On the ABC show Shark Tank, contestants pitch business ideas to seasoned professionals who decide whether or not to fund them. But could a similar contest create new franchises? That’s what Cincinnati entrepreneurs Dan Murphy and Gary Green started wondering. Both have developed lots of different franchise brands -- including The Growth Coach (business coaching) and Fresh Coat (painting contractors) -- and decided to launch a competition of sorts. Instead of going through the arduous process of thinking up and developing a franchise brand themselves, they’d take applications from small-business owners who were hoping to expand, and select one or two for the franchise-development process. They call themselves Franchise Funding Group.
“We want to help entrepreneurs who have a successful business with one or two locations but have the vision to scale nationwide,” Murphy says. “We can be that path for them.” Their offer is robust: They’ll fund a business up to $150,000 and take a 25 percent stake. Then they’ll help the franchisor find an attorney to create a franchise disclosure document, help them train their franchise team, create their systems, develop marketing, and do all the things that young franchises struggle through, usually on their own.
The first brand they funded in 2015 is Pet Wants, a subscription pet food company that makes monthly deliveries of all-natural, fresh-made grub. More are anticipated for 2016. Here’s how winners are picked.
What made your first selection, Pet Wants, special?
The founder, Michele Hobbs, had that X factor. She wanted to expand nationwide but just didn’t know how. She kept asking, “How do I successfully franchise my business?” and it turned out we were the answer. She wasn’t going to be denied. We looked at the due diligence, and she was in a great niche -- fresh pet food. She had determination, grit and great selling skills. She had a proven system and was just looking for a partner. We started offering franchises in June 2015, and in less than five months sold 19 franchises, with eight up and running and 11 in the process of launching.
How many people applied for that first round of funding?
We got around 90 credible inquiries and had 60 people fill out the full application. We talked about those 60 applications at length and then looked at the financial statements for 15 of those before deciding to fund one. I think that’s the ratio we’ll have going forward -- funding one or two brands out of 100. We’re putting our reputation at stake, and spending a lot of time and money. So we want this to be a great relationship.
What’s the next brand you’ll fund?
We don’t know yet. We’re just taking a second round of inquiries in Q1 of 2016. But as our name gets out there and people realize we’re legit partners, we’re getting a much higher caliber of applications. We’re also going to start working with emerging franchise brands in the one-to-50-unit range that just need a little extra firepower. Really, we want to get these brands up and successful. We figure most of these franchisors will eventually want 100 percent ownership but will still want access to our expertise, so we have a buyout formula in the plan, and then we’ll get a long-term management fee.
Why not just get a consulting fee to start, and move on?
Because this is a blast, and it’s giving back. I’m 52, and Gary is five years older. We don’t have the time and energy to start businesses ourselves anymore, and we’ve been blessed in franchising. Now we just want to help other people do it. It’s probably the most exciting thing there is.