Lance Hood (FranPro): 0:00

Hi everyone. Today we have Doug Schadle, the CEO of Rhino 7. I want to introduce you to him because he is one of the top thought leaders in our industry and I just want to grab his insights.

Doug Schadle (Rhino7): 0:14

Good morning.

Lance Hood (FranPro): 0:14

Lance, how are you today?

Doug Schadle (Rhino7): 0:16

Good.

Lance Hood (FranPro): 0:17

Well, Doug, can you take just one second and just tell everybody about Rhino 7?

Doug Schadle (Rhino7): 0:27

Well, rhino 7 goes back quite a ways. We started in 1999 and when we first started we were primarily a franchise sales organization with larger companies like a grapeclips, things along that lines that wanted us to help them grow. As we grew over the years we did a lot more pieces of the pie for franchise oars. So in some cases we are the franchise or in other cases we team up with them strategically to help give them what they need. And we have multiple divisions at Rhino 7. We have our development division, which is franchise sales. We also have a pretty good size construction management department where we help franchisees find their sites and open their units, whether they're retail or medical. And then we obviously do operational support too with some of the different brands that we have supporting franchisees. So we're headquartered in Raleigh, north Carolina have been here really since 1999. I've been here since I was a child. Really, my parents moved here, so love Raleigh. So if any of you are thinking about moving, you should definitely check out North Carolina. It's a good place to live.

Lance Hood (FranPro): 1:52

Nice, I've been there. It is beautiful. So if I'm a young brand, I know you work with established brands and young brands both. But the biggest thing is it's hard to learn how to do the sales process. I know that people can basically they're successful running their business, but developing it into a franchise and actually selling it those are all new skills and sometimes outsourcing that works. Can you talk about how a lot of new brands they don't have a sales process and they just think that they're going to talk to people and then people are going to buy it. Can you really talk about what an effective sales process looks like?

Doug Schadle (Rhino7): 2:33

That's a good question, lance. We do a lot of work with what's called an emerging brand. These are newer brands that have a good model or they are an independent business that is not a franchise yet that we can learn from the inside out, wrap a good franchise system around it and then grow them and help them grow effectively. We do a lot of that. But an emerging brand probably doesn't realize, especially in their early years, that franchise sales and development growth for a franchise or is a strategy. People want to know a handful of things when they're looking at a franchise what the business is and does, what the owner's role needs to be or, if there's varieties of those roles, what are they, what the total investment is going to be at the high end for the franchise, which is the item seven. And then they want to know approximately what's being made already in the business so that they can potentially relate that to themselves. That's the item 19. If a brand is an emerging concept, especially with no franchisees or young, early franchisees, their item seven and their item 19 are very critical for them. To help people understand what they are, they need to build a detailed item 19. This sounds a little strange, but the best franchise systems are really reverse, engineered off the P&Ls of the business that the founder created or, in even better businesses, multiple units. So they've tested it over and over.

Doug Schadle (Rhino7): 4:19

There's a lot to becoming an emerging franchise and a franchise or and a lot of the focus really needs to be on the support system.

Doug Schadle (Rhino7): 4:30

So many times emerging brands believe that after they get some franchisees they can layer in people to help them grow and support franchisees. Really, all that needs to start happening before you bring in franchisees, so that you have a system for everything that you're doing, so that you can bring in franchisees and help them the best you can. That can be a challenge for franchisee or especially emerging, because if they grow slow then they have a tendency not to where we want to layer in the staff. If they grow quickly, they're chasing their growth. So it's a catch-22 on both sides. We try to prepare franchisee or as best we can for what's going to happen with those types of things Emerging concepts. You got to put some money into being a franchisor, so a lot of times an emerging franchise company will think that it's going to be cheaper than it actually would be to open a unit. Then it would become a franchisor, and that's just not the case.

Lance Hood (FranPro): 5:43

Now, I know that we've talked about this in the past, but what should a franchise expect to spend on average an emerging brand to go from starting to where your royalties are paying for everything?

Doug Schadle (Rhino7): 5:58

Well, that royalty self-sufficiency is obviously where everybody's trying to grow, because once you get there then you can exponentially grow up larger from there.

Doug Schadle (Rhino7): 6:07

But typically a brand needs to probably have a half a million dollars that they are going to need to be able to utilize over the time that they start until they reach that. If they have franchisees that do lower gross sales and higher margin, then it could be a million dollars. So every franchisee is going to be different depending on what their franchisees are really going to produce for them. So trying to give you a feel for that, if a franchisee has high gross revenues, then they're going to make more royalty. When a franchisee develops and grows, if the business is smaller, maybe less expensive to get into and has low gross sales but high margins for the franchisee, then that causes the franchisee typically to have to invest more money to grow the business because they're going to need more people to support lots more franchisees that do lower gross that are paying in lower royalty. So those are some of the things that we help franchiseeers figure out when they're looking to develop.

Lance Hood (FranPro): 7:22

Right, because they're going to make less money, because it's lower gross sales and they're going to have to have more people because they're serving more franchisees Makes total sense.

Doug Schadle (Rhino7): 7:33

Yeah, and that's something that most emerging concepts don't really understand. They'll grow into that, but you have to plan accordingly, and that's a big factor in it all.

Lance Hood (FranPro): 7:49

Right, because I actually see that when I work with an emerging brand versus a well-established brand, the well-established brands they'll have webinars, They'll have a five-step sales process where they go through financials and the support and everything else and then they go through a discovery day and awarding, whereas some of the young brands, especially, they try to do it on their own. They're just happy to get on the phone, they give their elevator pitch and they're like do you have any more questions? Let me send you the FDD and let's talk in two weeks, which just isn't an effective sales process. Why is not having the structure and just talking about it not lead to franchisee interest?

Doug Schadle (Rhino7): 8:36

I think probably the biggest focus with that, Lance, is you're not completing the investigation of the categories that are within the business that they need to learn.

Doug Schadle (Rhino7): 8:49

If the franchisor is just having conversations, a conversation sends them the FDD, goes over the FDD and then tries to bring them in for a discovery day, the potential franchisee is really coming in with very little knowledge.

Doug Schadle (Rhino7): 9:06

It's better to reverse that and break the business down into categories.

Doug Schadle (Rhino7): 9:12

So let's just say staffing. What you want to do is you want to help them understand every aspect of staffing who they're going to need, what approximately they're going to have to pay them, how they're going to recruit them, all the different aspects of those things. And then, when you're finished with that, you can basically ask them do you think you've got a pretty good handle on staffing and, with our systems that we have, do you think you can implement this? And they're either going to say yes or no. If they say no, then there's more to cover right to get them comfortable. If they say yes, then you can have a checklist and check that off and then move on to real estate or whatever other categories that the brand really needs to have to be able to go through those things. Then, once they've gone through every category, they have a good understanding of the business. Even it's time for a virtual discovery day or a discovery day, whatever the brand really needs to do to implement their system, to finalize it.

Lance Hood (FranPro): 10:17

Right, right, and you already kanske want to repeat it a little bit. Some of the things that I've seen you do have been very interesting to me. I watched how you had this one logo that I loved and then you guys changed it and I didn't love it as much, but you told me that you had to remove a bunch of the details and colors from it because it made it drastic improvement in the cost of producing that logo for that business throughout everywhere it touches, which was very interesting to me. I wouldn't think of little things like that, but I mean you guys have it all dialed in.

Doug Schadle (Rhino7): 10:53

Well, there's a lot of pieces to the pie, so what we're really trying to do is look for the most effective way for the brand to succeed. So if you, let's say, you've got a, an emerging concept that has three or four different units and they're all in different sized space, right, let's say, it's retail. What we really want to do, then, is we want to look at what is the most, the very most effective space size and square footage, and then hone in on that size and do just that, not try to have a wide variable to open it up to. And so what that does is it really helps franchisees get the best, get the best of both worlds. In other words, the franchisee or tested right, and now we know which one is most effective, and then we focus on that side, and that could be done with staffing, real estate, marketing, all the different things that need to happen.

Lance Hood (FranPro): 12:02

Doug, what are some of the things that you guys do that really keep the the sales process moving for people?

Doug Schadle (Rhino7): 12:10

Well, there's, there's a lot of different things that are involved in an investigation of a franchise, right? And so what you're really trying to do is deliver that information not not in a week, right, not in a two week period. Really, you want to give it to them, spread out a little bit so that you can make sure that they're absorbing everything that you're giving them. So, on the average, you know, some brands are going to need around a month. Others may need six weeks to take them through the categories of what you need to take them through. So what we think works best is to talk with them and discuss certain things and then have them go learn. In other words, do homework in between calls, not feed them every time you're you're talking to them all the information, so that when you're talking with them they're learning, but when you're not talking with them, they're just sitting and waiting right For the next time they talk with you.

Doug Schadle (Rhino7): 13:13

So by utilizing these types of systems, it helps the perspective franchisee really figure out what we all want to know, them and us. Are we a good fit for each other? Because if we are fantastic right, they'll come into the system much more educated, better prepared, all the different aspects of what it is right. If they are not a good match, we'll know it relatively quickly and then they can focus on what's going to be a better fit for them, right?

Doug Schadle (Rhino7): 13:50

So a lot of times in scenarios, lance, when people are looking to get into a franchisee business, they have a tendency to focus in on things they like, right? So I like to use the example I like to eat sandwiches, so I should own a subway, right? So that's really not how it should happen. What you're really trying to figure out is what's the business model and what of my skill sets fit this business model best, right? And if I like to eat sandwiches but I'm not really good at recruiting and managing people, then that's not for me, right? Not even close. But if I am good at those things, then that brand can work for me, right? So you're really trying to see and give that franchisee what they need for whatever type of model they're looking at, so that they can make a good educated I don't want to call it guess, but a good educated decision on whether they think they can fit in that franchise or not.

Lance Hood (FranPro): 15:05

Right, and you know one of these things when you're breaking this up into these categories, doug, it seems like what you're doing is you're doing a couple things. One thing is you're handling objections, because they're going into this thing that would be like site selection type stuff, and they're like well, I don't know if I can find a site. Well, as you go through that module, they're learning how to do it. So you're one handling the objection and two, you're teaching them how to think about how to make this work. Right, they're envisioning well, here's how I make it work. So they're playing this active role. Like that homework is having to play this active role in figuring out the problems and visualizing themselves figuring this out, which makes it not as scary.

Doug Schadle (Rhino7): 15:48

That's very accurate, right? So in the best systems, right for franchise development and growth, you already know where they're going to have concerns, and so you build a system that already answers those potential concerns before they ever even get there. Right, so that when they do have concerns it's not a laundry list, right, it's something small that you can focus on and help them find the answers on whether that answer is good for them or bad for them. And they realized this is good for me as a brand or this is not good for me as a brand. So by strategizing how you're going to build the franchise investigation process, you're really using those categories so you can focus.

Doug Schadle (Rhino7): 16:40

So, typically, what we like to do is we want to focus on the stuff that would seem most scary for somebody, right? So let's say it's a retail business, right, and most people that would look at it had never developed out a retail storefront before, let alone go, found a lease negotiated and all those types of things. So in that brand we would start, right after an introduction call, with real estate. That way we can help them understand how we're going to help them and the system they're going to get, but also what their responsibilities are, so that they know they can handle that. Then most likely, in that type of scenario, you're moving into staffing, next then marketing, then technologies, whatever it is that you really need to cover as a brand.

Lance Hood (FranPro): 17:36

Right and putting the biggest rocks or hurdles at the beginning and it seems like by you getting in front of it they'll spend less time dwelling on it and that puts less of that fear into their bones, because we're just handling it right away and the further you go you're really handling smaller and smaller objections along the way.

Doug Schadle (Rhino7): 17:59

Yeah, you're sliding down into the things that are managed a lot for them, or at least assisted heavily for them, so that they can realize the heavy lifting that they would have to do early in the investigation, rather than putting it at the end and surprising them with it. They really want to help them understand it early so that they can know they could have, they could do it Right. They have to know they can do it in their own mind and then once they realize they can do that, then you move on to the next category.

Lance Hood (FranPro): 18:36

I know that you don't work with just anybody. You definitely weed through people and find the brands that you're willing to commit to, and so I think it's good for people to understand if I'm a brand or I want to become a franchise. These are some things that I better have dialed in, because you know, if a franchise organization like yourself would pass on that, they should know that they're not in an optimal state yet. What are? What do you look for in a brand?

Doug Schadle (Rhino7): 19:06

First, it would probably be the unit economics of the brand. So if they've opened multiple units and financially they just do okay, then that's going to be something that probably we wouldn't be able to help, because once you factor in royalty, brand funds and different things along that lines, it would make it so that it was a lower revenue producing business. So a lot of times we get people that come to us with a brand that has a lot of promise but it's not all the way there yet. In other words, they may need another year or two of growth to show where they can really go financially. So a lot of times a new franchise concept comes from customers and I want to explain that.

Doug Schadle (Rhino7): 20:01

So let's say that you go to a restaurant and you're sitting in there and you love the food in the atmosphere, and so, as a customer, the owner happened to come by and ask how you're doing. You tell them you love it and you say you should franchise this. People would love it. That is a trigger for an owner that gets them thinking about that. But what it really does is it makes a false impression of what people really would need to do it, because the customer's just giving you the customer point of view. They don't know what it costs to do it, they don't know how much time commitment the owner has. They don't even know if they're making money, they just like the product or service.

Doug Schadle (Rhino7): 20:52

So that's a catalyst for an owner to then really look at what they are financially and then that can tell them whether they can franchise, because franchisees have different costs than independent businesses do. They have royalty, brand fun. They got a franchise fee to get into the brand. So the unit economics needs to be pretty good to be able to do that. And then, once you can see where your unit economics are, you pull the PNLs. Then that will tell you what you can backdoor into. And then you can relate that to the item seven on the high end of the item seven and then you know what it is. Here's what the business is and does. Here's what it's going to cost somebody to get into and here's what the business has produced in the past in income. That paints the picture.

Lance Hood (FranPro): 21:50

Right, and sometimes I see these companies that become a franchise and, instead of having something that is unique and has a good brand that has a good feel, they're just normal, and that makes it harder for them to stand out. There are things that make something like a cohesive brand. You just love it there. It has a theme, it's unique, and things where they're just. I mean, it's just the same thing you see everywhere. What are the components that really make that stuff stand out?

Doug Schadle (Rhino7): 22:25

Well, you've really got two types of businesses out there. You've got the unique business that there's not a lot of or hardly any of that people would gravitate towards because there's less competition. And then you've got the old, tried and true businesses that have been around forever but the demand is gigantic and you're going in and carving out yours. So in both those cases you still need the same thing. You need heavy marketing, right, because if people if it's unique people don't know it exists, right. So your marketing efforts are more on awareness, to get people educated with it. I like that style. And if you're in something that's very prevalent, then you're really not educating them on what the business is. You're educating on them, to them, that you're out here, right, and that you have good staff, good systems, bonded, licensed, sure, all those types of things. So there's a variety of different ways to attack it. I don't, you know, if it's unique, then there's some attributes that you can have, and if it's not unique but very, very established, there's attributes to that too. So both can work.

Lance Hood (FranPro): 23:43

And what are some of the biggest mistakes that you probably see brands doing as their, I would say, first, emerging brands and second, like major brands that just aren't getting the traction they want.

Doug Schadle (Rhino7): 23:57

I think for an emerging brand right out of the gate, that one of the mistakes that they made is they're not diving into their franchise disclosure document.

Doug Schadle (Rhino7): 24:06

Well, right, they're going out finding an attorney, the attorney's developed it, gives it to them and now they think they are ready to go. Right, that's really not the way it works. You want to help craft your FDD into something that works for both the franchisee and the franchisor. It builds the strategy into what you're doing, whether it's a territory-driven system or a market penetration strategy, or a true area developer or a master. Those are different things that you can use, lance, to make yourself unique in the model, right. So you're trying to use these different things.

Doug Schadle (Rhino7): 24:50

So I would say the FDD not being used as a tool, just being implemented as a hurdle they need to get through is a tough part For a more established brand that becomes even more critical. Right, because you're crafting your FDD as you grow every year, because you're probably moving things around. You're moving your item 19,. Right, because you have more businesses in that you can put in, and you're moving your item 7 as you learn more as a brand Right. So franchisors are constantly working on those things every year and I think that's probably one of the things that doesn't get enough focus with the brand. It just is a headache that they want to try to get out of the way and they really don't realize. That's your tool, that's your strategy, and your strategy needs to be implemented through your FDD and then you can go implement that in your sales process.

Lance Hood (FranPro): 25:49

Right, Well, Doug, I appreciate you. I want to thank you for joining us and I just wanted to say, if you want to connect with Doug I've known him for many years. You can tell he's one of the extremely smart guy, knows what he's doing, been on the franchise sore side, franchisee side, development side If you want to work with him, there's a button right next to this. You can click here https://Franpro. vip/GoRhino7 and get connected with Doug. Thanks, Doug.

Doug Schadle (Rhino7): 26:17

We appreciate the time today.