Fire Your Franchise Consultant

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman as listeners to this podcast know Dana White has a remarkable array of opportunities before her including company-owned hair salons franchise salons salons on military bases hair products and point of sale software but especially since the pandemic Dana has struggled to get traction this week special guest Ami casar an expert in small business business finance guides Dana through a discussion of how she might prioritize those opportunities and get them financed Amy and Dana consid such questions as what should she do first should she continue to pursue franchising where she's already sunk a lot of money or should she focus on opening company-owned salons at Fort Bragg and in Dallas and should she be looking for an investor if so how important is it that she maintain control of the business or should she try to for a bank loan and if so what kind of pitch is likely to impress a bank as the conversation continues a plan emerges even in Good Times owning and running a business can be a lonely Pursuit our hope is that these weekly conversations will let owners know they are not alone in facing challenges same thing with our daily newsletter the 21 hats Morning Report which Inc magazine recently named the best newsletter for business owners and which you can subscribe to at 21h hats.com where you can also find transcripts of our podcast episodes and lots of other articles and interviews joining me this week on the podcast are Dana White who is CEO of paral Boyd a Detroit based chain of hair salons and Ami cassar who is founder and CEO of multifunding which broker small business loans the episode is titled fire your franchise consultant welcome Dana and Amy it's great to have you both here as regular listeners of this podcast know Dana has a concept um which is a hair salon for women with thick and curly hair that has tremendous potential she has some remarkable opportunities that are right within her grasp right now but like most business owners she has limited resources which is why I invited Ami casar here to join us today to talk through those options and see what we can figure out what might make sense uh for Dana because she's got so much going on so to start let me see if I can quickly sum it up Dana uh and that'll give you an opportunity to correct anything that I get wrong uh you are at the moment pursuing franchising you have already a significant amount of money uh invested with a franchising consulting firm that is helping you uh prepare your offering but you need more money to Market that opportunity and attract potential franchise c number two you have a contract with the US military to open a company-owned salon at Fort Brag uh and you're in further discussions uh with the military to open additional salons at military bases not just around the country but around the world each one of those salons uh of course will require money to to build them out get them running you have a company-owned salon that you are right now in the process of moving from Detroit to Dallas which you are hoping will be a uh a better market for your offering and at the same time you're also developing branded hair products to be sold in uh all of these salons both the the company-owned and uh and the franchised did I get that right yep there's one more please the technology oh right how could I forget you have a software system that you use to run your salons it helps us operate a walk-in only hair salon you have something you're using now but you're you're building something from scratch or you're trying to develop what you have we have your standard uh Salon POS system but all the POS Salon Systems are appointment based and so we're doing a lot of data capture by hand um and what would really benefit you know this growth is if we had a tech solution that you know manages internal and manages external customers and customers while they're in the Salon that would be great when I speak with people who develop technology they said man your Tech could in essence be worth more than the value of your company and do you have somebody working on this now or that's something that you you want to get uh up and running I have a company that I want to work with but again you need the money to kind of get them started there we go yeah have you totaled up how much money you need for all of these uh opportunities I have roughly about $13 million okay hey Amy all right welcome to the conversation Amy what questions would you have for Dana what else do you need to know to help her assess how she proceeds from here let's slow down and break it down yeah let's do that Dana tell me about your business as it stands today I don't know any about your dreams any of your future aspirations what have you got today what I've got is a salon in Detroit that is struggling not because we don't have a customer base it's because it is really hard to get licensed cosmetologists here in Detroit the Staffing issue is huge here and what was your Revenue at that Salon last year oh wow um we never really quite bounced back from covid so I think it was about 200k no I'm sorry we did well it's 232k and is it open today Dana is in the process of closing this salon because of those struggles she's got a location in Dallas that she's ready to build out but also you should know that Co had a big impact the salon was closed for a period of time it's had a big impact on being able to hire our employees to work there much of her customer base doesn't come into Midtown where she's located the way they used to so there's been a lot going on okay how long ago did you open the SW 2012 so it's been nine years it'll be 10 in November and how is it doing preo very good we were close to $400 something, in Revenue with two locations and you were making money yes okay and now are you at one location yes all right so let's get rocking and rolling here okay okay you see my face I'm like okay can I give you my first piece of blunt advice yes fire your franchise consultant you're not ready to franchise I agree I don't know how much money they've taken from you or who they are but a whole premise of a franchise is that somebody's buying into a proven concept and your concept isn't proven yet it might have been proven preo but it's not proven in today's world so put yourself in the shoes of someone who is potentially interested in buying into your franchise system and they are going to say well how do those stores do mhm mhm and right now for the last 2 years you don't have any kind of a clean answer to that question so my first piece of unsolicited advice is it's time to put that franchise stuff on Ice yep it's on the back burner absolutely next question tell me about this deal to build this Salon in in the military base what does it look like how does it work yep so it's us they came to me uh and then because they had some Safety and Security concerns um for some of their Armed Forces women on base um and they needed a hair salon that could cater to a wider Market um they saw how segregated hair was with some of the other um brands that they had you know that they had thought to go to but they said your brand appears to be pretty diverse to us you can do you know all types of hair and so would you consider opening on Fort Bragg which is the largest installation we have in the United States they don't have a salon there um would you consider opening there and so they gave me the numbers from what that Salon did before they had a hurricane that hit and the owner just decided not to come back um and so they hadn't actually found somebody to take that place so they showed us the numbers and we and we said well how did this do and you know the numbers were just okay and they said well this is just with us opening the the doors there was no marketing there was really no effort and all of the styles were stylists were just independent contractors so it wasn't a branded Salon we expect you to do a lot better than this we hope that you'll be able to do a lot better than this when you um come in and brand it and we're and they're willing to help do that they actually do the marketing we just provide the content okay so how do the economics of that deal Works who pays to launch the store do they have Revenue share with you and anything is there real estate is their lease is their rent it's a great question so Apes um works at the you know at the pleasure of the dod explain what a AIX is Apes is the Army and Air Force exchange they're very large company and so they're the ones responsible for putting the exchanges on the bases so in essence they bring a little bit of home on base for their armed services people um and they have uh PL they have exchanges all over the world they're like the uh the owner of a shopping mall essentially exactly it's the it's the mall on base and so how it works is the exchange charges you retroactively a percentage of your last month sales so you negotiate what that percentage is and that's how they make money um and then when it comes to marketing you give them the content and they put it on the military television social media and exchange radio which is all over the base um and then they'll help with hiring you know they'll they'll put the job postings out um they just help get the word out but Dana and perly boy this would be a corporate location and not a franchise ran by AP so Dana would be responsible for bringing on your operations manager to manage these military locations and have managers and staff on ground to run them cool where is Fort brags I'm sorry Fort brags in fville North Carolina oh right I should know that shame on me it's okay how much money do you think you need to get that location up running and going before it turns a profit uh $250,000 and that includes about five months of working capital the number for that location going to be a little less than the other bases because they have insurance money that they haven't spent for um the hurricane that hit back in so there know setting me up to you know they're white boxing the space to my specs they're waiting on drawings um and then we've got to get money to The Architects to do that and then once they have the drawings they'll be able to set it up and then we can just come in and make it our own and brand it so we're thinking about $250,000 before we're profitable okay I've applied for an SBA loan to cover that okay and how's that going um I don't know I'm waiting to hear back okay who did you apply with is it with a bank that you had a relationship with PNC Bank okay I didn't say that now you did you really did what about moving the store to Dallas what's that going to cost you before that turns profitable um I have to I have so many numbers going in my head um so right now that's a lot cheaper because we've taken over a former Salon space and again that landlord is amazing so they're completely White in doing everything I need to do in order to get in there we've started a budget of $75,000 and we've just you know genderly chipped away at that um we haven't like eaten a great portion of it at all so it'll be tight there's a lot of marketing going on that starts in June um getting the butts and seats and and we've got a good model there is another direct competitor down there um and that's you know she's been open since March of 2020 she had a close due to co I think she opened up when the state opened up again and that was in 2020 and she's on her third location I was down there I tried to get couldn't get an appointment for 3 weeks out so the demand is definitely there where do you live I live in Michigan how in the world are you going to manage a Salam and I'm not I'm going to relocate to Dallas and how in the world are you going to manage launch and faithful and launching DS well I have a team so it's not just me it I have two ladies who work with me and this is what they do they were operations managers and regional managers and opening locations at Great Clips Sport Clips Lady Janes n PS salons across the country so it's not just me okay and I have a stylist trainer who will also be able to pop in and train the staff before we open so there's about three a total of four of us right now how much money do you need to turn this technology into something um upon speaking with that group they said about 250,000 that allows for the app for the customers to use to see what the weight times are if any um amongst locations and it also allows for our use on the back end who owns your business today I do 100% 100% what do you know and understand about technology and apps and all that stuff um quite a bit um you know I used to work in the it World um many moons ago um and so that's you know but I don't well it's not that I don't know enough to be a part-time Chief technology officer I just have don't have enough bandwidth on my plate so that would be part of this ask is again the Staffing for um somebody who can go back and forth with that company um to get done what I need done but um been really able to hold my own in those conversations with the that company to communicate what I want with their team how important is it to you to stay in control your company that's a great question and one that I've you know been really thinking about um initially it's very important but as we grow it's going to be less important okay and let me explain why Amy because my I have a very loyal customer base um and even the conversations I've had with private equity and private conversations I've had with VCS they too understand that the second if this is not a blackowned company too early you lose your market share that's part of the draw of getting people in the door is them coming and supporting a blackowned business a woman own business so let me ask you a tough question let's just for a minute forget the technology option is gone away and the franchising option is gone away mhm and you have two options left on your plate to expand into fville and do the military base or expand it to Dallas into do the corporate locations and we also have the products too and the products away we didn't talk about those but we're going to put those aside for a minute or two okay and you've just got faithful and you've just got Dallas and you went to bed tonight and one of them disappeared overnight so you only had one left which would be more dis disappointed to lose uh Dallas why because it's a broader Market with military although Fort Brag is a very large based it still only has a certain capture rate and even though that capture rate you know allows me to make more money than I was making in Midtown and it also it allows for us to grow within the military when you have a Dallas or a private location people can come from all over people can't come from all over to Fort Bragg's location okay tell me about the products business I forgot about that thanks for reminding me we have five products that we want to generate skews for we've already talk to the uh White Label Company that we want to work with um and that's going to be about $30,000 per skew so it's about $150,000 um that's the other part that's exciting about the military they have already agreed to put our products in their exchanges not only on the bases that we have salons but in other bases as well where they see the sales could be high so um products in any hair salon is the money maker but what does the $30,000 get you in other words like what do they do for that $330,000 yeah so they it's it's private it's private label private formula Generation Um and then you get so many units um you get thousands and thousands of units so we'll have thousands of units on deck that we could use in our back bar and then we can sell in our retail actually it's quite affordable if you look at the cost per unit versus you know Buy bu it offline or buying it through another wholesaler um but you just have to buy a lot of it which is a lot $150,000 is a lot of it Dana who wins the race the tortoise or the hair I don't know it depends on the terrain I guess the climate I don't know there's a lot of factors in the race if it's raining I don't know fire I don't know the reason I ask you that question it's not meant to be a trick question is the answer is it depends sometimes the Taurus wins and sometimes the hair wins that's what Dana said ultimately you have to decide how you want to run the race so for me I chose and Lauren's known me for what 15 years Lauren something like that and Lauren watched me sweat my business out for years and years and years and grind it out and sweat payrolls and every kind of cash flow trick you can ever imagine in the world and then some more do this and do that and you you know what I did it and I got through it and now we're doing great and it was in torture but I still control my company I chose the slowly I had friends and Lauren saw me through some of this that were raising private equity and vure capital and going 100,000 miles a minute and raising tens of millions of dollars at a time in my opinion screwing small businesses Left Right Center in the process building fintech companies sometimes i' walk into their fancy offices and St Francisco or Manhattan and I would say what the hell's the matter with me that tension would give me a and yet I chose to stick to my guns and Bo strap my way through it and I'm glad I did so there are different ways for you to go about building your business and let's talk about it but if you want to be the tortoise in my opinion you've got to pick no more than two to start proving your concept and you got to slow down and be okay with that choice and the two that I think you've got to pick are FAO and Dallas if you can get both done and put everything else in the parking lot if you don't want to do that in my opinion and you want to do it all you've got to go try raise equity and give likely give up control of your company today and that is the decision that you have to make I'll tell you a story and it's in my first book the growth dilemma early on in my practice a woman called who had built supposedly or purportedly the world's greatest horse shampoo and some jerk who is up to me and have him arrested had taken the only $440,000 she had to her name to write a beautiful business plan that I think weighed more than my newborn and she was God Dawn determined that she needed $5 million to build her Factory and hire her management team so she could start selling her product and I said to to her have you sold anything yet and she said I can't sell until I have my factory and my equipment and I said no disrespect but you've got to rip up that business plan and you got to go find a co- packing facility and you got to start going knocking on doors and see if people are interested in buying your product and start getting some cash flow you're yours away from having a factory my opinion about your dilemma is it's the fastest path to cash flow and the most reasonable ask the most reasonable ass from a lender is enough money for some combination of fful and Dallas and put everything else in the parking lot if you want to stay in control and then you'll slowly add it later to debt or Equity but you'll start to have cash flow going if you don't do that which is fine and you want to do it all at once or all much faster go look for an investor and be ready to give up control of your company and work for the man or the woman that in my my opinion is the choice you have to make now and we can talk about how to get the SBA loan and this and that and the other but it's sort of binary in my opinion if you want to keep in control and do it on your own got to be willing to take pieces of your vision and put them on ice for now I have a question so in regards to the SBA loan you know let's say I get a decision and the decision is no what would you recommend that I do to get for uh Fort Brag funded well let's be clear of the first thing if PNC says no that doesn't mean you're disqualified for an SBA loan that means that PNC said no respectfully I sort of have disdained for big Banks there are many much more aggressive SBA lenders out there other than PNC and if I were you I wouldn't just be waiting for PNC to give you an answer I put some more steers out in the water and see who bites but it's very important when you present to A lender you're telling a story you're telling a different story to A lender than an investor lenders manage risk and investors buy dreams and when you're talking to the lender you want to proof to them have proof that you expect to be cash flow in a few months and it's about the first one or two stores they might be more later but you tell a lender that your goal is to be a $30 million business that's going to lose $18 million in the next 12 months they're G to throw you out of the water road yeah you got pick as Narrow Lane minimal risk and stay focused Amy what else would you need to know from Dana to assess whether she is a good bet to get an SBA loan whether from her ex current bank or from someone else question would be does Dana have decent credit I do for her personal tax return is current they are does data own a house or own any real estate or have any collabor to offer up I don't I'm not worried about the house but I'm worried about is there a good credit yep I'm in the 750s and higher you have an existing uh loan right uh neidl I do yes yeah that's not doing M it's about presenting the story to A lender in a way that speaks their language and going to A lender who's okay with projection based loans and lik sta Story how do you find that bank Amy I'm not here to sell my services we we're happy to help if you'd like people can go and research top SBA lenders in the country and stuff like that reach out to them individually I would not wait in the back hole somewhere in PNC for them to make a decision for you people make that mistake all the time they assume their bank is the SBA and it's not PNC is one of 1,400 Banks or so in the country that does SBA Loans who says they're the best for you but I mean I was surprised to hear you say that much depends on the story you tell the bank I I thought the story was more for an a potential investor and that Banks were more interested in Cold Heart numbers you're suggesting that there are banks that take other factors into account can you give us any uh guidance let me clarify about that please it's what you tell them if you present a projection based loan to a bank and you say to them we're going to grow from 0 to $10 million in 12 months and we're going to lose $4 million this year but it's going to be okay because in three years it will be worth $100 million they're not going to read pass page one of your application if you say to a bank we're going to open one or two stores these are the Investments this is how long it will take us to be cash flow positive these are our historical experiences in Detroit here's our relationship with the Army and what they've committed to marketing for us etc etc and we expect to be profitable in four months and we're not going to be a $10 million business in 12 months we'll be at $800,000 business or $600,000 business in 12 months it's going to make $75,000 it starts to be language they can understand but that's if Dana puts into a business plan to a bank I need money for this cool technology and going to build these apps and these great products and we're launch them nationally and we're going to do this and I have franchise consultant going and this that they're going to smell a rat that's not the language in general that Banks understand and it's not that that language or that plan is wrong but if you want to take that plan Dana which is fine go find an investor you're absolutely right and when it came time for putting our business plan together for the SBA we kept it solely on for brag all this other stuff and I and I agree with you about putting in the parking lot putting on Ice the products the technology and the franchise marketing but here's how I Define ice I'm not going to not pursue it because I understand getting this funding let's say somebody gave me $250,000 tomorrow for franchise marketing it's still going to take time to put the team together to generate the content to get the exhibit Booth ready you know to get that that designed all of that takes time so that to me is putting it on hold we are not out the gate selling or awarding franchises and we're not actively doing it right now because there's other things we're doing which is Fort Brag um and the Dallas location it's the same thing with the products however I would say that once we get the military up and running product should be right behind it because of their interest and eagerness to get me on their shelves in other exchanges I got it and you can add things and evolve things every three or six months okay but imagine how you'd feel if you were cash flowing in my opinion your first objective should be to be cash flow that's it I agree you're making some money awesome then you can go to your bank and say hi guys hi ladies look at it here's where we are in six months and here's our profit and we're making our payments no problem now I'd love to add this piece to it and I need a little bit more money what do you say I agree that's the priority and that it's so much a priority it was you know get your head out of the woods Dana what do you need to do to make money and if that means you need to move your Detroit location to Dallas understanding that market doing your homework which I've been doing for months then that was the decision I made instead of trying to just make get work here what are you still paying your franchise consultant I'm not i' I've they've been paid good D that for now you're not ready to franchise this thing until you have a proven model of being profitable I agree and quite honestly they would agree with you too you know they said you know a franchise or should not be able to sleep at night if they're trying to sell franchises to somebody when they're not profiting so they're on the same page with me okay my advice to you is at another two or three lenders to your mix focused on Fort Bragg and Dallas as your business plan Amy how helpful is the military contract to date I think it's totally helpful because it's so much more at least from my perspective it's so much more interesting story well she's got this contract and it's Unique and it's a captive market and they're going to do the marketing and with the potential to open on another bases as well other bases we're already working on the Germany contracts oh my gosh you got to slow down well see here's the thing yes but it doesn't mean that Germany's opening next year these contracts take time I get it and I know all I'm saying is that when I started my first company 27 28 years ago I don't know in the do bubble days and I got my first meeting with investors and I stayed up in my apartment for two nights and I built this incredible business plan and it was one of those going to be $100 million bills plan and I was convinced I needed $2 million and we sat down friend of mine is no even though we lost that company to become a great mentor of mine he ripped up my business plan he said tell me what you can do with $250,000 I looked at him like he was St crazy I love it and I actually Ed up selling them 40% of my company I think for $250,000 and it didn't work out which is okay in my opinion your single most important objective right now Dallas and for brag open and cash flowing period period I agree Dana is that completely making sense to you it is Waterford crystal clear and it's like he read my journal like up at 5:00 in the morning and you know when you can't sleep you whip out your journal and you write this down and this is what's in there my goal and I'm so passionate about it I'm packing up here and I'm going there and going to watch watch that and make sure you know sometime people say well you know do you feel that Detroit opening in with Detroit was a mistake no I had 9 years to get my sea legs and I'm opening differently than I did when I was opening both Midtown and in Southfield we're starting marketing before we're even done building out the space and getting you know trying to drive traffic we're trying to get you know press on board so we can generate buzz when I opened it was oh I've opened oh now I've got to tell people hand out some flyers right I'm already I I just got back from there about a week ago again setting things up looking things over getting to know the landlord looking at the space and so this is a different Dana than it was back in 2012 and and I didn't want my ego to get in the way and say well it should be able to run without me being there no I'm starting over and I'm and and privileged to be able to do so a lot of people when a unit doesn't work they have to just you know pack it up I don't have to do that uh so what I'm going to do is I'm going to move in essence down to Dallas and make sure that it starts running yeah let me let me tell you on one thing and and sorry for being pushy but you said to me before that picking between Dallas and Fort Brad you would pick Dallas correct why he can make more money why because it's open to a larger market that may or may not be true because Fort Brag you might be able to charge more not at all okay I I don't know because exchanges that's that's the beauty of the exchange they Pride themselves of being at cheaper price than which you would get off base okay but it's a captive market right and it's potentially a more scalable market and potentially the market that you can scale without having to franchise there are a lot of people in that base right Dana so for my market there's 79,000 women on base um but the work of that is on based hair salons are have never been well received and they don't trust them so we're we have to kind of start from behind you know and work our way forward whereas in Dallas 40,000 of my market were are within a f mile radius of my door yeah how many other salons are with a five mile radius of your door Al um none that do what we're doing and I don't mean to be exclusive but none that cater to African-American women none the next one is about 10 miles away no maybe 20 miles away and how important is that that it caters to an African-American woman hair is segregated black women don't go where white women go white women don't go where black women go and there's nothing in that area for my market how do you find the next Dallas my only point is you could do a great store in Dallas but then you got the challenges of franchising which is really hard and if you can get the military base right suddenly you can scale that and stay in control of that and potentially not have to franchise right maybe you don't have to choose and maybe you can do both but I challenge you to think about if you had to choose one and you were going to focus because there's a great discipline in focus and really launching one versus the other I challenge you to think about which one is smarter to focus on I think it's the corporate locations I've thought about it you mean over the military versus the corporate locations correct I think it's the corporate locations I think with the military it's great and I think we'll make money but I think we are capped we're also thinking about people and families that are deploy there's a lot of movement on basis right so the person that was your customer four months ago isn't your customer anymore because that person's husband just got shipped to North Dakota or this person's wife just got shipped to North Dakota how many locations could Dallas tolerate Dallas could do five to 10 but I'm I'd like to keep it on the smaller side and do five is there any part of you that would like to push back on Amy's encouraging you to go the slow path are you at all still interested in trying to find an investor and do more of this and do it more quickly yeah I I I think push back is a hard word because I like he's saying if I hear him correctly he's saying slow and steady wins the race um I don't disagree with him in 10 years I don't know if I want to own perly boy I really don't think I do I think I want to build it so I can sell it I don't mind being 20% over owner of a100 million company I don't mind that um because the goal is to sell it and maybe be retained if I'm qualified to be the CEO of it with a CEO salary but I'm 45 now and I'm looking at you know the ripe old age hahaa of 55 saying okay what do you want to do I don't know if I want to keep going at this clip and I will preface this by saying I this could change I'll be honest my Detroit time bruised me battered me a little bit and I'm nervous I've got Detroit baggage um but it's because I opened in a market that wasn't as dense we don't have a million people here in Detroit here's the thing in business we're constantly making decisions and if we're lucky we're right 51% of the time I can't tell you how many decision decisions that looking in the rear view mirror over the years have made that in retroactively I think were the wrong decisions but I don't cry over my spilled milk I try to learn from them but you make decisions you move on quit quit crying over Detroit you learn it's okay yep that's it I agree my only advice is pick your lane decide which way you're most comfortable with and then go make it happen if you are going to spend your time hunting for investors and and for $5 million of investors from one investor and then a $250,000 loan from lenders you're not going to do either well so it's what do you want to do for the next 6 to 12 months and if you're say I'd rather be cash flowing and have more proof of concept before I go out to investors then just stop worrying about it focus on the lenders and get it done if you say you know what I'm going big I'm going home stop looking for lenders and start focusing on the investors and building your plan accordingly but where people get I think confused or stuck is if they can't get out of like the the mush and whatever you pick God bless it's not my place to say what you pick but I'm encouraging you to pick and focus all right my thanks to Dana White Dana as always thanks for being so open with uh sharing all the details with your journey uh I appreciate it I know our listeners do too and Ami casar thank you for taking the time really appreciate it this was really helpful really enlightning wait wait don't leave yet if you have a question or a comment that you'd like the 21 hats owners to address send it to me by replying to your Morning Report or by email at luren at21 hats.com that's L ren21 hats.com do it now before you forget and don't be afraid to tell Jay what you really think he can take it and if you got something out of this conversation help us reach more business owners tell a friend subscribe and review us wherever you get your podcasts follow us on Twitter subscribe to the morning report at 21h hats.com this episode was produced by Jess Theron founder of blank word Productions okay now you can leave thanks for listening everyone [Music]