I Pay Midas $4.3 Million a Year. Here's Why It's Worth It | 341

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Transcript

SPEAKER_00 0:00

Welcome back to the Business of Beers Podcast, your daily dose of strategies, tools, and tips to help you build an eight-figure business. Today's episode is a clip from one of my YouTube lives. If you'd like to hear the whole thing, there's a link below in the description. Cheers.

SPEAKER_01 0:16

I pay $4.3 million a year right now to MITIS. And so I want to break down exactly where that money goes and ultimately whether I'm an idiot or if this is a pretty good deal. And so let's dive into it. First, the the big thing to realize is let's go over these numbers. In 2023, we did $40 million in revenue, we paid 3.5 in royalties. In 2024, we did 43 million, paid 3.8. And in 2025, uh almost 49 million, 4.3 million being paid out. And so the first part is for context. I own uh 35 now, 36 as of last week, Midas auto repair franchises in Philadelphia and New Jersey. And so this question I get all the time, which is, you know, why not just open a Beers Tyron Auto, right? Why not just be independent? And there's a number of reasons why of why I would not want to do that. And we're going to kind of dive into them here. And the first is, I mean, I have a non-compete. You know, anytime you sign a franchise agreement, you're going to sign a non-compete that basically says that you cannot run a competing business uh for as long as you're a franchisee and potentially after that for a period of time. And so if for whatever reason I said, hey, one day I want to go independent, I would need to sell all of my stores, and I basically have to start all over again. And, you know, I don't, I just I don't personally have an interest in doing that. Um but it's something that a lot of people do. So as you're as people are going and evaluating uh getting into a franchise, you know, there's this idea of like, is that non-compete worth it? And and for some brands, it's honestly like people feel like they they've learned everything and then they can go ahead and do it without them. Uh and that can be a sticking point. But for me, uh, you know, not in interest. And so the $4.3 million I pay, where does it actually go? Now, in our model, about half of that, or half of that money goes to marketing, which in my mind like has to get spent either way. So you're gonna spend money on marketing, you got to get customers in the door. And so for us, half of it goes to marketing, the other half is what the real royalty cost is. And every franchise is different in in how they do it. And so it's like a big part of like when someone's looking at a brand to really understand like how much are you paying and is it worth it? For us, uh, you know, it ends up being less than 5% of sales, maybe like 4.5 or something in that range, is kind of the real cost on an ongoing basis to be a franchisee. And so there's a couple things of how I think through this. Number one is that you know, I wouldn't be this big if I wasn't a franchise. Like, I think this is like ultimately the biggest reason that it's it's really hard to grow when you're on your own. And the whole and the whole point of a franchise is that you own the business, you're in business for yourself, but you're not by yourself. And that you know, you've you've got systems, like that you've got these playbooks. But but then there's this whole other part, and I'm gonna talk about this in pretty good detail here, which is everything else that allows you to move quicker. And so, yes, like my margins might be lower than an independent person owner doing the same volume, but ultimately my dollars might get way higher because I'm I'm part of this system. And so that's the biggest thing. It's like ultimately, in my mind, it comes down to like the a cost of doing business, right? It's like a ticket to the show that if you want to get in, you want to play this game, this is just the cost of doing it. And it's not necessarily about what the percentages are in my mind versus more of the dollars and like how much dollars might actually take into the bank and is this a good investment or not? And so I'm gonna talk about this in a couple ways. One of them is through MITIS, which is you know like our biggest uh business that you know this year we'll do 50 million. But I'm also an investor in a franchisee in some other brands, some some emerging brands, uh, through partnerships. And so I also want to kind of contrast this to uh what we're seeing in more of these newer concepts. And then I'm also gonna talk about like the red flags that make this totally not worth it and a huge, a huge risk here. And so uh, so for example, there's another brand, it's called Waterloo Turf. Uh so I'm an investor and an advisor at the franchise ore level. I'm also a franchisee. Uh, this is Rick, he's my partner. Uh we launched Houston last year, and we just launched a piece of Dallas this year. And for us, one of the big values of being a franchisee is we have zero turf experience. Like, I'm a I'm obviously here in Philadelphia, like doing all the stuff that I'm doing. And Rick spent 22 years in in the uh Navy as a uh he was a Navy CB, and so CBs are basically a construction. And so he traveled the world with Navy SEALs and would go to war zones and like build anything they need built. Uh like bridges, bases, uh airplane, like runways, you name it, these guys could build it. And so uh so he retired, and I was looking for a partner after I made this investment in this this turf company and said, Hey, I want to I want to find a partner who who we can operate, and I need somebody who's a uh you know total badass. And so I found I found Rick. And for us, a big value in pay and royalties was you know, zero turf experience. And this job right here that he's at, I think was the third job that we did, and I think it was $30,000 to do this like putting green and all this, like all this stuff around this person's house. Uh and even today, yesterday he sold a $70,000 job. And so we've we've built this like whole pipeline from zero turf experience last June when we launched to now. Uh I mean, tur Rick is probably the most knowledgeable person on turf, uh more knowledgeable than like a lot of other people, even in the brand. It's it's actually funny. Um, but but because the the point of a franchise, a good franchise, and there's a lot of bad ones too. This is not not a blanket statement, is that they can take decades of knowledge and experience and they can compress that into a matter of days. Um buying power. So like a great brand should have crazy good deals on supplies, on uh like your supplies to purchase turf, to purchase tires, to purchase like whatever it is, like I should get a better price because I'm part of a national brand with power than the independent guy. And that's not always the case, but like the best do. Uh marketing power, if done right, should be massive. Because if you think about you're just like one person maybe spending $5,000 a month, and I may also be spending $5,000, but my budget's part of a total that's $100,000 a month, like we should get more impressions, we should be able to get, you know, more leverage and and all that. And so you should actually save money and get more dollars for your bucks if if if it's done right. Um lenders who understand the brand. So I have a friend uh who's in my eight figure franchisee uh program there, who uh is a is a franchisee of Tropical Smoothie Cafe, and he is working on acquisitions now. Uh, I think he's got two or three in the pipeline, and he has a lender that is willing to give him 100% financing on these acquisitions. Like, like no money into the deal to take over these two. And like it's because that bank has has lent on a ton of different tropical smoothies, and they have an extremely low failure rate, they're extremely predictable. He's obviously a very good operator with excellent credit and all these things. But over time, like that happens. And if and if you can establish really good track record and you're in like a strong brand, then the the financing like problem can can actually be a lot a lot simpler. And so um something something to consider. Um so a couple of things. The franchise community. Now, this is this is one that a lot of people don't know about, but like in a great brand, the community should be very strong in terms of franchise owners sharing all the stuff that you want to know, right? How much money did you make? What are you doing for like hiring strategies? What are you doing for compensation plans, PLs? Uh like there's this idea of like a built-in mastermind, like like you're getting together to share all these things. And like the value in that alone, for me, pays pays for it. Like, I've gotten more ideas that that probably have made me multiple millions of dollars from other owners that we've just become friends with, and we can call up anytime, and I've and I share just as much uh with with them. And I think that's a big part of it, and that's one that you you want to vet for too. Another big part of like what you should be looking for in in any of these brands are RD. Like, what's what's the future? So, MITIS, for example, like cars are evolution, you know, constantly changing. There's EVs, there's ADOS, there's all this like complicated stuff. I don't want to get into it, but like, you know, they are at corporate working to figure out what are these cars going to have, like, what what do we think is a fad now versus what is here to stay? What equipment are we gonna need? How can we adapt? Who are they gonna be the pilot franchisees to test all this stuff off? So, like, like I benefit from the innovation because all these other people are trying to figure it out. So, like, I don't have to figure it out myself. In the food franchises, munchkins from Dunkin' Donut were invented by a franchisee. Uh, I think the Big Mac was invented, I think the Phileo Fish. Like, some of the most iconic things in franchising were created by by franchisees and you know, through these like RD and the test kitchens and the test pilots and all this stuff. And so, like, I don't have to worry about any of that stuff. I just like I just focus on operations, and when I feel it's ready, I can you know I can I can benefit from it.