think that really showed in that like, “Hey, I’m all in here. I shut down the other business. This is what I do and this is how it’s going to work.”
Tariq Johnson:
Yeah. That’s amazing. Everyone watching follow your dreams, go for it. And even if you don’t have that model and that example of someone in your life, you can still go for it and do it. So here’s another question which is… All right, I’ll preface first with a comment, which is, okay, my wife and I open our first franchise, we took a $310,000 home equity line of credit on our house to open our franchise, which was a tremendous amount of pressure for me, because I was the one driving it and pushing my wife to like, “Let’s do this, we got to do this.” And so in the back of my mind, I was terrified. And those thoughts go in your head about like, “What if I fail and ruin us?” And so for me, that was motivating and I used that fear to hang on for dear life. But as you enter into this, you’re taking other people’s money and then utilizing it. What does that feel like for you, that pressure to succeed?
Kenny Rose:
I find it feeling too. I’ve always been a guy who’s… You got to stand by your word and look yourself in the mirror. And so honestly, when I’ve been in the franchise brokerage space before, I fired more clients than I worked with because it’s not about making a buck, it’s about looking at the overall long term vision. And so there’s some people who were just trying to… It was a last case resort, not I want to do this. And so when they’re that type of person, you got to let them know like, “Hey, I don’t think this is right for you. You don’t just start a business as a last resort, you got to have that fire going that’s driving you.”
Kenny Rose:
And so I view like that with this where I think people trust me in that same capacity to do what’s best for them and help grow their nest egg. And honestly, I want to create this as a whole category of investment in the future. And so it all starts with this fund too. I want to be able to look back on this interview in 20 years and be like, “Yeah, that’s what I was doing it for.” And so there’s a ton of pressure, but also it’s cold in the fire to just keep this train moving. So I’m excited, but also yeah, definitely a ton of pressure.
Tariq Johnson:
Yeah, yeah, yeah. I’m sure. And then what was that process like? Getting the initial capital to just get things started, just the legal bill alone I’m sure was significant to create the structure. Did you guys do Reg D? Is that what you did?
Kenny Rose:
No. I actually went out and raised a venture round. Well, actually it’s funny. I did it backwards. Normally in the tech space you go out and find a venture capital, a VC company to go lead year round and then go find other investors to fill out the rest of it. Well, I reached out to over 350 of them and had maybe two or three conversations. And it was like, “Huh, interesting idea. Maybe come back later.” It was kind of just, “Get out of here.”
Kenny Rose:
And I was like, “You know what? I will prove it to you.” Because I think also again, the word franchise doesn’t really pull people in from the venture capital tech world but I was like, “I will prove it to you.” And so I went out and started looking for angel investors and not people I knew directly. We were like, “We don’t sell to friends and family. If they reach out and they want to, that’s a different story.” I reached out, I posted online, LinkedIn, Facebook, wherever, and ended up drumming up a good stable of people who were interested in this. And then when I started doing the fundraising, we raised about 570,000 in three weeks.
Kenny Rose:
And I pumped the brakes there. I was trying to do a million round and I was like, “You know what? I need to get a venture capital company in here.” It’s the credibility, it’s the support. It’s a lot of things. And it’s amazing when you reach back out to everyone after you’ve raised over half a million, they’re like, “Oh yeah, let’s talk.” Because it’s they like a lot of what other people have invested or what they know about. But still even when you’re that VC high level area, they want to do things that other VCs have invested in or they know about it.
Kenny Rose:
And so everyone wanted to talk and I got the same feedback every time. It’s like, “Well, this is an amazing idea. You’re clearly the guy to do it, but I don’t know anything about franchising.” And honestly I’m like, “I get that. That’s fine. Don’t invest things you’re uncomfortable. That’s how I’ve always lived my life.” But also I think everyone understood that this was something building, and so they always referred me to someone else saying like, “I want to be that one that referred you so when you’re raising your next round, you let me in.” And eventually I got introduced to Chicago Ventures based right here in Chicago. And for one, I love that they were local, but also they were just coming off investments into Cameo, M1 Finance, SpotHero. They had six companies turned billion dollar companies last year.
Kenny Rose:
And I was talking to, usually start with an analyst there, and Steven Cook, great guy. He really understood this and got it. But at the same time, I was like, “Until I’m talking to one of the partners, I don’t know if they’re going to really get in the same way.” And so when I was finally going to meet one of the partners over Zoom, because this is still everything’s locked down. I hop in the Zoom, Steven is there and he is like, “Oh yeah, Stewart, the partner’s about to hop on.” And right before he is like, “Hey, I just found out Stewart’s actually invested in franchising before.” I’m like, “What? You never mentioned this before.” And so Stewart hops on the Zoom, mind you no video, just a voice. And I just bulldozed my way through and I’m like, “Stewart, I heard you invested in franchise before. Tell me about it.”
Kenny Rose:
And he is like, “Oh, some partners and I rolled up 500 KFCs to be the largest franchisee in the system and then flipped it to private equity.” And right then I’m just like, “Oh.” And I just said, “Oh, so you get this?” He’s like, “Yeah, I get it.” And right then I’m just like, “Oh, we’re done here.” But then it was funny because he didn’t say a word the rest of the call. It was literally just a Q&A with Steven and I. I think he gave Steven a list of questions and so I’m just being interviewed and I’m just being watched by this faceless figure, seeing how I react and how well I know my stuff. And then at the end he finds is like, “Okay, thanks. Nice meeting you.”
Kenny Rose:
And so I’m just sitting there afterwards I’m like, “Wow, what just happened there? Did I just totally miss the mark or what? He didn’t say a word until the end.” And then I get text from Steven 5 minutes later, and mind you he’s never texted me before. He was like, “Hey, hey, can we chat?” I’m like, “Yeah, sure.” And so we hop on a call he’s like, “Yeah, Stewart absolutely loved it. He’s in.” And so I know now that Stewart is one of these guys who he sits back and he monitors and watches, he’s a good judge of character. He is by the numbers. And so he understood it. He’s just not really the I’m going to tell you I understood a thing. And so then from there they ended up filling out the rest of our round and yeah, got started from there.
Tariq Johnson:
Wow. What a story? That’s incredible. Wow. That’s really cool. I just want to acknowledge you Kenny. I mean, congratulations and great job. Just seriously, man, to have a dream this big and to have the cojonez to really take this on and go after it and take that leap of faith and what you’ve built so far is absolutely amazing and really impressive.
Kenny Rose:
Thank you. I really appreciate. That’s super nice of you to say. And it’s funny before when you were talking about pressure and powering through things. Man, when I finished with that list of VCs I had, and I was just nothing, I think a lot of people probably would’ve quit that. And I was like, “No, no, no, no, no. They just don’t get it yet.”
Tariq Johnson:
Wow. So what a powerful mindset, right? Because I try to talk a lot about mindset throughout my content that I put out in these podcasts, because it’s not just about, you know this better than anyone. It’s not just about the strategy. Anyone can have the strategy to say, “Hey, I have this crazy business idea. Let’s create a fund then invest in franchises. And the way that I’m going to do it is X, Y, and Z.” Well, after you’ve sent 100 emails and no one has responded, you start to doubt yourself. And so did you never have that feeling? You were just like, “Hey, these people just truly aren’t getting it and I know I can make this happen.”
Kenny Rose:
Oh no, it was totally depressing for a while. You’re just like, “Why are people not getting this? I know it’ll work.” And you just have to, I don’t know, sit back and try and dissect what’s going on. You can’t just blindly borrow through, because sometimes maybe it’s just not a good idea. But I sat back and dissected it and the little feedback I got from a couple people and just talking to other people in, I guess the startup world and franchising, I heard just more of like… Yeah, if it’s not right up their alley, especially for how young it was. And again, most people don’t know about franchising. I was just like, “You know what? I just haven’t found the right people yet. I’m going to go find the right people.”
Kenny Rose:
And so sometimes you have to pivot strategy. It’s funny talking to these other VCs that want into our next company round where they’re like, “Oh, tell us about the fundraising process.” I tell that story they’re like, “That’s not how you’re supposed to do it.” You’re supposed to go find a venture capital group to lead the round. That’s why it’s called leading the round. Well, it’s that and technically do half the raise a lot of the time.” And so it was just like well, I couldn’t find someone. And so I wanted to go find people who understood it in general. And it was people who came from franchising and finance and tech, and they all got it. I think that also helped, not just having the money, but showing people who were involved with it, and it was people who had hundreds of millions in exits and people who were largest financial advisors in the country and top options traders and people who were just like, “Oh yeah, I get this. This is an investment that needs to happen.” And so I’m like, “Yeah.”
Kenny Rose:
Honestly I was not taking, I don’t want to say small checks, but I got all people who were offering 10 or 20 grand checks and I was like, “Hey.” Based on good feedback I got from other people who’d done fundraising before they’re like, “Set your minimum 50 grand for an angel investor and don’t crack on it.” And I passed on a lot of different investors because that, but then I found the right ones. And also when you can find people who are willing to invest that much in an idea, essentially, I had a landing page and an idea at the time. And I’m not the best web designer, but you teach yourself a lot of things. I think once you get that first check, it’s just a huge sigh of relief. It’s like, “This has legs. Now it’s going to run.”
Tariq Johnson:
Wow. Yeah. That’s incredible. A really incredible story so far and I know that it will just keep getting better. This specific fund, the TNT fund, when does it close and how long can people continue to invest in it?
Kenny Rose:
Yeah, we’re doing our first closing in actually about a week or two here, but then, if there’s extra room, people can come on and just keep adding on. Once it hits 25 million, we close the fund. But honestly it’s funny, we have to work with a broker dealer to verify accreditation status. And I told them to buckle up there’s going to be a lot of people and they’re like, “Yeah, sure. Okay.” And then now they’re still going through hundreds of people and we’ve got another 2000 or so going, starting the phase and going in creating their accounts and stuff. Honestly we’re ended up going over our deadline just because the broker dealer can’t really do them fast enough. Yeah. So then ideally, it’s just going to be like, “Hey, once we hit that line, first come first serve until we fill it up.”
Tariq Johnson:
Yeah. That’s very cool. Interesting. So the TNT fund has two specific franchise concepts. Tell us a little bit about those two concepts and why you chose them.
Kenny Rose:
Yeah. I wanted to be diversified again by industry and geographically, but I also didn’t want to spread ourselves too thin. Even originally I wanted do three brands. It’s like, “Hey, we’ve got a really solid formula for two, let’s stick with the two.” And so for one of them, we went with the food space because that is what people know most in franchising. I didn’t want to necessarily be in the war for pennies and fries and burgers or anything like that. And so I’ve known the brand for years, we chose Teriyaki Madness. And Teriyaki Madness, well, a couple reasons I love them. One is that when you think about quick service restaurants and the Asian food space, most people go straight to Panda Express and that’s where it ends.
Kenny Rose:
And so to me that’s a massive food segment that doesn’t have a ton of heavy competition, it’s independence and one really big franchise brand. And so that was one that really stuck out. They have over 350 locations open or in development right now, which is another big thing. We want to see that traction. You could have 20 of the best locations possible, but when I’m working with outside investors like this, it can’t be, “Hey, you got a really good start.” It’s like, “Hey, it’s got to be a winner.” I cannot gamble with people’s money in anyway. And so that was another thing was that they were at the right growth area where hundreds of locations, but also we could still get into these major markets. So we’re doing Houston, Denver, Chicago, and Tampa.
Kenny Rose:
And then another thing was the leadership. Michael Haith is their CEO and he’s grown a couple brands to a few hundred locations. One was Maui Wowi Coffee and Smoothies took over and grew to 4 or 500 locations and exited private equity. Another one Doc Popcorn was a smaller brand, he grew to a hundred plus locations and sold to Dippin’ Dots actually. So they were doing co-branded stores with them.
Kenny Rose:
I’ve worked with over 600 franchises over the years. And so when you see how they’re built as a team and their marketing and all these things, even though they’re a big brand, it feels like an even bigger brand. You could tell when you go to their website, when you visit the stores, you check up their app in the loyalty program, they are built for growth. And you could tell that’s a repeat CEO taking over and running with it.
Kenny Rose:
And then finally was a manageability. So Teriyaki Madness has… Honestly very smart thing they did. They realized that some people wanted to be absentee and so they created a management company for it. Basically cleared out a bunch of people from Smashburger Corporate, started a management company. I think we sold them out for doing this anywhere else now, but they’ll handle site selection, build out hiring ongoing management, and their incentives are aligned with yours when you’re working with them. So we pay them a flat fee per store to keep their lights on, but then they don’t make any money until they hit over a million in sales. And so that’s about where an average location’s doing. And so they have to really blow it out the doors and they already run over 10% of the locations.
Kenny Rose:
So that was one where it’s like food is definitely more complicated, but when we have a management company like that and a really big and continuing to grow brand like that with the leadership, it felt perfect for me. And also I love Asian food [inaudible 00:34:24] and I love their food. I’m actually going out to one of the locations, I’m in Chicago but they have some in the suburbs here. So I’m going to go visit one and do some filming there, which I’m excited for.
Kenny Rose:
And then the other side I wanted to show people like, “Hey, you know food, let’s take you to the total opposite of the spectrum in the franchise world.” Because most people only think about food being franchised. And so waste management, trash, the complete opposite side of the store. It’s just a service business that most people would never think is franchised.
Kenny Rose:
And what Smash My Trash does is as simple as it is brilliant, especially in the commercial space, if you have a construction, manufacturing, distribution company, anything commercial dumpsters outback, they’ve got these giant commercial dumpsters obviously, and it costs a ton of money to haul them off to the dump every time. So Smash My Trash, if you’ve ever stuck your foot in the trash, can shove the trash down so you can keep getting more, and before you take it out there. Same type of principle where dumpster looks full, but they bring this giant rig up and mash everything down with a couple thousand pounds steel drum with razor teeth on it, mashes everything in it so that it starts clearing space in there. So reduces it by up to 70% to empty space. And so when you do that, you can then just keep filling the dumpster back up and then get it hauled off to the dump. So saves the business owners 20% on their haul off expenses.
Kenny Rose:
So it’s like trashes repeat. When you’re looking at recessionary times, people are looking to reduce costs and any company that’s got a dumpster is going to want to use that service. And they are as high growth as I’ve ever seen. They’ve sold about 600 locations in the last three or four years. And we were able to get some of the last great territory. They’re sold out in most of the country. And basically I approached their CEO and said, “Hey, here’s what we’re doing with FranShares.” And frankly, I’ve been listening to all the weekly franchisee calls. I’m like, “Here’s where I think we can improve as a large scale franchisee for you.” And it was about creating this extra infrastructure, actually having general management and really paying for a amazing sales people. Sales really drives the business.
Kenny Rose:
And I’d hear about a lot of franchisees that are spending 30 or 40 grand on a salesperson plus commission, I’m like, “Honestly, you could probably find someone better.” I was like, “I’d rather find someone you spend double that on.” And the margins are there. They’ve got 50% EBITDA margins. I’m like, “Go find someone who can blow that business up even more and pay them for it.” And so they heard all this and CEO is like, “Yeah, that makes sense. This is what I’ve been asking franchisees to do. Where do you want?” And so California and Washington are two of the last states to get approved for a lot of franchisors because they’re registration states.
Kenny Rose:
And so we were able to get about half of L.A. County and most to greater Seattle. I also specifically made sure we got where Boeing does their manufacturing up there, because that’s going to be a great contract in the future. And then someone had actually signed on for the rights for New Orleans, but they didn’t have the funding in place and backed away so we ended up snagging all of that. We got first dibs on it. They’re like, “Hey, it’s coming back to the market, but you get first dibs.” And then we got the entire state of Rhode Island too. They had surprisingly great demographics for the business. It’s only three territories out of the 30 of them, but I really liked it, plus it added for more diversification there. So those are the two brands we got going on. Very excited to be working with them.
Tariq Johnson:
Yeah. That’s awesome and an interesting criteria and process. And I’m sure there will be many more brands and future funds to come along. A little funny story, do you have kids?
Kenny Rose:
I don’t.
Tariq Johnson:
No. Okay. All right. So all the parents listening may have heard of a guy on YouTube called Blippi. Have you ever heard of Blippi? You know Blippi?
Kenny Rose:
Oh yeah. My nephew loves Blippi and I think I know where you’re going with this too.
Tariq Johnson:
Oh yeah. He had to smash my trash segment. And I was sitting on the couch about a week ago, I think it was last weekend watching Blippi with our toddler and then all of a sudden there’s the smash my trash truck and I just thought it was so funny. I was like, “Oh, that was very good product placement and very strategic of smash my trash to put that on.” I wonder who approached too, if Blippi approached them or they approached Blippi.
Kenny Rose:
That is a great question. I’m very curious too. I never asked, because I know there was another one. I think it was a similar thing to Blippi. It was a handyman how I saw a thing for that too. So I think someone had smashed my trash is just making some very good friends in the YouTube space.
Tariq Johnson:
Yeah. Yeah. It’s smart. Yeah. Very smart. Cool man. Well, if people want to go check out FranShares, learn more about it, where can they do that?
Kenny Rose:
Just FranShares.com or if you’re on social media anywhere FranShares is pretty easy to find. I always just connected with me on LinkedIn. I love talking about stuff on there and yeah.
Tariq Johnson:
Awesome. That’s great. Well, we’ll post the links. Kenny, thanks so much for the time and telling us about FranShares. And again, well done, man, congratulations and wishing you much success in the future.
Kenny Rose:
But thank you so much. For one, thanks for having me on, and also as someone who truly understands the franchise world, I always appreciate when people really get it. So thank you very much.
Tariq Johnson:
Absolutely. Hey, before we go, thank you so much for listening to this episode. I put my heart and soul in of providing you value through this podcast so that you can live your dream life. So please subscribe if you haven’t already. And the biggest thank you you could ever give me is to drop a review, because more reviews equal this podcast getting more listens, which means we can share this message with more people and hopefully positively inspire them like we have you. You can also share it with someone you care about that you believe may benefit from listening. Thank you. And talk to you soon.
