Stephen Sacks is the Founder of Funding Nav, a company focused on delivering real-time advice and execution to owners of businesses looking to raise additional liquidity. We discuss how to make your business franchisable, ways to grow your business without loans, and how to succeed by learning from other people’s failures.
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Make Your Business Franchiseable with Stephen Sacks
Our guest is Stephen Sacks, the founder of FundingNav, which is uniquely first looks at free cash sources, such as R&D, tax credits, grants, and efficiencies before moving on to loans and equity. Stephen, welcome to the show.
Thank you very much, Stephen. I’m really, really, really pleased to be on.
Well, I’m excited to have you as you, you know, you’re calling from the UK, you have a different perspective, plus your entrepreneurial journey is also very exciting. So tell us a little bit how you got into the funding business, the property business, what got you going to becoming an entrepreneur?
Sure. So, I went into the fashion industry direct from school. I didn’t go to university. And over a period of time, I bought and sold a number of different businesses. and also went into some other industries such as furnishings and logistics. And I had a bit of a blow-up actually around the time of my 50th birthday. So, I had a furnishing business that failed at the same time. I would say it was a result of Brexit, but actually it’s a result of management decisions taken at a time of financial stress. I shouldn’t try and blame external circumstances. Ultimately I had to take the can, because ultimately I was the guy in charge.
In any event, I remember having a number of difficult funding conversations and sitting on one side of the table and looking longingly at the guys I was negotiating with, thinking, you know what, I’m sitting on the wrong side of the table here. Maybe in my next career I should consider opportunities where I’m on that side of the table and I set up Funding Nav, specifically as an opportunity, as a way for other people to avoid having a lot of the same issues which I’ve had, and also to take advantage of the knowledge which I gained over a 30-year career. And yeah, I haven’t looked back to be honest. It’s gone from strength to strength. We’ve grown a lot. And now we work in a number of different industry verticals offering the kind of support you mentioned in your instruction.
Yeah, it’s, it’s a very interesting angle that you took in this business because most of the time when I see these businesses approach me, they are pushing loans primarily and high interest loans and, you know, the type of laws which can be very uncomfortable to deal with. And I love I love it that I saw in your website that you basically offer an audit for people and then you basically come with suggestions. It’s more of a consulting business on top of the funding business, or maybe it’s a combination of the two. I really like that. So let’s get into your business a little bit later. First, I want to get my favorite subject out of the way, the management blueprint. I love it that you mentioned in our pre-interview that you are using franchising to expand, to grow your business. So, I have two questions about it. The first one is, why franchising? And the second one is how do you know that a business is even suitable for franchising?
So, the first question is why franchising? You say yes. Well why franchising? I grew tired over time of management and specifically dealing with people whose motivation might be different to my own. So, you know, in 40 odd years, or get 40 odd years of my working career, honestly, I’ve had half a day off through sickness, and that’s because I got run over by a car while I was driving on my bike. Literally, I have never taken a day off and I found for when I had Some of my businesses I’d have lots of employees, you know taking days off for sickness was kind of It’s a regular thing It was like almost additional holiday pay and over here, you know sickness is generally paid.
So it’s basically an additional holiday day. And you have to deal with all sorts of petty issues in management, and I just lost patience for it. And that was when I made this change in 2017, I thought to myself, I don’t really want to continue to manage in this way, I’d much rather give people a vision and an opportunity and have them come along for the journey. And I found that franchising was a really, really good way of achieving that. And so it’s proven actually. So to grow a business with a series of similar and parallel business partners is much easier than to try and lead a business from the front with a number of people behind you who are not necessarily pulling at the same speed that you are.So to grow a business with a series of similar and parallel business partners is much easier than to try and lead a business from the front with a number of people behind you who are not necessarily pulling at the same speed that you are. Click To Tweet
Yeah, I love this idea in franchising that you’re essentially tapping into the entrepreneurial energy of your franchisees. And, you know, after we talked, I started reading a book on franchising, and one of the things that I read was this idea that some companies who start franchising, they do both corporate expansion and franchising, and in some territories where corporate expansion would not work because they just couldn’t generate an ROI, a franchisee can create that ROI. I had the client in the past who basically had this figured out, this franchise where he could go into really small towns, like two or three thousand people, and it would even work there. It was like a furniture slash home decoration type franchise. So, I love that idea. So, how do you know that the business is even franchisable?
How do you know a business is franchisable? Well, I guess a business needs to have an operating manual in order to make it franchisable. So, you know, if you can explain to somebody what you’re doing, if you can write it all down and create a blueprint for that business and somebody can follow that blueprint, then it’s franchisable. And I think that that’s most businesses. Most businesses are, you know, unless you’ve got something which is kind of entirely reliant on your ability, unless you’re a performer, for example. I mean, Elton John is not franchisable, because it’s kind of like he’s Elton John, right? But, you know, the theatre where he performs, well, that’s franchisable, because that’s a series of assets and liabilities of business, right? You put it in the right place, you do the marketing, you know, Elton John comes to play your theatre, that can work. So I think that, yeah, most conventional businesses are franchisable, but individuals that have high levels of IP are not.
That’s interesting. So what are the success criteria for a franchise to really work?
What are the success factors?
The success criteria. Well, I think that the more cookie cutter, the best example is Michael Keaton in the film, The Founder, which is kind of, I guess, everybody’s sort of ground zero sort of franchising. Have you seen that film, Steve?
But you’re familiar with the McDonald’s story, right?
So, yeah, it’s the film of the McDonald’s.
Oh, I saw that film, yes. Sorry, I saw that film, absolutely, yes.
Yeah, yeah, the founder. So, you know, it demonstrates how, you know, you’ve got these two guys out in California, they’re smashing it, but they don’t really know what they’re doing or how they’re doing it, but nonetheless, you know, people are traveling for miles to get their burgers. And this guy comes in and he works out what it is they’re doing, how they’re doing it, how to, what the blueprint is. And then he starts franchising it. And then he becomes the founder. Actually, his skill supplants that of the original McDonald’s brothers. And that has been the key to their success moving forward, that and the fact that they worked out they’re often in the property business and not in the burger business. That’s how they really make the money. So I would recommend anybody kind of interested in franchising to watch that movie.It’s a really great film.
Yeah, Ray Kroc is a vicious guy. I remember that scene where he basically, he buys out the McDonald’s Brothers completely and then he demolishes. No, actually, he first sets up a McDonald’s restaurant next to their original shop. They can’t use the name anymore, so they have to call it something else. And then eventually he demolishes, I think he runs it into the ground and buys it and demolishes it.
Yeah, it is a great movie about business ethics, but certainly a great, very entertaining movie anyway. It’s really, really good film. I can watch several times, I think.
Yeah, it shows that it’s not the idea, that it’s the execution that counts. So other than a blueprint, what about branding? Is branding important? Is IP important, intellectual property in franchising? I mean, is it just a blueprint? I create the process and then off I go, or I need more than that?
I can’t think of many successful franchises that don’t have IP. Even though some of the franchises one sees nowadays, they’re not well known. I mean, McDonald’s is obviously a very, very well-known brand, one of the most valuable brands in the world. and you see franchises for garden maintenance, for window cleaning, for dog walking. I mean, it’s like literally everything’s franchised nowadays. Is the branding important for those? Yeah, to an extent, but not to the same extent that it is for McDonald’s. I mean, as they grow, of course it will be. So I think that the IP and the branding becomes increasingly important as the brand grows obviously. At the beginning it’s probably not very important at all.
You also talked about the two types of franchises, you said the blue collar and the white collar franchise. What is the difference between the two and why are they different?
So if you take, I mean, probably one of the biggest white-collar franchises in the world is Action Coach run by a gentleman named Brad Sugars, he’s an Australian chap now, I think he lives in Las Vegas, Nevada. And there is something like, in a way, it’s just 1,000 business coaches that trade under I actually coached Banner across the world, and each of them brings with them their personal experience but then uses a standardized set of tools in order to deliver a coaching or mentoring service. So, if I was an action coach, Steve, and you all were action coach too, and we were delivering those services, there’s no question we would deliver them in a slightly different way, we put our own spin on it. However, if I’ve got my McDonald’s franchise here in London and you’ve got one over there, did you say you’re in Virginia?
In Virginia, yeah.
Yeah, in Virginia, then you can bet your bottom dollar that my Big Macs and your Big Macs are going to be entirely the same. Literally, there will be no difference. My fries are the same as your fries. My Coke is the same as yours. So, there is literally no room for deviation in a franchise like that. You cannot, even if you’ve got the best idea in the world for a burger or an improvement on a big Mac, then you can’t run McDonald’s, you’ve got to do something else entirely, rather like the McDonald’s brothers and Ray Kropp, what we were talking about earlier. Whereas you can’t realistically deliver coaching services or mentoring services from a book. You’ve got to put your own spin on it, otherwise there’s no credibility to it. So they are different, quite a bit different.
Okay, well, I could spend the rest of this podcast and probably two more episodes on this topic, but let’s switch gears here and talk a little bit about funding nav. So tell me how it works. I mean, how did you come up with the idea of not just pushing loans, but actually listening to the customer and figuring out what they need and help them to get some grants and other more economic sources? And how do you make the business model work?
Well, I think it works because we build up credibility with clients over time. It might not be the quickest get-rich scheme ever, because sometimes we walk away from stuff. Sometimes we advise people, now is not a good time for funding for you. I mean, an excellent example of that is a business that we saw two or three years ago that was in the stack business so they were manufacturing chips but not potato chips like chips made out of kale made out of parsnip you know made out of other types of vegetables and they had two distinct distributions for their product. One was low margin, a very big chain of sandwich shops in and around London and the UK, which was low margin, but big volume. And the other was their own brand, which was the smaller part of their business, which was high margin and much lower volume. It’s not an unusual scenario. In any event, their premises were based in North London around 30,000 square foot.
They had great machinery where they were mechanized, highly mechanized, creating these snacks, bagging them, sending them out for distribution. And they were working this machinery 24-7. So literally, they were at maximum efficiency, but they were losing money. And they were losing a negative margin of around about 10%, I think. And when they came to us, they wanted to investment or to borrow money in order to expand the operation, to get past break-even and start making money. But when we looked at it, we suggested to them that actually a much better solution might be just to increase their prices.
We worked out that a 5% increase in price across all of their production would get them into a profitable situation like immediately, and they were very concerned and pre the current economic situation where inflation is kind of baked in, you know, we’re now in a relatively high inflation environment and of course for years prior to that where there was literally no inflation, it’s very difficult for people to increase their prices before now, it’s like a normal thing. So they were very worried that they were going to lose their biggest customer. And ultimately, they did lose their biggest customer as it happens. But they were able to replace that business, but at least initially incrementally and then by creating capacity quite quickly, with much higher margin, better quality business.
And they didn’t need to either dilute themselves or take on additional debt. So, actually we didn’t earn very much from that appointment but now we’re highly trusted and it’s easy for us to go back in there and to you know create other opportunities for them which we might which may well get paid for. So yeah it’s it’s not necessarily accepting the client’s solution, because often they have a free, field-aimed idea about what they think. They know what the problem is, they’ve got no money. They think they know what the solution is, but we find that you really need to tease that out and you need to challenge the client around that, and often their solution is not necessarily the right solution.
I love this idea of this is basically positioning yourselves as a trusted advisor. You come up with solutions, you’re not pushing a certain product that you get a commission for necessarily, but you’re looking at, OK, what’s best for this client? And then you bring your experience of the market and the grants and other funding sources and create a Taylor plan for this client. And even if there’s nothing out there, at least they know that this is not an option. They should waste their time looking for grants because, you know, they have to go for the second best. So I love that thing. So, so, Stephen, we are coming up to the end of this show.
But I really like to ask you before we wrap up about this kind of movement that you started by setting up these, what you call, fuck-up nights in London, which is about failed entrepreneurial ventures. So how did this come about and what kind of audience do you have who is attracted to watch this? I personally, you know, in my experience, early in my career, we had a big failure. We tried to sell a business and we fell flat on our faces. And because my business was new, that was the only story I had. And they invited me to talk to this conference. And I told this, you know, vulnerably shared this story. My client was there as well. And actually, we got a great feedback and I got a couple of clients out of that, that they trusted us for being vulnerable there. So tell me how this come about and who the audience are and what is your goal with this movement that you created?
Okay, so the first thing is I’m not going to be like Ray Kroc and try and take the glory because I didn’t create it. I’ve licensed it. So essentially it’s my kind of franchise. It was actually created by four guys in Mexico City about 10 years ago. It operates in around 300 cities around the world, including the United States and a number of different cities. And yeah, I licensed it for London. We’ve got other parts of the movement that are also in the United Kingdom, but it’s in, I said, 300 cities around the world and it’s exactly that. It’s that when you’re, in generally in business, if you go to like networking events for example, there’s this kind of, everyone’s got a kind of business bullshit suit on. So it’s kind of like, “Hey Steve, what are you doing here?” “I’m really successful at this.” And you’ve got an elevated pitch. Elevated pitch is a minute to basically talk yourself up as much as possible.
But if, you know, once we’ve done our elevator pitches and we’ve had a chat, I mean, maybe we get on quite well, I think we might do, Steve, and we go for a drink afterwards and we know each other and we meet up again. In time, when we really trust each other, maybe I might tell you about some of my failures and you might tell me about some of yours. Maybe you’ll be drunk or something, “You know what, I’ve really fucked up with this,” whatever it is. And then that’s kind of when we really get to know each other and really trust each other. So, the whole purpose of fuck up nights is to do that bit first. It’s like, “You know what, leave all the bullshit. Here are four people that I’m going to present to you, I’m going to talk about their fuck ups” and some of them in horrendous. In the previous meeting, one guy was in prison for six years for frauds, because it was like British version of Jordan Belfort, actually, creating something which was unsustainable.
And in the next one I’ve got, which is next week, I’ve got a woman there who’s running a business in Kherson, Ukraine, up until February last year, until Putin started killing people outside her premises, you know, so literally they had to close down immediately. So yeah, it’s kind of people talking about their failure, whether it was their fault, obviously in this woman’s case, not her fault at all, you know, it’s just a really, really unfortunate set of circumstances, but nonetheless we have to play the hand that we dealt with. And then afterwards, on that basis, I invite people to network, but to network starting talking about your failure. So look, “Turn to the person next to you, tell them what your favorite brand of ice cream is and then just tell them about your biggest fuck-up.” And it’s amazing, we have to kick people out at midnight. Everybody’s talking. It’s like therapy. Everybody loves it. And as you rightly say, people get business out of it as well. People build real relationships and they do business as a result of it. So it’s like, I didn’t invent it. I do love it. And there’s no real money in it for me, but I love doing it. And definitely,I’ve got clients out of it myself.
Yeah, there’s no better teacher than failure, right? That’s that’s the best teacher of all.I mean,
I had the cheapest failure, of course, is the one somebody else did rather than actually doing it yourself. So if you can find out about that and then not do it, right.
I mean, I had my share of failures when I ran my business 10 years ago, I sold it and I never thought that I would actually someday make money out of having failed so many times and having had so many upsets in my business. But I’ve seen written about them in my books. I’ve spoken about it to audiences. I regularly help my clients who are facing similar situations. I tell them, “Hey, this is what happened. This is what I did. This is what I should have done.” And it really helps them connect the dots and and it helps them avoid some of these landmines. So I think it’s a great it’s a great one. I’m going to look into it to see whether there’s anything like that in Virginia and then check it out. So in parting, Stephen, anything else you would like to share with the audience that you feel like it’s important to know about, whether it’s business failure, whether it’s starting a new business, whether it’s going the franchising route. If you have any famous last words, I’d love to have it. I don’t normally ask for this, but in your case, I’d love to have that.
Okay, so I’ll tell you what I’m really thinking about at the moment. And that is that I think that the, sorry, Steve, how old are you?
Okay, I’m 57. I think that the number one business opportunity in the world right now is the baby boomer retirement sale. And we’re seeing businesses, average age of the founders is 62, so slightly older than both you and I. But people not really understanding the value of their equity and what they’ve built up over time in unsexy industries. So we’re seeing food and beverage, hospitality, engineering, construction, people getting tired, getting to the end of their career, not having a second tier of management that they can do some sort of a management buyout for with literally just thinking of closing down. And these businesses, we’re seeing a number of people in the market buying and building as a strategy using leverage finance, often supplied by the vendor. And I’ve seen people build large groups super quickly. And it’s a thing I’m only seeing now in the last year or two. And I would advise all of the people listening to this to think very, very carefully about that as a strategy moving forward for the next five years. So I think it’s going to be super, super powerful.
So it’s kind of a buy and build strategy for marginal companies, or it’s basically cobbling together from marginally profitable companies.
Not marginally profitable. No, no, no, not marginally profitable. So let me give you an example, right? So, I spoke recently to a Scottish guy who I met, who was a truck driver. So, this guy’s got literally no business experience. All his experience is driving a truck. Went through a very difficult divorce and became the sole carer for his young daughter. He went, he kind of read up on this and he did some training in May of 2021. In January of 22, so just over a year ago, he wrote to 1,200 business owners in his industry logistics, trucking, and asking them whether they’d be interested in selling their business. And he got some responses.
He went down and visited one particular one, which is in the British Midlands. It’s around about 300 miles from where he lives. So he went down with a heads of terms already packed because he wasn’t going to go down a second time. The business was, had a revenue of around 10% and so close on a million dollars a year. He offered the guy, or they did a deal at 1.7 million, so 2 million dollars, of which he was able to get the first, say, million dollars out Invoice finance he raised for three hundred thousand dollars. There’s just cash on the businesses own bank account the balance seven hundred thousand was funded by a Deferred consideration so the guy taking get paid over five years having acquired the business he then Paid himself or the business paid him, I think it was 80 or 90,000 pounds deal fee, 80 or 90,000 dollars deal fee. That’s cash that he got for putting no money into the first place.
And also, leased him a brand new Porsche Taycan 4S, which I don’t know what it cost in America, but over here it’s about $150,000. So, he did a deal with no cash down, and wound up with a business turning over close to $10 million a year, a Porsche Taycan and $80,000 in his bank account. He has now gone on to do some further acquisitions. By the end of this year, he reckons he will have a group turning over around about $30 million, with a $3 million profit—most of which, to be fair, now paying off debt and paying off the cost of acquiring in the first place. He’s employed his former boss and his former boss’s boss in this kind of business, and he had no money at the outset. So that’s what I’m saying.
OK, that’s exciting. So maybe that’s another episode of the podcast, but it sounds like it’s similar to a distressed home buying, perhaps, kind of concept. But I love it.
It’s not just stress, it’s that the vendor is highly motivated. They’re going to retire, right? So, they’re kind of like, for them, they can close the business down and walk away from it and liquidate it, or else someone will come in and offer them something for it. So, what’s the maximum they can get? So, it’s not that business is stressed, it’s maybe the owners that have been stressed.
Okay, well, that’s a really great idea and opportunity and I definitely encourage your listeners to check this out. So Stephen, thanks for coming on the show and enjoy the chatting with you and I wish you a great evening in London. you a great evening in London.
Thank you very much Steve.