Jeff: Welcome to Deal Talk brought to you by Morgan & Westfield, I'm Jeff Allen. If you're a business owner, entrepreneur, or investor this is the place to be. Our mission here is to educate and inform you with the help of some of the most credible, highly regarded experts in the industry of transacting businesses so you'll be equipped with the knowledge to help you make some important decisions when the time comes to sell your business or to buy one for that matter. Some of our guests are not necessarily involved in transacting businesses per se; they're kind of corporate insiders or business owners themselves, entrepreneurs, people who kind of have some skin in the game and they can provide you with real world, detailed feedback and information that will also help you too on your way as well.
We've talked about owning and operating franchise businesses on this program in the past, but if you're looking to build your own franchise business or if you're interested perhaps in expanding your corporate portfolio, maybe you're a current franchisor, you'll be interested in what my guest today has to say. His name is Pete Baldine and he's president of the Moran Family of Brands in Midlothian, Illinois. That's a Chicago suburb there located south of the city. Pete, welcome to Deal Talk, it's nice to have you on today.
Pete: Thanks for having me Jeff, I appreciate the opportunity to be here.
Jeff: Pete, let's talk a little bit first of all about you. I know that you've been with the Moran Family of Brands for a while, since I think before 2000. Tell us a little bit about the brands that you guys have under your corporate umbrella and kind of what you specialize in?
Pete: Sure. Jeff, we are an interesting company. We grew throughout the 90's by acquisition, officially acquiring a company called Mr. Transmission out of Nashville that was obviously a transmission repair business. We then acquired three other regional transmission repair franchises. We kind of built our presence across the United States with acquiring these strong regional players. Then we expanded into general automotive repair when we acquired Milex Tune-ups, Brakes, and Air Conditioning itwas called at the time. And then we also acquired an automotive window tinting and accessory business in 1997 called Alta Mere Window Tinting and Auto Alarms. We have done our thing with those brands after acquiring them. So the brands were all instituted with best practices. So even though we acquired different brands the business systems have been developed are the same basically. We have the synergy that we need to grow those businesses. Today, we have this Mr. Transmission, Milex Complete Auto Care, Alta Mere Automotive Outfitters, and Smart View Window Solutions are the four brands that we have today.
So even though we acquired different brands the business systems have been developed are the same basically.
Jeff: And so your company obviously specializing in the automotive space. Tell me something Pete, have you heard of or are familiar with maybe other franchise based business that are not so specialized, that are maybe all over the map. And I guess what I'm getting at is that when you do something really, really well -- and you guys started in really automotive-related businesses -- that it seems to be that if you know something really, really well you kind of stick to that and you find complementary businesses. Would you agree with that particularly when you're looking at expanding your franchise portfolio?
Pete: I would agree with that Jeff but I would also add an interesting twist to that.
Jeff: Okay, good.
Pete: Much of our growth today comes from what we call co-branding. We have acquired these successful, specialized businesses. But over the last number of our years our markets change and things evolve. And as the automotive market has gone through some changes and evolved we’ve realized that we were positioned probably better than anybody with the various brands that we have to address the current needs of the market. And what I mean by that is that we have grown through co-branding our models together under the same roof. So many times we'll take a Mr. Transmission and a Milex Complete Auto Care, and we put two franchises in the same building. We'll take aMilex Complete Auto Care and an Alta Mere, put those two franchises in the same building. In a few instances we have actually put all three of those brands under the same roof. And what does that do for the franchisee? What it does is it creates a one stop shop opportunity for the customer. They really don't need to go to specialized shops and go to different places to get their work done. They can get it all done in our franchise which may be multiple brands.
And what I mean by that is that we have grown through co-branding our models together under the same roof
Jeff: It's all about convenience.
Pete: It's about convenience and it's also for the franchisee about having the same fixed overhead with that facility. But now having two or three revenue streams to leverage that fixed overhead against.
Pete: So from a profitability standpoint for the franchisee it's really a unique opportunity because they can leverage that fixed overhead.
Jeff: And what you're doing is you're really providing added value. This is a win-win. It's added value to the customers because they get to come in. They get a full range of services without having to get back in the car, drive across town to the transmission guy, or to the guy who does the tires, or the brakes, or wherever he may be going. And it provides added value also to the franchise operator because he's able to provide additional services without really seeing a tremendous jump in cost because he's got one location there. Everything's based on the same system of operations and really everybody wins.
Pete: A great point Jeff, absolutely correct. The value add for the customer really can be tremendous. And I've been in the automotive business for over 30 years. And what we saw in the 80's and early 90's was a lot of specialty shops. And that did one thing that was very interesting that we saw, and part of the reason why we created these co-branding opportunities is because the customer was put at a disadvantage. With specialty shops it appeared on the surface to be a convenience factor for the customer. But what the customer lost was the relationship that theyhad. Years ago you used to go to the neighborhood gas station and you knew the operator, and you had a relationship and you trusted him, right?
And part of the reason why we created these co-branding opportunities is because the customer was put at a disadvantage
Pete: And then all of a sudden the customer was forced to go to all these different specialty shops, so three, four, five times a year they go on to a different place and they didn't have relationships anymore. So what we've been able to do with our co-branded models is to recreate those relationships, it's be that one stop shop where the customer doesn't need to go anywhere else to get their car worked on and they can have a relationship with the owner or the mechanic. And that trust factor now comes back into play.
Jeff: Pete Baldine, what are the customers saying? What have their reactions and their responses been.I know you guys have been doing this for a while. But what are they telling you?
Pete: Well, they love the fact that they don't have to multiple locations to get their work done. They love the fact that we can diagnose their car withwhatever's wrong with it, and actually do all the work. What used to happen in the automotive aftermarket was they go to a transmission shop and the transmission shop might say, "It's not a transmission problem, it's an emissions control problem, so you need to go somewhere else to get that looked at." How many people have been bounced around between the dealership, and the transmission shop, and the general repair shop with ever really finding out what their problem was? And so we've eliminated that for the customer. We hear a lot of positive things from the customers because of the trust factor, the relationship, and the convenience that we can do anything with their car.
Jeff: It would appear to me that the automotive services market is not the only market where you can see the use of this co-branding strategy by franchisers to help build their businesses and really bring more people into their corporate family. It seems like there a number of different opportunities including maybe even for restaurant owners, and we know that we've gone to these shopping centers and we've seen multiple locations that belong to the same corporate family, all within walking distance of one another. And so it basically gives in that case the diners a choice, be whether they want Mexican food, Italian food, or American barn grill food, they're able to find everything right there. And so it really does seem like a great business model or something to have in mind, and something that's catching on all across the country. Let me ask you something Pete, in terms of value to the business, in terms of how much that business might be worth, have you found in your experience there with the Moran family of brands, and just this kind of a franchiser in general that really you're talking about potentially adding significant value to the business. And this is something to consider long-range maybe, this is a long-term type of consideration for those people who are interested in what the value of their business might be at some point when they decide that they're going to go ahead and move forward, maybe sell off a brand or two, or maybe a co-branded operation.
Pete: Absolutely Jeff, great point. A lot of people don't think about that. We're bringing on new franchisees. We always on the front end, talk to them about the equity of build. We want them to realize that, great, at this point you're making decision to start a new business but at some point down the road whether it be 10 years, 20 years, or longer, you're probably going to need to sell that business when it's time to retire. And that equity build that you have can be much greater with Moran Family of Brands, because as I mentioned before, when you got that same fixed overhead and you're leveraging that fixed overhead with additional revenue streams, that really can build the value inyour business. Most of thesebusinesses are sold on the multiple of earnings, or on a percent of annual sales. And when you’ve got those additionalgrowth opportunities because of our multiple brands and co-branded opportunities you really do impact to your point the growth and value of the business.
So what we've been able to do with our co-branded models is to recreate those relationships
Jeff: On a more basic or elementary level, we're talking by the way with Pete Baldine, you heard him mention the Moran Family of Brands. He's president of the Moran Family of Brands based near Chicago. Pete is involved in the automotive space, all of the companies that his franchise owners operate are there under that Moran Family of Brand and all automotive service-related types of businesses. Let me ask you on an elementary level Pete. Let's talk to the people who are listening right now who are interested in going into a business for themselves and running a franchise-based operation. What are the advantages of becoming a franchise-based chain as opposed to simply running independent locations throughout a community or throughout a region?
Pete: Yeah, Jeff, a lot of people ask that question when they're investigating different businesses and there are several key answers to that question. One of them for the franchise company is obviously a faster avenue to growth. And if you have a faster avenue to growth then you're building that brand. And everybody that's in that system benefits from building the brand.My oldmentor used to say, "A rising tide raises all ships." That part is important. Also, you have the opportunity as a franchisor, you're bringing on franchisees that were successful in other businesses, so that you're tapping in to that knowledge base. You're developing a proven business system that can be duplicated. That's critical for that franchisee that's coming on board, that they're buying into a proven system that’s duplicated. Because what you're doing with that is you're eliminating the mistakes. Mistakes cost money, mistakes take time. And by following a proven business system you're eliminating or minimizing those losses, and speeding up the ramp-up time for the new franchisee. And it's a faster way to build a market and build that solid brand. Those are some of the key things that make thatan advantage.
Jeff: Pete, when we come back, we're going to take a short break, I want to talk about the selection process when you as a franchisor is considering building his business. And obviously with the distant future in mind, as much as you are looking at it as an immediate opportunity to get in and strike while the iron’s hot, I want to get an idea from you about how you choose the brands that you do. And that's when we come back in our visit with Pete Baldine, president of the Moran Family of Brands. My name is Jeff Allen, we'll continue our conversation when Deal Talk returns after this.
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if you have a faster avenue to growth then you're building that brand. And everybody that's in that system benefits from building the brand
Jeff: Welcome back to Deal Talk, I'm Jeff Allen, continuing my conversation with Pete Baldine, president of the Moran Family of Brands and we're talking about franchising your business, looking for new brands to add to your corporate portfolio. Pete, I appreciate you staying through the break. We want to talk to you now, Pete, what it is that you look for? You've been at this a long time and you've had a lot of experience going out and meeting with people, and considering brands to add to your family. You need to be picky for the obvious reasons. Your company has a reputation. You've built your career on that, you've built your company’s stake on that as making sure that you can add to that company without subtracting. You want to make sure that you bring something on board I would imagine that is going to be a positive reflection on your corporate brand overall. Let me hear what it is that you do, the thought process that goes into selecting a new brand for a franchise.
Pete: You bet Jeff. That's an important question, because the last thing you want to do is take a successful franchise that's running well and then divert the attention of the team, and take on something that is a drain. And I've seen that happen in my career many, many times with different companies to where an acquisition or a growth opportunity becomes detrimental. The things that we look at, and as I said earlier we grew two acquisitions, so the things we look atare how does it match up with our existing offerings? Is there some synergy there for the system to where the new offering is going to add some value versus diverting management attention. All those lines, a key question is can we support it with our existing infrastructure? Most of the time we donot want to take something on that requires building a different support infrastructure for our franchisees. Another important point would be does it open up new markets for existing franchisees and provide some opportunities for them to expand?Can an existing franchisee then grow their business from that new offering?
I'll give you a couple of examples. Smart View Window Solutions -- we mentioned many times thatwe're primarily in the automotive aftermarket. But Smart View Window Solutions is a model that is not related to automotive. It is a residential and commercial window cleaning business. That came on stream because for many years with the Alta Mere Automotive Outfitters model we will receive calls from customers wanting to know particularly in hot climates as people were building homes with more and more windows. They wanted to know if we could tint their windows in their home because the rooms were uncomfortable. They had glare problems, they had energy loss problems. And for a long time we couldn't do it because the product didn't have the right characteristics. But back a few years ago they came out with a new generation of products that brought on, thatbrought to us the characteristics that you needed in the residential and commercial application. And so we were able to expand into the residential and commercia lwindow film businessas an extension of our Alta Mere automotive outfitter business. So there's an example of one that we did that just made sense. We already had the window film business, the same guys coulddo the installations. We already had customers calling so how are you going to market is important, how you're acquiring customers. And when you already have customers calling wanting thattype of product, that type of offering, you got one of the challenges already beat. So that was an expansion opportunity that we took on that made sense for us.
Jeff: So really you're looking for obviously a market that you may already be able to tap into pretty quickly. You know that you are able to meet a need. You have human capital already essentially on board, or at least you have access to that human capital ready to be able to perform those services. And you may already have the technology also in place or have access to it soon so that you're able to pretty much go intobusiness if not on the fly, pretty quickly.
Pete: That's right. That’s exactly right Jeff. You pointed out when we were talking about co-branding earlier how some of the fast food franchises are co-branding. And the key there is if you're going after the same customer and you can reach that same customer with now additional product offerings like Baskin-Robbins and Dunkin' Donuts. If you could reach that same customer and have different product offerings to bring them to your location thenit makes sense.
How are you going to market is important, how you're acquiring customers
Pete: And we're able to do that with our offerings as well.
Jeff: Can you talk to us Pete about some of the challenges that new franchisors and maybe that you have faced in the initial stages of building their brands and expanding their business. Just maybe a slice of some information that you can share to help others realize that they may not be alone, that there are certain things that you have to battle in order to get through and be successful.
Pete: Sure. The number one most important thing, and many of my franchisees will tell you this if you talk to them to direct, is following that proven system. And so one of the challenges sometimes is when people get into asystem and then as soon as they start getting comfortable, many times they get into the system for the right reasons because they recognize that they have a better advantage if they're utilizing the proven system. They recognize that they've got great advantages if they’vegot support. But then sometimes six months into it they start to get smarter in the system and they start straying from the system.
So one of the biggest challenges with franchising is new franchisee, straight from the system but don't follow it. They get influenced sometimes by what they think is going on in their market and that their market might be different. They get influenced sometimes by employees, by other opinions, and those are the reasons why they sometimes stray from it. They don't always necessarily intend to but sometimes they do. So we have a tracking systemin our model that looks for that. It looks for six to eight months down the road when we start to see achange in their sales because they might be getting off the system, and we quickly get with them and help them get back on the system so that they follow it. For franchisees not going to follow the business system then they should go independent, they shouldn’t become part of a franchise. There are so many advantages of becoming part of afranchise and it's not just coming from the franchisor. One of the greatest advantages is having a bunch of peers in your system that you can talk to,that you canshare ideas with, and that you can bounce things off of that you wouldn't have as an independent.
Jeff: Pete, from what you're saying then, it really does sound like the franchisees have tremendous support. They have tremendous opportunities to stay attached to not only what corporate is thinking and what the guys at the main office, the franchisor are thinking in terms of providing marketing and promotional support. But also too, as you'dmentioned, they have support of fellow franchisees in their system and hopefully they're going to get to know these people so that if they have any questions or they have any issues should they come up, that they're going to have a number of people that they can go to tohelp them overcome some of these problems, whether they're sales related or operational related or whatever they may be. So at their end what you say has a tremendous amount of credence. It just seems like the advantages outweigh the cost when you get right to it, when you're a franchisee, owning a franchise business...
Pete: A Perfect -- if I can interject for a second.
So one of the biggest challenges with franchising is new franchisee, straight from the system but don't follow it. They get influenced sometimes by what they think is going on in their market and that their market might be different
Pete: A perfect example would be later on this week you're in Chicago at our home office. We're having an open house on Thursday and Friday. Andwe have franchisees flying in from all over the country as well the local ones. And we have franchisees that are facilitating round table discussions on various topics that are important to all the franchisees. And they're all going to be able to sit around the table with each other and share ideas, and see how they're doing things, and see how their peers are doing things, and that's going to be a huge benefit to all the people who attend.
Jeff: Indeed, it sounds like it will be. And hopefully you'll have a tremendous showing there. I'm sure that you'll probably will and people will take advantage of those opportunities, and I hope that for those people listening who run their own franchise brand maybe with a company that they've been with for some time that they have access to those same opportunities. Pete, as we start to wind our show down just a little bit we were talking a little bit specifically earlier to franchisors, or to those interested in it, maybe they already have their own independent chain of businesses, whatever space they might be in,in their communities and their regions, maybe in their state. If there are people out there who are considering franchising for the first time and maybe what I'm saying is converting their private, independent company into an opportunity for other business owners to take over those locations, some of those outlying locations and turn their company into a franchise-based business. What are some of the necessary first steps in your view that they should take in order to look into that so that they don't have to go and operate those businesses themselves but thatthey can kind of start to expand and bring other capable business owners on to take on some of those locations for them?
Pete: Great question Jeff. I think that some of the key things here is one, they have to look. First they have to really do an in-depth analysis of their model and make sure that that model is a model that will work in the franchising environment. What I mean by that is before they franchise that they should make sure that they have developed a solid business system that is duplicatable. That's going to be the key to success for thefranchisees that they bring on stream. If they're just learning the successful business because they're good at it, but they hadn't created a duplicatable system then it won't work.
Pete: So it's critical that they analyze that system, that they make sure that they've got all laid out procedurally, that they develop the manuals and all the tools that a franchisee will need to come in and execute that model. We do things, an example would be when we bring a new franchisee on. Most new franchisees have never negotiated at lease before. In our system, we negotiate the leases for the franchisees and the reason we do that is because they don't have the tools or the resources to do it themselves. So the analogy is your business system needs to make sure that it accommodatesnew owners who don't necessarily have experience in that particular industry, but they can use the tools you provided and grow that business, and implement that model effectively.
First they have to really do an in-depth analysis of their model and make sure that that model is a model that will work in the franchising environment
Jeff: And make it easy for them to step in and just start operating the business without thinking about some of the other issues there that they don't need to get involved in particularly if they have no experience in that. Pete, I think that's well worth the final comment today. There are so many questions that we really didn't get into, and there's so many areas that really require more detail that I would like to have you back on the program in the future and I hope you'd agree to that. Thanks very much Pete Baldine, we enjoyed it and we hope that you enjoy the rest of your summer.
Pete: Thank you Jeff, I enjoyed it as well. Have a great week and enjoy your summer too.
Jeff: Thank you so much. Pete Baldine, president of the Moran Family of Brands.
Deal Talk is presented by Morgan & Westfield, a nationwide leader in business sales and appraisals. If you'd like more information about buying or selling a business call Morgan & Westfield at 888-693-7834 or visit morganandwestfield.com. And make it a point to check in with us again soon for valuable information and insight from our growing list of small business experts on Deal Talk. I'm Jeff Allen and I look forward to talking to you again soon.